Cryptocurrencies have experienced their worst month of the year not due to hackers, but because of macroeconomic factors.
According to Citi, the cryptocurrency market began to decline sharply after the US threatened to impose three-digit tariffs on Chinese goods in October and tighten export controls on software.
The result was the largest liquidation of positions in history: over $19 billion in margin bets vanished from the market in a single day. This figure is nine times greater than the decline seen in February and nearly twenty times the scale of events in 2020.
Bitcoin, the market leader, closed the month in the red for the first time since 2018, even as stock indices continued to rise fueled by optimism around artificial intelligence. However, as the excitement around AI began to wane, crypto investors found themselves lacking support and a risk appetite.
On October 10, Bitcoin briefly fell below the $100,000 mark, reaching its lowest levels since June. The price dropped over 20% from its October peak, officially signaling a bear market but informally viewed as a mere breather after overheating.
CoinGlass reported that an additional $1.27 billion in positions, primarily long bets, were liquidated in recent days. Traders who had bet on price increases received a classic reminder that cryptocurrencies do not rise according to a schedule.
In a note to clients, Citi pointed out that the number of large Bitcoin holders is decreasing while the number of retail wallets is rising. In other words, whales are retreating while the crowd is entering.
Analysts also noted that declining funding rates indicate a waning interest in leveraged trading, and the technical picture remains weak, with Bitcoin trading below its 200-day average.
Nevertheless, Citi analysts believe that the cycle of crypto asset adoption is just beginning.
Analysts suggested that while the market has grown more cautious, this does not signal the conclusion of the narrative. They indicated that flows into spot ETFs have become a crucial indicator of whether investors are optimistic about the next wave of growth or if they are merely biding their time until the situation stabilizes.
