Key Takeaways
How bad were the crypto liquidations?
Enormous. Nearly $19 billion was lost in the largest crypto liquidation ever, with longs taking 90% of the hit. This caused a sharp shift in risk.
Are traders panicking?
Careful, not blind. In fact, this could be a reality check on previous FOMO, potentially setting off a post-COVID style recovery.
The market once again showed that ‘blind optimism’ can go both ways. The fourth quarter started with TOTAL crypto market cap hitting a record $4.27 trillion, bringing in nearly $450 billion in week one.
At the same time, Open Interest (OI) reaches a record $233 billion, to which nearly $40 billion was added in October. In short, the market was bullishly pricing the seasonal tailwind as a key catalyst for a strong fourth quarter.
The federal shutdown has only hyped this bet. Key macro data went under the radar, taking blind optimism to a whole new level. But is the seasonal tailwind after the recent crypto massacre starting to crack?
The largest crypto massacre ever surpasses COVID-era losses
After the trade-off between Trump and China, macro sentiment quickly changed.
What started as just $8 billion in liquidations quickly grew into a massive exit wave. As fears began to mount, traders began pricing in the impact of tariffs on the already shaky U.S. economy.
The consequences? Nearly $19 billion was wiped out in the largest crypto liquidation ever, surpassing even the COVID crash. Longs bore the brunt, accounting for nearly 90% of the losses with more than $16 billion under pressure.
Source: Coinglass
In short, the earlier ‘bullish optimism’ backfired, making the crash even worse.
For example, the TOTAL market cap recorded its longest red candle, falling 9.38% to $3.24 trillion. That’s a brutal price drop of $850 billion, bringing the index back to early July levels. Overall, this move marked a sharp shift in risk.
The result? OI fell to $154 billion, resulting in a loss of $80 billion in settlement activity. Still, some traders remained bullish, to see it’s just another “healthy” reset. Could this signal a shift from blind to ‘cautious optimism’ in the market?
Crypto liquidations forced a reality check on FOMO
Even with the crypto liquidations, it is too early to declare an outright FUD.
In support of this, TOTALLY market capitalization has already risen 12% intraday to $3.7 trillion, pumping back in $420 billion. That’s a clear sign that buyers are taking action and keeping some seasonal tailwinds despite the recent shakeout.
Meanwhile, the Fear & Greed Index dropped almost 20 points to 54 and slid into the ‘fear zone’. This is a particularly important difference from April’s FUD, when the index entered extreme fear territory.
Source: CoinMarketCap
Simply put, the October catalyst has not yet fully reversed.
This supports AMBCrypto’s view that the market is turning cautiously, without panicking. If this trend continues, it will act as a “much-needed” reality check on the previous FOMO wave.
With leverage reduced and weak hands shaken out, the setup could be ripe for a post-COVID style bounce back. In this light, the recent crypto liquidations feel like healthy deleveraging rather than an outright sell-off.