Bitcoin's $10B liquidation wave exposes leverage buildup as AI capital flows accelerate
In brief
- Bitcoin fell 14% last week, triggering $10 billion in long futures liquidations.
- Capital rotated toward AI infrastructure and private tech, drawing liquidity from crypto.
- Futures open interest recovered to pre-February levels before the selloff amplified forced selling.
- AI became the dominant momentum trade, competing directly with Bitcoin for growth capital.
- Bitcoin recovered to $63,000 but failed to settle debate over underlying causes.
Capital flight to AI reshapes crypto sentiment
Capital has been rotating toward artificial intelligence, private technology deals, and other high-growth trades while futures positioning in Bitcoin has become more crowded. About $400 billion flowed into AI infrastructure over the past six months, while US-listed spot Bitcoin ETFs saw roughly $4 billion in outflows since mid-May.
Jim Ferraioli, head of crypto research and strategy at Charles Schwab, said crypto investors have repeatedly shifted toward the market's dominant momentum trade. In recent months, artificial intelligence has taken that role. Both sectors appeal to investors seeking exposure to emerging technologies, large markets, and high return potential — but AI has captured the lion's share of new capital flows.
For investors who once used Bitcoin as a primary way to express a high-growth technology view, AI has become a direct competitor for attention and liquidity.
Leverage cascade amplified the decline
Traders had rebuilt risk in derivatives markets before the Bitcoin selloff began. Futures open interest had dropped to about $31 billion in February after reaching a high of roughly $70 billion, and by May had recovered. That buildup of leverage meant the initial price move triggered a cascade of forced liquidations, turning a sell-off into a rout.
Greg Cipolaro, global head of research at NYDIG, identified AI as one of several forces weighing on Bitcoin and the broader crypto market. The top crypto is no longer competing only with gold, other digital assets, or macro trades. It is being measured against an AI cycle that has become the main growth story across financial markets.
