A sharp sell-off in Bitcoin and the wider crypto market has erased weeks of gains, with analysts pointing to a deepening DeFi liquidity crunch and renewed macroeconomic jitters as the key triggers.
Bitcoin dipped under the $104,000 mark early Tuesday, its lowest level since June, extending a two-day slide that has shaved more than 17% off its value since the start of October. According to CoinGecko, the world’s largest cryptocurrency was trading at $103,849, down 3.2% on the day.
The retreat has sent shockwaves across the digital asset space, dragging major altcoins with it, Ethereum, BNB, XRP, and Solana all tumbled between 5% and 9% in 24 hours. Total market liquidations surged past $1.3 billion, data from CoinGlass shows, as overleveraged traders were forced to unwind positions.
DeFi Contagion Fuels Market Panic
The latest downturn has its roots in the decentralized finance sector. On Monday, Stream Finance disclosed losses of around $93 million in fund assets following a failed investment by an external manager. According to Derek Lim, Head of Research at Caladan, this event has intensified “contagion fears spreading through DeFi,” with total bad debt across lending markets now estimated at $284 million.
“Confidence was already fragile after the Balancer exploit and last month’s large-scale liquidations,” Lim said. “The Stream incident just accelerated an existing risk-off wave in a market still loaded with leverage.”
Multiple stablecoins and yield vaults are reportedly facing redemptions as investors scramble for liquidity. Stream Finance has since engaged law firm Perkins Coie LLP to conduct a full investigation into the losses.
Macro Pressure Adds to the Sell-Off
Beyond DeFi’s internal turmoil, the broader economic backdrop is amplifying the slide. Analysts cite weaker U.S. jobs data, renewed government shutdown risks, and a more hawkish Federal Reserve stance as key macro stressors weighing on risk assets.
“Traditional and crypto markets are both in de-risking mode,” said Ryan Lee, Chief Analyst at Bitget. “Traders are cutting exposure to leverage amid uncertainty about global liquidity and rates.”
Indeed, sentiment metrics suggest investors are turning cautious. Futures premiums on major exchanges have fallen sharply, from around 7% last week to below 4%, signaling lower appetite for bullish positions. Data from prediction market Myriad shows that the proportion of traders expecting Bitcoin to drop to $100,000 rose to 71%, up from 44% just two days earlier.
A Reset Before Recovery?
Despite the turbulence, some analysts believe the shakeout could prove constructive in the long term. “This kind of leverage flush often clears excesses and allows for healthier accumulation,” Lee added. “Once liquidity conditions and sentiment stabilize, it could set the stage for a more sustainable recovery.”
For now, volatility looks set to remain high as investors weigh two unresolved risks, whether the DeFi contagion can be contained and whether the macroeconomic picture will worsen before it improves.
