"10·11 crash blamed on excessive leverage and complex market factors"

Uk Jin

Summary

"10·11 crash" was identified as being mainly caused by excessive leverage and various derivatives structures.
It reported that as the open interest of perpetual futures products in the market grew, market structure became more sophisticated, but new risks also increased.
It analyzed that institutional investors attempted long-short hedges by shorting Bitcoin and buying altcoins, but suffered large losses due to the auto-deleveraging (ADL) mechanism.

An analysis found that the cause of the '10·11 crash,' which led to a correction in the global virtual asset (cryptocurrency) market, lies in excessive leverage within the market and various derivatives structures.

On the 20th (Korean time), The Block reported that Evgeny Gaevoy (Evgeny Gaevoy), founder of Wintermute (Wintermute), said on a podcast, "The 10·11 crash was the result of multiple overlapping factors," adding, "leverage in the system is much larger than before, and the number of tradable tokens, perpetual futures (Perpetual Futures) products, and large platforms handling them has greatly increased."

Gaevoy pointed out, "Three to four years ago there were no perpetual futures products with such large open interest as now," and "while market structure has matured and become more sophisticated, new risks have also emerged accordingly."

He continued, "It's not clear which institutions were liquidated, but it is likely that many losing institutions were operating long-short (Long-Short) hedge strategies," explaining, "institutions that shorted Bitcoin (BTC) while buying altcoins tried to hedge risk, but ultimately appear to have suffered large losses due to the auto-deleveraging (ADL) mechanism."

BTC