Bitcoin may continue to play the role of a "barometer" under the global liquidity cycle in the short term.

Written by: Little Bear Cookie

On May 18, during the early hours of the Asian trading session, the cryptocurrency market experienced an unexpected sharp decline. Bitcoin fell below the $77,000 mark, hitting a low of $76,012, the lowest level since early May. As of the time of writing, Bitcoin was around $76,940, with a 7-day decline close to 6%.

According to Coinglass data, during a brief one-hour crash on Monday morning, up to $600 million in leveraged positions were liquidated in the market.

As of the time of writing, the total amount of liquidations across the network in the past 24 hours was about $855 million, with long positions liquidating as much as $748 million, and the long leverage in the previous derivatives market being ruthlessly wiped out. Ethereum became the hardest hit asset in this wave of liquidations, with liquidation amounts for long positions reaching $329 million on a single day, followed by Bitcoin with $260 million, as nearly 130,000 investors were forcefully liquidated during the decline.

Meanwhile, institutional funds are also withdrawing en masse. In the week ending May 15, the spot Bitcoin ETF saw a net outflow of about $1 billion, ending a previous six-week inflow trend, marking the largest single-week outflow since January of this year. US stock spot ETFs reduced their holdings by around 13,000 Bitcoins, and the Coinbase premium index has remained negative since late April, with the total amount of futures open interest dropping from $64 billion earlier this month to $58 billion.

Even last week, as Wall Street "coin hoarder" MicroStrategy spent $2 billion on a massive acquisition, it did not stop the huge sell-off driven by Middle Eastern geopolitical crises and a global macro liquidity reversal. As of now, the fear and greed index in the crypto market has plummeted to 31, with market sentiment returning to the "fear" zone.

Geopolitical Storm Erupts: Middle East War Clouds and "Hormuz" Game

The immediate trigger for Bitcoin's rapid decline came from the renewed deterioration of the US-Iran situation. On May 15, President Donald Trump revealed to the media that the US and Israel might soon restructure military actions to confront Iran. The tense geopolitical situation instantly shattered the weekend's market calm.

After 9 PM on Sunday, May 17, Bitcoin began to change direction, quickly falling below the $77,000 mark. Although around 9:40 AM on Monday, the market saw a brief "unwinding rebound," pushing the price back above $77,600, it was quickly met with stronger profit-taking and panic selling, which directly caused it to drop to a temporary low of $76,000. In just a few days, Bitcoin's total market capitalization shrank from nearly $1.6 trillion on May 15 to $1.53 trillion.

According to Iranian state media, Iran launched a Bitcoin-driven maritime insurance platform called "Hormuz Safe" in the Strait of Hormuz. This platform allegedly provides fast, cryptographically verifiable shipping insurance for vessels traversing the Persian Gulf and the Strait of Hormuz. Although the Iranian leadership has not formally endorsed this move, it undoubtedly further fueled the hawkish determination of the US to resume bombing actions, raising the geopolitical risk premium.

However, on Monday at noon Eastern Time, Trump posted on Truth Social:

"Emir of Qatar Tamim, Saudi Crown Prince Mohammed bin Salman, and UAE President Mohammed bin Zayed have requested that I postpone the military strike plan against the Islamic Republic of Iran originally scheduled for tomorrow."

This statement narrowed the decline of the NASDAQ index and caused Bitcoin to briefly rebound to around $76,650, but the immense uncertainty of geopolitical factors remains a Damocles sword hanging over the market.

Reversal of Rate Hike Expectations and Bond Market Crash

Renowned cryptocurrency trading firm Wintermute stated in its report on Monday that Bitcoin's current decline is not due to issues within the crypto structure, but rather the result of a deep repricing in the macro backdrop. As oil prices soared again due to the Middle Eastern situation, Brent crude futures prices rose to over $105 per barrel, reigniting global inflationary pressures. The US core CPI for April unexpectedly rose to 2.8% year-on-year, while the overall CPI was pushed up to 3.8% by rising energy prices.

This directly led to a "hawkish reversal" in monetary policy expectations from major central banks worldwide:

Reversal of Rate Expectations

Just a month ago, the market was eagerly discussing how many times the Federal Reserve would cut rates in 2026; now, traders are frantically pricing in "rate hikes." CME FedWatch data shows that interest rate traders have estimated a 40% probability that the Fed will raise rates by 25 basis points by the end of this year, a 9% chance for a 50 basis point hike, and even a 1% chance for a 75 basis point hike. Wintermute pointed out, "It took just 5 trading days for rate pricing to complete a complete reversal from expected cuts to possible hikes."

"Crash" in the Bond Market

Amidst a backdrop of rampant selling in global sovereign bonds, the yield on the 30-year US Treasury surged to 5.14%, reaching the highest level since July 2007; the 10-year Treasury yield broke 4.5%. What is even more alarming is that this is not just a phenomenon in the US—Japan's 30-year Treasury yield has historically surpassed 4% for the first time, and UK long-term bond yields have climbed to their highest level in 28 years. The "global resonance" of Treasury yields is systematically suppressing the valuations of all risk assets, and the surge significantly increases the opportunity cost of holding "interest-free assets" like Bitcoin. When investors can obtain over 5% returns in dollars without risk, their willingness to allocate to high-risk, high-volatility assets will naturally diminish significantly.

What Does the Future Hold?

From a technical perspective, Kitco analyst Aaron Dishner warned on May 14 that Bitcoin had already shown a second bearish divergence signal and had broken below the short-term support level of $79,181. According to the volatility forecast for May (-31%), this pattern points toward a potential drop to $56,000 by the end of the month. In this case, if Bitcoin closes below $60,000 in May, the outlook for June is likely to be grim.

As of today’s actual movements, Bitcoin has dropped to $76,900, far below the key support at $79,181, indicating that the technical risks seem to be gradually becoming evident.

Despite the dark clouds in the short term, most large compliant crypto institutions remain cautiously optimistic about the medium to long-term trend.

Wintermute mentioned in its Monday briefing that from a fundamental perspective, Bitcoin inventories on major exchanges are still at historical low levels over the years, and long-term holders (LTH) continue to accumulate assets during dips. Furthermore, Washington's continued push for crypto compliance legislation like the "CLARITY Act" will structurally provide long-term institutional benefits for the industry.

As for whether Bitcoin can organize an effective rebound in the short term, Diego Martin, CEO of Yellow Capital, believes that those who tie the bell must also untie it; the market may need to focus more on macro liquidity indicators rather than news within the crypto industry.

"The market has become numb to the various narratives and news within the industry," Martin stated, "the current core unknown is whether macro conditions still allow traders to keep risk assets on their balance sheets. If future oil prices can recede, US Treasury yields peak and fall back, and dollar liquidity improves, then even without any industry catalysts, Bitcoin could quickly recoup lost ground." Conversely, if high oil prices continue to force the Fed to maintain high rates, then even with more favorable on-chain news, Bitcoin may continue to play the role of a "barometer" under the global liquidity cycle in the short term.