Bitcoin Price: Is the US Government to Blame for the Crash? $1.6B Liquidation Sparks Panic

The cryptocurrency market was rocked this week by a dramatic sell-off, resulting in over $1.6 billion (£1.2 billion) in long positions being liquidated within 24 hours.

Bitcoin, which had recently surged past $124,000 (approx. £92,650), plunged to nearly $112,000 (approx. £83,680), triggering widespread panic and renewed scrutiny of macroeconomic forces, particularly the role of the US government in destabilising digital assets.

The sell-off, one of the largest in cryptocurrency history, rattled markets and raised fresh concerns over whether the US government's fiscal manoeuvres are amplifying volatility in digital assets.

A Historic Liquidation Event

On 22 September 2025, crypto markets experienced one of the largest single-day liquidation events in history. According to CoinGlass data, nearly $1.7 billion (£1.27 billion) in leveraged positions were forcibly closed, with $1.615 billion (£1.21 billion) coming from long holdings. Ethereum led the losses with $483 million (approx. £361 million) liquidated, followed by Bitcoin at $276 million (approx. £206 million).

The rapid unwinding of positions affected over 400,000 traders, with the largest single liquidation order—a BTC-USDT swap—valued at $12.74 million (£9.52 million) on the OKX exchange. The total market capitalisation of crypto assets fell by as much as $151 billion (approx. £113 billion) in a single day, pushing the sector below the $4 trillion (£2.99 trillion) mark.

Triple Witching and Leverage Risks

Several factors converged to create this perfect storm. Chief among them was the 'Triple Witching' expiry of crypto options, with over $17.5 billion (£13.06 billion) in Bitcoin contracts and $5.5 billion (£4.11 billion) in Ethereum options maturing simultaneously. Combined with high leverage and low liquidity, this expiry event triggered a cascade of sell-offs that amplified the downturn.

The episode highlights the inherent volatility of the cryptocurrency market and the risks associated with speculative trading. Analysts warn that the widespread use of leverage has made digital assets increasingly vulnerable to sudden shifts in sentiment and macroeconomic pressure.

The Treasury Drain: A Quiet Liquidity Squeeze

While technical factors played a role, many investors are pointing fingers at the US government's fiscal manoeuvres. BitMEX co-founder Arthur Hayes has argued that the US Treasury's effort to refill its General Account (TGA), essentially the government's bank account with the Federal Reserve, is draining liquidity from financial markets.

'With this liquidity drain complete, up only can resume,' wrote Arthur Hayes on Friday, as the US Treasury General Account (TGA) balance surpassed $807 billion (approx. £603 billion). When the Treasury replenishes its TGA, the funds are typically sequestered within the Federal Reserve and withheld from private markets—effectively tightening liquidity across the financial system.

To reach its target of $850 billion, the Treasury has been offloading billions of dollars in Treasury bills and bonds, removing cash from the system that might otherwise flow into equities and cryptocurrencies. Hayes believes that once the TGA is refilled, markets could enter an 'up only' phase, though others remain sceptical about whether new liquidity will materialise.

Rate Cuts and Risk Sentiment

The Federal Reserve's recent rate cut on 17 September initially sparked optimism, but recession fears and weak global data quickly reversed sentiment. Analysts now predict a second rate cut in October, which could revive risk appetite and stabilise crypto markets.

Historically, October has been a bullish month for Bitcoin, with ten out of the past twelve Octobers seeing positive returns. The hope is that 'Redtember' will give way to 'Uptober,' as investors recalibrate their positions and macro conditions improve.

Political Winds and Regulatory Shifts

Adding to the uncertainty is the evolving stance of the US government on crypto regulation. President Donald Trump has expressed support for digital assets, and recent rule changes by the Securities and Exchange Commission (SEC) could open the floodgates for new crypto exchange-traded funds (ETFs). The SEC voted to allow national securities exchanges to adopt generic listing standards for crypto ETFs, which could significantly boost institutional adoption.

However, critics argue that regulatory ambiguity and fiscal tightening are creating a hostile environment for crypto investors. The combination of liquidity withdrawal, leveraged trading, and policy uncertainty has made the market increasingly fragile.