Why Bitcoin Dropped from $126K to $77K — And What Comes Next
Bitcoin lost nearly 40% from its October 2025 all-time high. Here's a full breakdown of what happened, why it happened, and what traders should watch now.
On October 6, 2025, Bitcoin hit $126,272 — an all-time high. Four months later, it's trading below $78,000. That's a 39% drawdown.
No single event caused this. It was a chain reaction — tariff shocks, leverage blowups, institutional exits, hawkish Fed policy, and geopolitical uncertainty all compounding on each other over several months.
Here's exactly what happened, phase by phase.
Phase 1: The All-Time High (July — October 2025)
Bitcoin's run to $126K didn't come out of nowhere. It was the result of several tailwinds stacking up:
- Fed rate cuts — The Federal Reserve cut rates by 25 basis points in both September and October, flooding markets with optimism.
- Pro-crypto regulation — SEC Chairman Paul Atkins, confirmed in April, reversed years of hostile crypto policy. Lawsuits against crypto projects were dropped. The GENIUS Act passed. A strategic Bitcoin reserve was announced.
- Institutional demand — Spot Bitcoin ETFs were absorbing billions in inflows. The first week of October alone saw $3.24 billion flow in.
- Leverage building — Confidence was high. Traders were borrowing heavily to go long, pushing open interest to record levels.
Bitcoin broke $120K in July, $124K in August, and peaked at $126,272 on October 6.
Everything looked bulletproof. It wasn't.
Phase 2: The Tariff Shock (October 10)
At 4:50 PM on October 10, Trump announced a 100% tariff increase on Chinese imports — retaliation for China restricting rare earth mineral exports.
The timing was devastating. US equity markets had already closed. Crypto, trading 24/7, absorbed the full blow.
Within hours:
- Bitcoin fell from $122,500 to $104,600
- Ethereum dropped 21%
- Dogecoin crashed over 50%
- Trump's own $TRUMP token fell 63%
- 1.66 million traders were liquidated — $19.3 billion wiped in the largest single-day crypto liquidation in history
The damage went beyond price. Those same spot Bitcoin ETFs that had been buying billions suddenly became sources of aggressive selling. Institutional confidence broke.
The Leverage Problem
"Friday's move was a textbook example of how leverage can amplify short-term volatility in a 24/7 market. As prices started falling, margin calls and forced liquidations cascaded across venues." — Samir Kerbage, CIO at Hashdex
Trump eventually backed down from the tariff threat. Stock markets recovered. Crypto did not.
Phase 3: The Grind Down (November 2025)
After the October flash crash, Bitcoin never reclaimed its highs. Instead, it entered a slow, grinding decline through November.
What drove the selling:
1. AI bubble fears spilled into crypto
Michael Burry disclosed $187.6 million in Nvidia puts and $912 million in short positions against Palantir. The AI trade — which had been propping up the entire tech sector — started to unravel. Bitcoin, now highly correlated with tech stocks, got dragged down.
Deutsche Bank analysts noted: "The average daily correlation between Bitcoin and the Nasdaq 100 in 2025 YTD is 46%, and the correlation with the S&P 500 has risen to 42%."
Bitcoin was behaving like a high-growth tech stock, not a hedge against it.
2. The Fed killed rate cut expectations
Investors had been counting on more cuts. Then rate cut odds for December collapsed from 97% to 52% after hawkish signals from Fed Chair Powell and Governor Lisa Cook.
That shift alone triggered over $1.3 billion in forced liquidations.
3. Whale selling accelerated
Analysis showed the October crash wasn't driven by retail or overleveraged longs — it was whales who had bought near $126K and panic-sold on the way down. This selling continued through November.
By November 22, Bitcoin hit $80,700 — a 36% decline from the October peak.
Phase 4: December Capitulation
December brought no relief. Bitcoin fell another 9% as volatility spiked to its highest levels since April.
Key events:
- BOJ rate hike signals — The Bank of Japan hinted at tightening, triggering a global risk-off move. Bitcoin plunged 5% in hours, briefly dropping below $86,000. Over $700 million in leveraged positions were liquidated.
- Tax-loss selling — Year-end selling pressure accelerated as traders locked in losses for tax purposes. Miners also consistently moved coins to exchanges, adding structural sell pressure.
- ETF outflows continued — The funds that had been Bitcoin's strongest demand source turned into a persistent headwind.
Bitcoin ended 2025 at roughly $87,000 — down 4% for the year despite hitting an all-time high just three months earlier.
Phase 5: January 2026 — Below $80K
The new year brought Bitcoin's fourth consecutive monthly decline — the longest losing streak since 2018.
What pushed it below $80K:
1. Geopolitical escalation
An explosion at Iran's Bandar Abbas port and reports of Trump threatening Iran with strikes sent investors fleeing from risk assets. A brief US government shutdown added to the uncertainty.
2. Kevin Warsh nominated to replace Powell
Trump nominated inflation hawk Kevin Warsh as the next Fed Chair. Markets interpreted this as bearish — a signal that rates would stay higher for longer. Bitcoin dropped to $82,000 on the announcement.
3. Massive ETF outflows
On January 29 alone, spot Bitcoin ETFs saw $818 million in net outflows — the largest single day since November 2025. The month recorded $1.61 billion in total outflows.
4. Technical breakdown
Bitcoin fell below its 100-week simple moving average (~$85,000), a level that had held for two months. The break triggered cascading stop-losses and programmatic selling, pushing price to $77,994.
The Big Picture: What This Crash Tells Us
This wasn't one crash. It was a sequence of shocks, each one eroding a different layer of support:
| Phase | Event | BTC Price |
|---|---|---|
| October 6 | All-time high | $126,272 |
| October 10 | Trump tariff shock | $104,600 |
| November 22 | Grind down + Fed hawkishness | $80,700 |
| December | BOJ shock + tax selling | $87,000 |
| January 31 | Iran + ETF outflows | $77,994 |
A few structural observations:
- Leverage is crypto's biggest amplifier — Every shock was magnified by forced liquidations. The October event alone wiped $19.3B.
- ETFs cut both ways — Institutional flows helped push Bitcoin to $126K. They also accelerated the decline when sentiment flipped.
- Correlation with equities is real — Bitcoin can't claim to be an uncorrelated hedge when it's moving with the Nasdaq 46% of the time.
- Macro dominates everything — Fed policy, tariffs, and geopolitical events drove every major move. On-chain fundamentals barely mattered.
What To Watch Next
Downside risks:
- $75,000 is the next major support — the April 2025 low where buyers previously stepped in.
- If that fails, the 200-week moving average near $58,000 becomes the target.
Upside signals:
- A sustained move above $95,000 would be needed to restore bullish momentum.
- Any pivot in Fed policy (rate cuts, dovish guidance) would immediately change the picture.
- Resolution of US-China trade tensions would remove the macro overhang.
Metrics to monitor:
- ETF flows — Are institutions buying or selling? This is now the single most important demand indicator.
- Open interest — High leverage = fragile market. Low leverage = healthier base.
- Correlation with Nasdaq — If Bitcoin re-decouples from tech, it strengthens the "digital gold" thesis.
Track it in real-time
Use Flicker to monitor your positions, set alerts on key levels, and track portfolio PnL across exchanges — so you're never caught off guard by the next move.
Historical Context: This Has Happened Before
A 39% drawdown sounds brutal. In context, it's standard for Bitcoin:
- 2021: Bitcoin fell 53% from $64K to $30K before rallying to $69K
- 2022: An 77% crash from $69K to $15.5K
- 2024: A 33% correction from $73K to $49K before rallying to $100K+
- 2025: A 31.7% decline from January to April before the run to $126K
As CoinDesk analyst Jacob Joseph noted: "Looking at previous cycles, volatility of this magnitude appears consistent with long-term trends."
The question isn't whether Bitcoin recovers. It's when, from what level, and what the catalyst will be.
This article is for informational purposes only and does not constitute financial advice. Cryptocurrency trading carries significant risk. Always do your own research and never invest more than you can afford to lose.
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