Historically, October has been the month where the crypto market has experienced the most upside, so investors could be forgiven for throwing terms like “uptober” around when bitcoin broke the record on October 6.
What happened since, however, was arguably the most destructive month ever, despite BTC today trading a hair higher than October 1st.
The October 6 victory laps of bitcoin above $126,000 came to an abrupt halt just three days later, when a liquidation cascade halted any upside and brought the price all the way down to $107,000. A dead cat bounce at $116,000 was also sold in, where the price subsequently tumbled all the way to $102,000 (although the price subsequently bounced back to the current $115,300).
This extreme volatility, which many traders demanded for months earlier, destroyed positions on both sides of the books. On October 9, derivatives positions worth more than $19 billion were wiped out as the exchanges malfunctioned with the rapid price changes.
Volatility is key, or is it?
Traders can’t make money in a dull market, but they can’t lose any either. This was painfully true earlier in October, when a brief burst of volatility wiped out $500 billion of the total crypto market cap.
Perhaps the volatility surprised traders after bitcoin had been confined to a range between $107,000 and $126,000 since July, but part of the blame also lies with exchanges.
Binance offered $300 million in compensation to those who suffered losses during the wipeout. This was spurred by murmurs of discontent after the exchange allegedly automated liquidated traders’ positions, despite having sufficient margin in their portfolio.
To put the draw into context: BTC’s price fell by 17.2% between October 7th and October 10th, while open interest fell by more than 30%. The last leverage-inspired dive on this scale was when FTX collapsed in November 2022, sending price down 26% and open interest down 40%.
In a sense, the market showed resilience to a selloff that mirrored the FTX crash. This can be attributed to the institutionalization of crypto trading, where much of the trading volume is done on regulated exchanges like the CME or spot trading via the many bitcoin ETFs.
Traumatized traders
While the market remains resolute, the retailers who bore the brunt of the sales remain traumatized. This can be seen as BTC price and open interest both rose in unison after the sell-off, suggesting that very few new derivative contracts have been opened and that the rise is suffering more from asset value appreciation.
While there have been several violent withdrawals over the course of bitcoin’s 15-year history, this one felt different; in 2022, 2020 and 2018 there were winners and losers, those who shorted these markets came away with significant profits, while this time it didn’t matter which side of the market traders were on, everyone got “right”.
BTC monthly candles reveal a narrative story, viscous wicks on both sides and a very slim candle body. This means that if you bought BTC on October 1st and held, you would be slightly in profit. It also means that if you have tried to trade directionally over the last three weeks, you are more than likely to walk away from the market with your tail between your legs.
