In August 2025, the Bitcoin market experienced a severe turbulence, with prices falling below the 112,000 USD mark, resulting in over 110,000 liquidations within 24 hours, with a liquidation amount reaching 700 million USD. This event revealed the potential deep liquidity issues in the Bitcoin market.

Despite institutional investors and ETFs continuously injecting funds equivalent to 30,000 Bit each week, the market faces a series of structural challenges. The exchange's Bit inventory continues to decline, the concentration of miners' holdings is increasing, and the proportion of tradable Bit on-chain is less than 25%. These factors collectively exacerbate the market's vulnerability.

The causes of this crisis mainly involve three aspects:

First, there is a significant contraction on the supply side. The total supply of Bitcoin is fixed at 21 million coins, but the hoarding behavior of large holders such as the US government, miners, and ETFs has squeezed the market circulation. It is estimated that the current circulation can only meet 12 months of spot demand. Particularly noteworthy is that miners are increasingly inclined to hold onto their coins rather than sell, and in June 2025, large miners increased their reserves by 4,000 Bitcoins.

Secondly, the demand side shows an imbalanced state. In 2024, the demand for Bitcoin spot surged by 400%, with tech giants like Microsoft entering the market, pushing on-chain transaction volume beyond $125 trillion. However, the decline in retail participation has led to insufficient market depth, with the order book depth of leading exchanges only at $8 million, while the situation is even more severe for small and medium-sized exchanges, making the market susceptible to sudden falls.

Finally, the risk transmission in the derivatives market has exacerbated the issue. The market value ratio of stablecoins to Bit has dropped to 0.18, reaching an 18-month low. The limited issuance of USDT has triggered severe fluctuations in the derivatives market, with the futures basis widening to an annualized 15%, further intensifying market panic.

This crisis has had a multifaceted impact on the market, the most significant of which is the failure of the pricing mechanism. In July 2025, the Network Value to Transaction ratio (NVT) surged by 88.21%, and the Network Value to Metcalfe's index (NVM) rose by 25%, reflecting a serious disconnection between market valuation and actual trading activity.

In the face of this series of challenges, Bitcoin market participants need to reassess their risk management strategies, and regulators may need to consider formulating more comprehensive market rules to ensure the long-term healthy development of the market. At the same time, this also provides the market with an opportunity for reflection and improvement to establish a more robust and sustainable cryptocurrency ecosystem.