Latest Crypto News Today: Market Faces Liquidity Squeeze as Leverage Amplifies Volatility

The crypto market kicked off the final week of February under considerable pressure, with Bitcoin and major altcoins extending their downtrend as thin order books and overleveraged positions collided in a volatile trading environment. The overall crypto market capitalization reflected the broader weakness, highlighting how quickly sentiment can shift when underlying market structure becomes fragile.

As of late February, Bitcoin was trading near $65,920, down 0.17% over the previous 24 hours, while the broader market showed signs of stabilization after earlier turbulence. However, recent price action underscores deeper structural vulnerabilities in the market that go beyond simple directional moves. XRP retreated to $1.34 (down 1.68%), while Chainlink declined to $8.61 (off 1.03%), suggesting altcoins remain under pressure even as the acute selling pressure from earlier in the month has begun to ease.

When Market Structure Becomes the Enemy: Liquidity Crises Explained

The root cause of crypto’s recent volatility extends far beyond typical market cyclicality. According to data analysis from The Kobeissi Letter, the severe price swings witnessed earlier this month were fundamentally a liquidity problem rather than news-driven. The firm identified three major liquidation waves that totaled approximately $1.3 billion in just 12 hours, demonstrating how quickly cascading liquidations can destabilize markets.

The mechanics are straightforward but brutal: when order books lack sufficient depth, large sell orders can trigger sudden price gaps. This creates a domino effect where stop-loss orders execute at unfavorable prices, forcing more traders into margin calls. Data from CoinGlass showed that liquidations surged 79% to $520 million over a single 24-hour period earlier in the month, while open interest had climbed 4% to $108 billion—evidence that many traders continued adding leverage precisely when market conditions were deteriorating.

The crypto market’s structural fragility was compounded by macro headwinds. The Federal Reserve’s hawkish signals and a strengthening U.S. dollar reduced appetite for risk assets across all markets. Meanwhile, geopolitical tensions and lingering uncertainty around regulatory frameworks for stablecoins and market structure kept institutional confidence subdued.

Sentiment Swings and Technical Deterioration Raise Red Flags

Market psychology has become increasingly erratic. The Crypto Fear & Greed Index plummeted to 14, signaling extreme fear territory where most participants are expecting further downside. Momentum indicators paint an equally sobering picture, with the relative strength index averaging around 35—well below the 50 level that typically indicates neutral territory.

This psychological fragility reflects how rapidly trader sentiment has been oscillating. Moments of optimism quickly give way to panic selling, creating sharper and more unpredictable price movements than market fundamentals would typically warrant. Technical analysts pointed to stretched conditions below lower Bollinger Bands and weakening long-term momentum, suggesting that Bitcoin’s breakdown below key support levels could pave the way for tests of the mid-$70,000 range or even lower if selling pressure persists.

The pattern resembles previous capitulation events, yet analysis from XWIN Research Japan—a recognized contributor to CryptoQuant—suggests the current dynamic differs from past bear markets. The firm’s Apparent Demand indicator showed net outflows of approximately 19,000 BTC in late January, signaling soft demand and mounting supply pressure. However, the research team noted that selling has been driven primarily by profit-taking rather than panic capitulation.

Looking Ahead: Recovery or Correction Phase?

The crypto market remains at an inflection point, with analysts sharply divided on the correction’s ultimate depth. One camp, including researchers at CryptoQuant and several independent traders, argues that capitulation may not yet be complete and warns of potential weakness ahead. They point to weakening momentum indicators and below-average demand as signs that smart money has already exited.

Conversely, other analysts see early signs of oversold conditions that could soon trigger mean-reversion rallies. They note that February has historically been supportive for Bitcoin price action and argue that a recovery back above $80,000 could reopen the door to broader upside—provided exchange-traded fund flows stabilize and macro conditions improve.

What remains clear is that the current correction reflects a fundamental mismatch between leverage in the system and actual market liquidity. Until traders reduce their exposure and order book depth improves, any bounce will likely face resistance from sellers looking to lighten positions. For those following crypto news today, monitoring changes in liquidation patterns and spot ETF flows may matter more than daily price quotes when assessing where this market cycle ultimately leads.