Article: Economist Researcher Cheng Mengqi

Editor: Yang Xiuhong

Bitcoin is staging a long-awaited strong counterattack.

As of August 21, at the time of publication, the price of Bitcoin broke the $78,000 mark, with a rise of over 9% within 24 hours. Over the last three trading days, the cumulative increase has exceeded 20%, setting a new price high since May 27.

In the past 24 hours, other virtual currencies have also seen significant increases, with Dogecoin rising over 10% and Ethereum increasing by 7%. In pre-market trading of U.S. stocks, cryptocurrency-related stocks rose, with Strategy increasing by over 6% and Coinbase and Circle each climbing over 4%. According to Coinglass data, in the last 24 hours, over 160,000 people globally experienced liquidation, with a total liquidation amount of $1.321 billion, of which the short liquidations accounted for $1.149 billion.

However, just two months ago, the crypto market was still mired in a harsh winter. After reaching a historic high of $126,000 in October 2025, Bitcoin entered a prolonged downward channel for half a year. Macroeconomic uncertainties, a chain reaction of deleveraging triggered by tariff disputes, and a series of liquidation of speculative positions have gradually pushed Bitcoin's price lower. The lowest point in this downturn occurred in early July 2026, when Bitcoin briefly fell below the $60,000 mark, hitting a low close to $57,000, marking a new low since 2025. From the historical high, the maximum drop was around 54%, and market panic reached its peak, with many investors claiming that the "bull market is dead," and on-chain activity had frozen.

Just as the market was on the brink of despair, a piece of news from traditional finance quietly changed the virtual asset market. On August 19, the U.S. Treasury announced it would raise the cap on the scale of long-term Treasury bond repurchases from $2 billion to at least $4 billion to alleviate liquidity pressures from the ongoing rise in long-term interest rates. This move directly pushed the yield on 30-year Treasuries down from a nearly 20-year high, releasing signals of improved liquidity to risk assets. Sensing the change in direction, bullish forces began to gather, and from August 19 onward, Bitcoin rapidly surged from the $64,000 range in just three trading days, breaking through key moving average resistances, reaching above $78,000, with a rebound of over 21%.

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

Multiple Positive Factors Triggering the Rebound

"This is not a simple news-driven market; it is a well-planned short squeeze," said Sun Wei, a senior researcher at HashKey Group, to Caijing. During the market's fluctuations over the past months, the market accumulated a large amount of leveraged short positions. When prices moved above $65,000, it was evident that shorts were crowded. At the same time, the U.S. Treasury’s announcement to expand long-term Treasury bond repurchases alleviated the upward pressure on long-term interest rates, while U.S. President Trump reiterated supportive policy signals for the crypto industry at a technology leaders' conference. With the SEC (U.S. Securities and Exchange Commission) introducing new regulatory exemption measures, the concentration of positive factors directly triggered panic short covering.

Derivatives market data supports this view, with a report from New Fire Research Institute showing 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 persistent short liquidations did not happen out of nowhere. New Fire Research Institute indicates that before the squeeze, signs had already appeared in the spot market. On-chain data shows that some institutional funds with backgrounds from listed companies and prominent figures in the crypto world had densely accumulated at the critical price range of $60,000. Meanwhile, New Fire Group's over-the-counter business saw a significant monthly trading volume increase of 257% in July compared to June. The data from both the on-chain and over-the-counter dimensions indicates that the willingness of institutional funds to enter the spot market had already significantly increased prior to this surge, laying a solid foundation for subsequent price explosions.

Regarding market structure and the external environment, Sun Wei commented: "As long as the external macro environment does not deteriorate, the pressure for a rapid decline below $80,000 is relatively small. The previous adjustments have absorbed a large amount of speculative funds and high-leverage positions, and with improved liquidity expectations, upward resistance on prices is relatively limited."

Institutions Debate Bitcoin Trends

Despite the rapid rebound, the market is still divided on Bitcoin's future evolution trend.

Yi Lihua, founder of Liquid Capital, stated on social media that with Bitcoin's daily strong breakout above the 120-day and 200-day moving averages, and its weekly standing above the 20-week moving average, the bear market trend has officially ended. He believes that Bitcoin's drop from a high of $126,000 to a low of $57,000 in the past year has constituted a cycle low, making it unlikely for the market to see a price of $50,000 again. However, he also warned that although the market outlook for the next two weeks appears bullish, a correction may occur after rising to a certain level, advising leveraged investors to reduce long positions and consider the correction extent during the 2023 upward cycle.

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

New Fire Research Institute holds a similar view in its report, asserting that the crypto market is currently still in a "high cost-performance interval" and is gradually moving away from being purely narrative-driven to a stage where rules and liquidity jointly dominate. Their team has continuously indicated since mid-May that the market was entering a high cost-performance interval, reaffirming this judgment around the $63,000 area in early July. In addition, the combination signals of prominent figures in the crypto world bottoming out and the explosion in trading volume confirm that the market is accelerating its structural transition from panic selling to long-term capital accumulation.

In the long run, asset management giant BlackRock has reiterated the allocation value of Bitcoin in its latest report. BlackRock believes that this round of Bitcoin's over 50% correction (from $126,000 to $57,000) was primarily caused by the deleveraging of the cryptocurrency market and shifts in capital flows, and does not indicate that the long-term investment logic has been damaged. Its updated analysis for the next decade indicates that in a traditional portfolio of 60% stocks and 40% bonds, allocating 1%-2% of the stock portion to Bitcoin could improve returns while maintaining risk. Additionally, amidst increasing government debt and ongoing fiscal deficits, Bitcoin, as an emerging global currency alternative, could hedge against the devaluation risks of fiat currencies.

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

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