One Year After Digital-Asset Crash, Structural Risks Remain

A year has passed since the sharp selloff that rocked the digital-asset market in October last year. Some say the tools for identifying market risk have improved, but the structural vulnerabilities that triggered the crash remain in place.

CoinDesk said on October 10 that Bitcoin plunged from about $122,000 to $105,000 on October 10 last year. The slide triggered about $19 billion in forced liquidations across the broader digital-asset market.

Excessive leverage and heavily crowded long positions were cited as the main causes of the crash. As more investors piled into bullish bets, even a small shock was enough to set off a steep decline.

Mark Connors, who previously oversaw products tied to hedge fund positioning at Credit Suisse, said the market hit a peak at an unexpectedly fast pace before collapsing sharply. Investor positioning mattered then and still matters now.

He highlighted the influence of the derivatives market in particular. Last year's selloff began in derivatives rather than on-chain supply and demand. Derivatives are still driving Bitcoin's short-term price moves.

The problem, he said, is that the structural risks in the derivatives market that helped trigger the crash have not gone away. Leveraged products such as perpetual futures still account for a large share of digital-asset trading.

"The possibility of another October 10 is clearly there," Connors said. "Leveraged products haven't disappeared."

Connors also said Bitcoin's four-year upcycle can no longer be treated as a reliable guide to the market's direction. "The four-year cycle hasn't disappeared, but it has changed," he said. "It's become harder to use it as a trustworthy indicator for predicting where the market is headed." Economic and political factors may now have a bigger influence on Bitcoin prices than in the past, he added.

Still, the environment for detecting and responding to market risk has improved over the past year. Data on order flows and investor positioning has become more sophisticated, making it easier than before to identify when the market is leaning too heavily in one direction.

Chris Sullivan, co-founder of Hyperion Decimus, said investors should avoid excessive leverage and closely monitor open interest, funding rates and market sentiment.