Bitcoin Breaks Below $87K As Political Risk Spikes – Liquidations Reveal The Real Driver

Overview

Bitcoin has recently broken below the $87,000 threshold, putting it in a precarious position as the market faces increasing political risks. This decline is not solely a technical movement; it reflects broader macroeconomic uncertainties that have intensified sell-side pressure and led to significant liquidations in the market.

Market Reaction to Political Instability

The recent drop in Bitcoin’s price can be attributed to rising political instability in the United States. The likelihood of a new government shutdown has increased, with prediction markets estimating a roughly 78% probability of this occurring. This situation has generated a risk-off sentiment among traders, leading to defensive positioning in the market.

As a result, Bitcoin fell below the $87,000 mark, triggering a rapid liquidation cascade. Approximately $170 million in leveraged long positions were liquidated within a short time frame, contributing to a total of around $320 million in long liquidations over the next several hours. This rapid decline also resulted in the loss of nearly $40 billion in total crypto market value, emphasizing the volatility that can emerge when liquidity is low.

The nature of these movements suggests that the latest price action was primarily driven by a deleveraging event in the derivatives market, rather than a widespread capitulation among spot traders. This distinction is crucial, as it indicates that the market’s next phase will depend on the fading of forced selling and the return of genuine demand at these price levels.

Liquidations and Open Interest Analysis

According to a report from XWIN Research Japan, the recent decline in Bitcoin’s price was likely exacerbated by a wave of forced liquidations in the derivatives market. Liquidations occur when futures positions fall below their maintenance margins and are automatically closed by exchanges to mitigate further losses. A significant amount of risk was concentrated in leveraged long positions, which are frequently utilized by short-term traders, as well as those engaged in hedging and arbitrage.

Many of these long positions had been predicated on an anticipated uptrend in 2026, making the market particularly susceptible to declines once Bitcoin slipped below key support levels. As the price continued to drop, liquidation orders began to flood the market, intensifying the downward movement in a thin liquidity environment.

To evaluate whether this price movement represents a structural shift or merely a leverage reset, analysts look at Open Interest (OI), which measures the total size of outstanding futures contracts. A decline in OI alongside falling prices typically indicates that liquidations and position unwinds are driving the market, rather than a sudden change in market fundamentals. Currently, aggregate OI is estimated at around $28.4 billion, significantly lower than the peak of approximately $47 billion seen in late 2025. While OI has stabilized and shown slight recovery in early 2026, it leaves room for volatility during corrections.

From Author

The current situation in the Bitcoin market underscores the intricate relationship between political developments and market dynamics. As traders navigate these waters, the focus will be on whether demand can absorb the selling pressure and if leverage can normalize, paving the way for renewed momentum.

Impact on the crypto market

• Bitcoin’s price drop highlights the sensitivity of cryptocurrency markets to political events.
• Significant liquidations indicate a high level of leverage among traders, which can exacerbate price movements.
• The loss of market value illustrates the volatility present in thin liquidity conditions.
• A potential shift in demand dynamics will be crucial for determining Bitcoin’s future price trajectory.
• The stabilization of Open Interest may signal a return to more balanced market conditions if selling pressure subsides.