Traditionally, October has been a month of significant gains in the crypto market, so investors might aptly use the term “uptober” when bitcoin reached an all-time high on Oct. 6.
However, the events that followed turned out to be one of the most damaging months on record, even with BTC trading just slightly higher than it was on Oct. 1.
The celebrations on Oct. 6, with bitcoin above $126,000, came to a sudden halt just three days later as a liquidation cascade disrupted any upward movement, sending prices crashing to $107,000. A small rebound to $116,000 was quickly sold off, leading to a further drop to $102,000 (although the price did rebound again to the current $115,300).
This extreme volatility, which many traders had long craved, resulted in significant liquidations on both sides of the market. On Oct. 9, over $19 billion in derivatives positions disappeared as exchanges struggled to cope with the rapid price fluctuations.
Is volatility essential?
Traders can profit in an exciting market, but they also face risks in a stagnant one. This became painfully evident in early October when a sudden spike in volatility wiped out $500 billion of the total crypto market cap.
The volatility might have surprised traders who had seen bitcoin trading within a narrow band of $107,000 to $126,000 since July, but the exchanges share some of the blame.
In response to the wipeout, Binance announced a $300 million compensation package for affected traders, following dissatisfaction over the exchange’s reportedly automated liquidation of positions even when there was enough margin.
To contextualize the drop: BTC’s price fell by 17.2% from Oct. 7 to Oct. 10, while open interest decreased by over 30%. The last time there was such a leveraged drop was during the FTX collapse in November 2022, which saw prices drop by 26% with open interest falling by 40%.
In a way, the market displayed resilience against a sell-off reminiscent of the FTX crash. This can be attributed to the institutional growth in crypto trading, with many transactions now occurring on regulated exchanges like CME or through various bitcoin ETFs.
Trader anxiety lingers
While the market maintains its strength, the retail traders who suffered the brunt of the sell-off remain shaken. This is evident as both BTC price and open interest rose together following the sell-off, indicating that few new derivatives contracts were opened, and the rise is likely due to asset appreciation.
Although there have been substantial drawdowns in bitcoin’s 15-year history, this one felt unique; in 2022, 2020, and 2018, there were clear winners and losers, while this time, regardless of position, most traders were left “rekt.”
The BTC monthly candle tells a revealing story, with significant wicks on both ends and a narrow candle body. This suggests that if you bought BTC on Oct. 1 and held, you would be slightly in profit. Conversely, if you tried to trade directionally over the past three weeks, you likely left the market feeling defeated.
