Bitcoin experienced a significant downturn this week, triggering the largest long liquidation event of 2025 thus far. Here's a breakdown of what happened and what to watch for:

1. The Big Dip and Liquidation Cascade

Bitcoin's price took a sharp dive, falling to around $112,000 after hovering near $118,000 earlier in the week. This decline triggered a massive liquidation of leveraged long positions, with over $1 billion wiped out in just one hour. Some reports indicate total liquidations reached $1.74 billion in 24 hours, with long liquidations accounting for over 95% of that figure. This forced selling created a cascade effect, accelerating Bitcoin's decline as margin calls and liquidations triggered more automatic sell orders.

2. Why the Sudden Drop?

Several factors contributed to this market volatility. Enthusiasm over the Federal Open Market Committee's (FOMC) recent interest rate cut waned as traders evaluated upcoming macroeconomic trends. Investors are now awaiting more concrete cues on the U.S. economy. Remarks from Federal Reserve officials, including Chair Jerome Powell, are being closely monitored for further clarity on the central bank's policy path.

Concerns about inflation and hawkish central bank moves also contributed to the liquidation frenzy, prompting traders to move their capital to safer assets. Furthermore, news of a crypto trading firm, Praetorian Group International, pleading guilty to operating a Ponzi scheme may have also rattled market sentiment.

3. Key Price Levels to Watch

Traders are closely watching key support and resistance levels. Support around $112,000 is critical, while resistance lies between $117,200 and $118,000. Some analysts are warning of a potential bearish leg that could drag Bitcoin down towards the $100,000 zone. A break below $114,000 could trigger further long liquidations. Conversely, a move above $117,000 could lead to short liquidations.

4. The Federal Reserve's Influence

The Federal Reserve remains a central focus for crypto traders. The Fed's preferred inflation gauge, the PCE index, is due this week, and speeches from Fed officials are expected. Market participants are pricing in a high probability of another interest rate cut in the near future, which could provide further fuel to Bitcoin. However, a hawkish tone from the Fed could pressure Bitcoin and other risk assets.

5. Market Sentiment and Future Outlook

Market sentiment is described as "nervously optimistic". Some analysts believe Bitcoin could reach $200,000 before the end of 2025, while others offer more conservative predictions. Bitcoin is expected to continue its bullish trajectory in October 2025, with a forecasted rise of 5–7%, targeting around $122,000. However, geopolitical tensions and macroeconomic instability could create short-term volatility.

Despite the recent pullback, Bitcoin remains up significantly for the year, supported by institutional inflows and optimism around broader adoption. Long-term holders are still in the market, but traders are waiting for a breakout above $124,000 to signal the next leg up.