TLDR:
- Bitcoin has fallen 10% below its price after the election, wiping out any gains from Trump’s victory in November.
- Crypto markets have lost $2.2 trillion in value since October 10, a 50% drop due to structural problems.
- A record $19.5 billion liquidation on October 10 caused a disruption to the market structure that continues to this day.
- Bitcoin market depth remains 30% below October highs, matching conditions last seen following the 2022 FTX collapse.
Bitcoin has wiped out all the gains made since the November election, falling 10% below post-election levels as broader crypto markets tumble.
The Kobeissi Letter reports that cryptocurrency markets have fallen 50% since October 10, eliminating $2.2 trillion in total market capitalization.
This structural decline has left investors looking for answers amid continued selling pressure and deteriorating market conditions.
The market structure collapses after the October liquidation event
The current downturn dates back to October 6, when crypto markets reached their most recent peak. Four days later, on October 10, the markets experienced a record liquidation worth $19.5 billion, which appears to have caused a fundamental shift in the market structure.
Bitcoin never fully recovered from this shock and entered a prolonged period between November 15 and January 15.
During this consolidation phase, short liquidation episodes caused price differences in both directions. These erratic movements indicated underlying weakness in the market structure rather than healthy price development.
On January 16, the range finally broke downward, marking the beginning of an accelerated decline. Since January 24 alone, leveraged positions worth $10 billion have been liquidated, representing 55% of October’s record amount.
The selling pressure within the crypto markets has not remained under control. Large-cap tech stocks have fallen sharply despite reporting strong gains and experiencing minimal fundamental changes.
This contagion between assets suggests that the decline stems from liquidity concerns rather than crypto-specific issues. Market data supports this view, with Bitcoin’s order book capacity still 30% below October highs.
The Kobeissi letter noted that such reduced market depth was last observed after the collapse of the FTX in 2022. Today’s session proved particularly severe, with Bitcoin fell more than $9,000 under constant selling pressure.
At points, prices fell by $2,000 or more within minutes, indicating that large institutional players may have liquidated their positions during the trading day.
The collapse of sentiment fuels a self-reinforcing downward cycle
According to The Kobeissi Letter’s analysis, market sentiment has fallen almost linearly since October 10. Even temporary relief rallies have failed to reverse the bearish mood among traders and investors.
This deterioration in sentiment has created a vicious circle, leading to a negative outlook liquidationswhich further damages sentiment and leads to additional sales.
The fundamental picture for cryptocurrencies has remained largely unchanged over the past 60 days. This discrepancy between fundamentals and price action has caused confusion among many market participants about the causes of the current decline.
Previous crypto market cycles show that sentiment often outweighs underlying fundamentals during periods of extreme volatility.
The lack of fundamental catalysts for the decline points to technical and structural factors as the main drivers. Deleveraging continues to put pressure on prices as margin calls force the closure of positions.
The combination of low liquidity and high leverage amplifies volatility in both directions, creating treacherous trading conditions for market participants.
Recovery appears to depend on the restoration of structural liquidity crypto markets. This process will likely require both capitulation in price and leverage, along with sentiment reaching maximum bearish levels.
The Kobeissi letter suggests that markets may be approaching these conditions, although the exact timing of any bottom remains uncertain.
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