Historically, October has been the month the crypto market has seen the most upside, so investors could be forgiven for using terms like “until” when Bitcoin reached a record high on October 6.
What has happened since, however, has arguably been the most destructive month on record, despite the fact that BTC is trading a hair higher today than it was on October 1st.
The October 6 victory with bitcoin above $126,000 came to a screeching halt three days later, with a cascade of liquidation halting any upside and sending the price down as low as $107,000. A dead cat bounce to $116,000 was also sold off, with the price subsequently dropping as low as $102,000 (although the price later rebounded again to the current $115,300).
This fierce volatility, which many traders had dreamed of for months, destroyed positions on both sides of the balance sheet. On October 9, more than $19 billion in derivatives positions were wiped out as exchanges failed to function in the face of rapid price changes.
Volatility is key, right?
Traders can’t make money in a boring market, but they can’t lose money either. This proved painfully true earlier in October, when a brief burst of volatility wiped $500 billion from the crypto market’s total capitalization.
Perhaps the volatility surprised traders after bitcoin was range-bound between $107,000 and $126,000 since July, but some of the blame also lies with the exchanges.
Binance offered $300 million in compensation to those who suffered losses during the wipe. This was prompted by murmurs of discontent after the exchange allegedly automated traders’ liquidated positions, despite having sufficient margin in their portfolio.
To put the drop in context: BTC price fell 17.2% between October 7 and 10, while open interest fell more than 30%. The last leverage-inspired drop of this magnitude occurred when FTX crashed in November 2022, causing the price to fall by 26% and open interest by 40%.
In some ways, the market showed resilience in the face of a massive sell-off that mirrored the FTX crash. This can be attributed to the institutionalization of cryptocurrency trading, with much of the trading volume being done on regulated exchanges like CME, or spot via the many Bitcoin ETFs.
Traumatized traders
Even as the market remains resolute, retail traders who bore the brunt of the sell-off remain traumatized. This can be seen as the BTC price and open interest both increased in unison after the sell-off, suggesting that very few new derivatives contracts were opened and the rise is more associated with asset appreciation.
Although there have been several sharp declines over the 15-year history of Bitcoin, this one seemed different; in 2022, 2020 and 2018 there have been winners and losers, those who shorted these markets walked away with significant profits, while this time, no matter which side of the market the traders were on, everyone got “rekt”.
The monthly BTC candle reveals a revealing story, slimy wicks on both sides, and a very thin candle body. This means that if you buy BTC on October 1st and hold it, you will make a small profit. This also means that if you attempted to make directional trades in the last three weeks, you will most likely walk away from the market with your tail between your legs.
