Crypto market turning healthier after dramatic deleveraging, now ‘constructively bullish,’ analyst says

After one of the largest liquidation cascades in recent history following the violent deleveraging that swept through derivatives last week, research and brokerage firm K33 said the crypto market has now entered a healthier phase.

In the firm’s latest report, Head of Research Vetle Lunde, though urging patience, described the reset as “constructively bullish,” arguing that months of excessive pent-up leverage have been purged and the foundation for renewed upside is now in place.

“Structural effects from the unwind mean liquidity will likely stay thin as market participants recover from forced selling,” Lunde wrote. “Historically, such deleveraging phases lead to short-term stagnation and cautious trading, but they also tend to mark exhaustion points, creating fertile ground for longer-term recovery once stability returns.”

Bitcoin perpetual open interest plunged by nearly 50,000 BTC (18.6%) on Oct. 10 — the steepest single-day decline since August 2023 — as funding rates turned deeply negative. At least $16.7 billion in leveraged long positions were wiped out, and open interest returned to Q2 lows.

Binance’s BTC perpetual contract traded at a record 5.1% discount to spot — the widest deviation since March 2020’s Covid crash — underscoring the depth of the selloff, Lunde noted, adding that this historic flush validated K33’s earlier warnings about dangerous leverage buildups and marked a key turning point in the market.

Bitcoin perpetuals: Open Interest. Image: K33.

“In the past three years, similar OI plunges have tended to align with market bottoms, leaving limited downside ahead,” he said, noting that 10%-plus daily drops in Bitcoin perp leverage were often followed by negligible drawdowns and long-term gains. “Combined with a supportive backdrop, including expansionary [fiscal and monetary] policy expectations, high institutional demand, and pending ETF catalysts, the setup favors gradual accumulation.”

Average forward performance, BTC post 10% long liquidation collapses in notional perp OI. Image: K33.

Altcoins ‘flirted with the apocalypse’

While bitcoin’s behaviour was chaotic, the report also noted that certain altcoins “flirted with the apocalypse.” Relative leverage in altcoin perpetual contracts, measured as open interest versus market capitalization, dropped from 4.1% to 3.2% on Friday — a 91 bps decline representing a 22.1% notional reduction in leverage, Lunde noted — the sharpest contraction in four years, eclipsing those seen during both the 2022 FTX collapse and earlier tariff-driven selloffs.

Some assets endured near-total losses, including ATOM, which briefly plunged from $4.06 to $0.001 on Binance at the height of the turmoil. Exchanges imposed auto-deleveraging to curb cascading losses, cutting profitable short positions while leveraged longs were forcibly liquidated. Lunde said the scale of the event likely wiped out many traders and may have pushed some funds into insolvency, calling it a “rare and highly destabilizing” event but ultimately a cleansing moment for the market.

“Following this dramatic deleveraging, we are turning increasingly optimistic. With excessive leverage purged and structural risks reduced, the market setup now looks far healthier,” Lunde concluded. “We view the coming weeks as an opportune window for capital deployment into BTC, expecting the reset in perps and the normalization of funding dynamics to provide a constructive foundation for renewed upside momentum.”

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