Bitcoin’s 50% Drawdown: Bear Market Signal or a Liquidity Rotation?

Forget the label for a moment. Bitcoin just endured a liquidity shock, and the next leg hinges on where that liquidity migrates.

Between Feb. 4–5, Bitcoin recorded one of its sharpest stretches in over three years, tumbling roughly 14% in a single day—its largest daily decline since a 14.19% drop on Nov. 9, 2022. Price slid from around $73,100 to a low near $60,255 by Thursday evening, extending the drawdown to more than 50% from the October 2025 all-time high of $126,080. More than $1.4 billion in positions were liquidated across 24 hours as leverage reset. After the flush, Bitcoin clawed back some ground, still down over 10% on the day around $64,400.

By headline measures, that’s a bear-market print. Equities and risk assets often tag a bear after a 20%+ drawdown sustained over time, and crypto currently exceeds those thresholds amid persistent risk-off sentiment. The debate isn’t whether price meets the textbook definition—it does—but whether the market is transitioning into a prolonged “winter” or experiencing a liquidity rotation that could revert.

Here’s the fulcrum: the destination of exiting capital. One researcher argued the recent tape looks erratic—almost mechanical—and warned that capital leaving crypto now has a high chance of flowing to equities or commodities rather than circling back quickly. If that migration sticks, crypto’s beta can lag even if broader risk rallies. Another view, from a major trading firm’s research lead, is that while a four-year cycle has often appeared, it looks more self-fulfilling than fundamental; with improving fundamentals, he doesn’t expect an extended winter and even sees the cycle construct fading.

Those perspectives rhyme with what we’re seeing on-chain and in derivatives: structural leverage unwinds can create outsized, inorganic candles that distort signal in the short run. When forced sellers hit thin books, the move feels “artificial,” and it frequently sets the stage for a technical rebound as positioning stabilizes. Several analysts still flag deteriorating momentum and macro pressure that could pull BTC toward lower support zones, with $38,000 cited as a potential downside target if selling accelerates.

The stress map is straightforward: - Miners and corporate treasuries sit in the crosshairs. Lower prices compress margins and stress balance sheets, raising the probability of capitulation, consolidation, or forced selling—each reflexively adds supply to a weak tape. - Duration versus depth matters. As one analyst noted, the distinction between a true bear market and a sharp drawdown is how long recovery takes, not just how far it falls. - Macro remains the metronome. As long as broader tech and software leadership guides global liquidity, crypto’s path will stay tethered to cross-asset risk appetite.

My read: this is a liquidity regime question, not a morality tale about cycles. If outflows rotate to equities/commodities and stick, crypto can grind lower even after a bounce. If capital re-engages—through spot demand or fresh risk budgets—price can recover faster than the “bear” label implies. Psychologically, investors who believe in a fixed four-year cadence may behave in ways that reinforce it, but that reflexivity can break when participants modernize their playbooks and capital sources diversify.

What I’m watching next: - Are we seeing evidence of short-covering and reduced open interest that clears the runway for a bounce? - Do miners raise cash via hedges or asset sales, or do they secure financing that extends runway? - Are treasuries de-risking into strength, or signaling conviction holds? - Does broader risk sentiment stabilize, allowing liquidity to rotate back into crypto rather than away from it?

On pure price action, you can call it a bear market. Functionally, it becomes a true winter only if liquidity that left doesn’t return. Given the mechanical nature of the flush and unchanged long-term fundamentals cited by several analysts, a meaningful short-term technical rebound remains on the table—even if the path to new highs requires time, patience, and cleaner balance sheets.