How October Was the Most Destructive Month in Recent Memory for at Least Some Crypto Traders

Historically October has been the month the crypto market has experienced most upside, so investors could be forgiven for throwing terms such as "uptober" around when bitcoin BTC$89,682.35 notched a record high on Oct. 6.

What transpired since, however, was arguably the most destructive month on record, despite BTC trading today a hair higher than Oct. 1.

The victory laps on Oct. 6 with bitcoin above $126,000 came to an abrupt stop just three days later, with a liquidation cascade halting any upside and bringing price crashing down all the way to $107,000. A dead cat bounce to $116,000 was also sold into, with price subsequently tumbling all the way to $102,000 (though the price subsequently bounced again to the current $115,300).

This ferocious volatility, which many traders craved for months previously, destroyed positions on both sides of the books. On Oct. 9, more than $19 billion worth of derivatives positions were wiped out as exchanges failed to function with the rapid shifts in price.

Volatility is key, or is it?

Traders can't make money in a boring market, but they also can't lose any. This rang painfully true earlier in October when a short burst of volatility wiped out $500 billion of the total crypto market cap.

Perhaps the volatility caught traders by surprise after bitcoin had been confined to a range between $107,000 and $126,000 since July, but a portion of the blame also lies on the exchanges.

Binance offered $300 million in compensation for those who suffered losses during the wipeout. This was spurred by murmurs of discontent after the exchange reportedly automated liquidated trader's positions, despite having sufficient margin in their portfolio.

To put the drawdown in context: BTC's price tumbled by 17.2% between Oct. 7 and Oct. 10, while open interest dropped by more than 30%. The last leverage-inspired plunge on this scale was when FTX collapsed in Novemer 2022, causing the price to slide by 26% and open interest by 40%.

In a way, the market showed resilience to a sell-off that mirrored the FTX crash. This can be attributed to the institutionalization of crypto trading, with much of the trading volume being carried out on regulated exchanges like CME, or spot trading via the many bitcoin ETFs.

Traders traumatized

While the market remains resolute, the retail traders that bore the brunt of the sell-off remain traumatized. This can be seen as BTC price and open interest both rose in unison following the sell-off, suggesting that very few new derivatives contracts have been opened and that the rise is more liked to asset appreciation.

While there have been several savage drawdowns during bitcoin's 15 year history, this one felt different; in 2022, 2020 and 2018 there were winners and losers, those who shorted those markets came away with significant profits, while this time it didn't matter what side of the market traders were on, everyone got "rekt."

The BTC monthly candle reveals a telling story, viscous wicks on both sides and a very slim candle body. This means that if you bought BTC on Oct. 1 and held, you would be slightly in profit. It also means if you attempted to trade directionally over the past three weeks, you are more than likely walking away from the market with your tail between your legs.