The crypto market volatility from October 11th to 13th was driven by the combined effects of high leverage accumulation and volatile macroeconomic expectations. Over the past two months, funding rates have remained consistently positive, and futures open interest has repeatedly reached record highs, indicating an overcrowded market. The trigger was a macroeconomic shock: the sudden announcement by the United States of a proposed 100% tariff on Chinese imports, which triggered a panic sell-off in risky assets worldwide and a chain reaction of liquidations. According to CoinGlass data, the total daily liquidation volume across the entire network reached approximately $19.1 billion, with over 1.6 million trading accounts forced to liquidate, marking the largest single-day liquidation wave this year. The good news is that while the deleveraging process was painful, it quickly cleared systemic risks. As of October 13th, after experiencing significant volatility, the Bitcoin price was temporarily trading at approximately $113,800 (data from Coingecko), a significant rebound from its low two days prior. Signals from both on-chain and derivatives markets indicate that the market has shifted from passive panic to active repair, with a healthier structure and a rising proportion of long-term funds.

On-chain funds: Market selling pressure has significantly eased, flashing bottoming signals

After the flash crash, the market didn't remain in a state of panic. BTC quickly stabilized and rebounded, with some institutional accounts taking the opportunity to increase their holdings of BTC and ETH. On-chain funds indicate that during the plunge, mainstream stablecoins, such as USDT and USDC, saw a premium on the secondary market. This week, the total market capitalization of stablecoins did not decline significantly, but instead showed signs of a slight increase, suggesting that some funds, after switching from crypto assets to stablecoins during risk events, chose to remain on the sidelines. Meanwhile, discussion within the crypto community has revived, with the number of "bottom-fishing" topics surging nearly twofold, indicating that market sentiment is gradually recovering. In the crypto market, this shift from panic to hesitation often signals the formation of a bottom.

On-chain data clearly shows that the market is transitioning from panic to recovery, with three key signals being particularly crucial: First, selling pressure has significantly eased. The proportion of BTC held on exchanges has fallen to approximately 14% of the total circulating supply, a multi-year low. More and more Bitcoin is being transferred to cold wallets, reducing the pool of short-term holdings available for selling. Second, capital has not fled. Although USDT and USDC experienced a brief premium during the crash, reflecting increased risk aversion, the total market capitalization of stablecoins not only did not decline, but actually saw a slight increase, indicating that funds are still holding onto the sidelines. Third, long-term holders remain steadfast. The proportion of "old holders" holding BTC for over a year remains near historical highs, demonstrating that they have not panicked and fled during the volatility. The departure of short-term speculators has, in fact, strengthened the market's holding structure. Overall, the short-term panic selling has passed, and funds are still awaiting opportunities. Long-term funds are holding steady, which is a key sign that the market is bottoming out.

Options market: Stabilization signals, but risk aversion remains

The options market quickly adjusted after this recent plunge, demonstrating several notable changes: Market panic has significantly eased. Implied volatility (IV), a measure of expected price fluctuations, has fallen significantly in the short term, indicating that traders believe the period of extreme volatility is largely over. However, safe-haven demand persists. Put options, which protect against falling prices, remain significantly more expensive than call options, and more funds are flowing into year-end expiring contracts, indicating that investors are still wary of a further market bottom. Fortunately, the risk of a "passive sell-off" caused by derivatives has largely subsided. According to market forecasts, as long as Bitcoin remains in the $110,000-120,000 price range, the previous vicious cycle of "selling as prices fall" is unlikely to repeat itself. Overall, the options market is expected to be less prone to extreme market activity in the short term, but investors remain cautious.

Capital Flows: Value Assets Demonstrate Resilience

During this market correction, performance across various sectors diverged significantly, clearly demonstrating the trend of capital shifting from speculation to value. Major cryptocurrencies demonstrated strong resilience. BTC and ETH experienced the largest declines of 15% and 20%, respectively. While not immune, these fluctuations were far less pronounced than those of most small-cap tokens. Bitcoin's rising dominance ratio further demonstrates a shift in capital flows from altcoins to core assets. Sectors with real value performed remarkably well. RWAs (real-world asset tokens), anchored to physical assets, saw relatively limited declines. Platform tokens, buoyed by trading volume, rebounded rapidly, demonstrating supportive fundamentals. In contrast, purely speculative assets experienced significant declines, with some nearing zero, and their rebound was sluggish. This suggests that market sentiment is becoming more rational, with investors focusing more on the real value and application prospects of projects. Overall, this correction represents a natural process of market de-bubble. High-quality assets will continue to be favored, while those lacking substantial backing should be approached with caution.

Strategic Implications: Structured Thinking May Become a More Critical Dimension

When the market experiences significant volatility, the advantages of structured products become even more pronounced. For investors who wish to participate but don't want to bear excessive volatility risk, dual-currency investment products, snowball structures, or interval-yield products can lock in stable returns during periods of volatility. The current market is more like a "low-volatility recovery period," so a heavy investment in anticipation of a rebound is less effective than a cautious approach. Investors can consider their risk appetite and adopt a phased entry and product portfolio approach to create a "low volatility + enhanced returns" investment framework. A flexible investment strategy with both offensive and defensive capabilities is the optimal strategy during cyclical transitions.

This flash crash reshuffled the market and quickly deflated the bubble. With the return of institutions and the stabilization of on-chain structures, the crypto market is entering a new phase of equilibrium. Matrixport will continue to monitor changes in the macro environment and market structure, helping investors navigate the new digital asset cycle with confidence.

The above content is from Daniel Yu, Head of Asset Management. This article only reflects the author's personal views.

Disclaimer: Markets are risky, so invest with caution. This article does not constitute investment advice. Digital asset trading can be extremely risky and volatile. Investment decisions should be made after carefully considering your individual circumstances and consulting a financial professional. Matrixport is not responsible for any investment decisions based on the information provided.