Why did Bitcoin rebound after a drop of over 50%?

Article: Researcher Cheng Mengqi

Editor: Yang Xiuhong

Bitcoin is staging a long-awaited strong comeback.

As of August 21, at the time of writing, the price of Bitcoin has surpassed the $78,000 mark, with a 24-hour increase of over 9%. The cumulative increase over the last three trading days has exceeded 20%, setting a new price high since May 27.

In the last 24 hours, other cryptocurrencies have also surged, with Dogecoin rising over 10% and Ethereum increasing by 7%. In pre-market trading, cryptocurrency-related stocks have risen, with Strategy up over 6% and Coinbase and Circle up over 4%. According to Coinglass data, over 160,000 people globally have been liquidated in the last 24 hours, with a total liquidation amount of $1.321 billion, of which the liquidation amount for short positions reached $1.149 billion.

However, just two months ago, the crypto market was deep in winter. After reaching a historical high of $126,000 in October 2025, Bitcoin entered a downward channel for six months. Macroeconomic uncertainties, the chain reaction of deleveraging triggered by tariff disputes, and a series of liquidations of speculative positions pushed Bitcoin's price lower step by step. The lowest point of this decline occurred in early July 2026, when Bitcoin briefly fell below the $60,000 mark, dipping to around $57,000, marking a new low since 2025. From the historical high, the maximum drop was about 54%, and market panic reached its peak, with many investors stating that the "bull market is dead," and on-chain activity also fell to a freezing point.

Just as the market was on the brink of despair, a piece of news from the traditional financial sector quietly changed the virtual asset market. On August 19, the U.S. Treasury announced that it would increase the upper limit of long-term Treasury bond repurchases from $2 billion to at least $4 billion to alleviate liquidity pressure caused by the continued rise in long-term interest rates. This move directly pushed the 30-year Treasury yield down from a nearly 20-year high, signaling improved liquidity for risk assets. Sensing the change in direction, bullish forces began to gather, and from August 19, Bitcoin rapidly surged from the $64,000 range in just three trading days, continuously breaking through key moving average resistance, reaching a high of over $78,000, with a rebound of over 21%.

Industry insiders believe this is both a technical rebound amplified by extreme position structures and a valuation repair brought about by a shift in macro expectations.

Multiple Positive Factors Triggering the Rebound

"This is not just a simple news-driven market; it is a long-planned short squeeze," said Sun Wei, a senior researcher at HashKey Group, to Caijing. During the past few months of volatility, the market accumulated a massive amount of leveraged short positions. When the price moved above $65,000, the short squeeze became very apparent. Coincidentally, the U.S. Treasury recently announced the expansion of long-term Treasury bond repurchases, alleviating the upward pressure on long-term interest rates, while U.S. President Trump once again released policy signals supporting the crypto industry at a technology leaders' conference. Coupled with the SEC's introduction of new regulatory exemptions, multiple positive factors were concentrated and directly triggered panic short covering.

Derivatives market data supports this view. A report provided by New Fire Research Institute shows that on August 19, the scale of short liquidations in the derivatives market exceeded $1.3 billion. This positive feedback mechanism of "forced liquidation - price surge - more liquidations" quickly pushed Bitcoin's price above $70,000.

Tracing back, this round of continuous short liquidations did not happen out of nowhere. New Fire Research Institute stated that signs of the short squeeze had already appeared in the spot market before the outbreak. On-chain data shows that some institutional funds with backgrounds in listed companies and from crypto bigwigs were intensively bottom-fishing in the $60,000 key price range. Meanwhile, New Fire Group's over-the-counter business saw a significant month-on-month increase of 257% in total trading volume in July. Data from both on-chain and over-the-counter dimensions indicate that institutional funds' willingness to deposit in the spot market had significantly increased before this round of surge, laying a solid foundation for the subsequent price explosion.

Regarding market structure and external environment, Sun Wei commented: "As long as the external macro does not worsen, the pressure for a rapid decline below $80,000 is relatively limited. The previous adjustment has absorbed a large amount of speculative funds and high-leverage positions, combined with improved liquidity expectations, the resistance for price to move upward is relatively limited."

Institutions Debate Bitcoin's Trend

Despite the rapid rebound, there are still divergences in the market regarding the future trend of Bitcoin.

Yili Hua, founder of Liquid Capital, stated on social media that with Bitcoin's strong daily breakout above the 120-day and 200-day moving averages and standing above the 20-week moving average on a weekly basis, the bear market trend has officially ended. He believes that Bitcoin's drop from $126,000 to $57,000 over the past year has formed a cyclical low, making it difficult for the market to see a price of $50,000 again. However, he also warned that while the market looks bullish in the next two weeks, there may still be a pullback after rising to a certain level, suggesting that leveraged investors reduce their long positions and refer to the pullback magnitude during the 2023 upward cycle.

Sun Wei, on the other hand, holds a relatively cautious attitude, believing that the resistance level around $75,000 to $80,000 will be key for this rebound. The current evidence is insufficient to prove a trend reversal, and the trading volume of this rebound has not significantly increased. With the momentum for further upward movement and positive stimuli gradually weakening, a second retest cannot be ruled out. However, it is worth being optimistic that even if there is a second retest, the bottom will be higher than before.

New Fire Research Institute holds a similar view in its report, stating that the crypto market is still in a "high cost-performance range" and is gradually moving away from being purely narrative-driven to a stage where rules and liquidity jointly dominate. Their team has been continuously indicating that the market has entered a high cost-performance range since mid-May and reaffirmed this judgment around $63,000 in early July. Additionally, the combination signals of crypto bigwigs bottom-fishing and explosive trading volume confirm that the market is accelerating its structural switch from panic selling to long-term capital accumulation.

In the long run, asset management giant BlackRock reiterated Bitcoin's allocation value in its latest report. BlackRock believes that the current over 50% correction in Bitcoin (from $126,000 to $57,000) is mainly caused by deleveraging in the cryptocurrency market and changes in capital flows, and does not indicate that the long-term investment logic has been disrupted. Its updated 10-year analysis points out that in a traditional portfolio of 60% stocks and 40% bonds, if 1%-2% of the stock portion is allocated to Bitcoin, it can improve returns while roughly maintaining risk. Meanwhile, against the backdrop of increasing government debt and ongoing fiscal deficits, Bitcoin, as an emerging global currency alternative, may hedge against the risk of fiat currency depreciation.

Geoff Kendrick, head of digital asset research at Standard Chartered Bank, is even more optimistic, predicting that Bitcoin is expected to rise to $100,000 by the end of 2026, emphasizing that the U.S. Treasury's liquidity injection measures are "the news Bitcoin loves the most." In his view, Bitcoin, with its fixed supply, is naturally a beneficiary of the era of monetary easing, and right now, the tide of liquidity is just beginning to rise.