As Bitcoin trades at $82,500, market anxieties grow amid significant capital exits from U.S. spot crypto ETFs and increasing leverage in futures trading. Data from Farside reveals that spot Bitcoin ETFs witnessed a net outflow of $244.1 million yesterday, marking the second consecutive day of substantial withdrawals. Similarly, spot Ethereum ETFs saw $72.5 million in net outflows, now extending to eight trading days.
Rising Leverage and Expectations for ETF Demand Recovery
According to CoinGlass data from October 7, the open interest in Bitcoin futures climbed 4% over the preceding week, reaching 650,480 BTC. In a similar vein, last year’s major liquidation wave that started on October 10 was preceded by a 4.1% rise in open positions. Notably, Bitcoin fell over 2% during October 7’s sell-off to around $83,000, while Ethereum dipped 3.5% to roughly $2,600. A staggering $403.58 million in long positions were liquidated within just an hour.
Market tensions last year were exacerbated by former U.S. President Donald Trump’s announcement of additional tariffs on Chinese imports, triggering sharp sell-offs. CoinGlass data indicates that over $19 billion in crypto positions were forcibly closed between October 10-11, with long positions contributing approximately $17 billion, or 90% of the total.
The current ratio of open interest to market cap is approaching past levels; Bitcoin’s ratio is now at 3.2%, compared to 3.7% prior to last year’s liquidation. Ethereum’s current ratio of 10.4% is also near its former level of 11.3%.
Analyst Ananda Banerjee notes that the market hasn’t seen the same overextension as last year, attributing this to the reduced costs of maintaining leveraged positions. The persistent high and positive funding rates in perpetual contracts, paid between holders of long and short positions, imply an excessive concentration of bullish trades.
Prior to last year’s liquidations, the annualized funding rate for Bitcoin and Ethereum exceeded 8% in 18 out of 32 exchange-day observations on platforms like Binance and Bybit. In recent times, this threshold was crossed in only one of 28 observations, with funding rates turning negative in three cases. On Deribit, Bitcoin’s annualized funding rate dropped to 7.1% from 26.9% before last year’s turmoil.
“The intensity of liquidations concerning price movement is also lower. In recent 24-hour data, Bitcoin dipped around 2%, leading to the liquidation of $487.02 million in long positions. Each 1% price drop in Bitcoin saw approximately $248 million in liquidations, a far cry from the $2.2 billion seen during last year’s wave. The current scale is roughly one-ninth of that period’s magnitude.”
Encryption Concerns Surface as Hayes Focuses on Liquidity
Compounding the discourse on price and leverage are concerns regarding Bitcoin addresses and the potential risk from quantum computers. Rafael Schultze-Kraft, co-founder of Glassnode, disclosed on October 8 that approximately 6.26 million BTC are stored in addresses whose public keys are visible on the blockchain. This figure accounts for 31.2% of the circulating supply, a 6.4 percentage-point increase from 24.8% at the start of 2021.
A public key serves to verify transaction signatures, as opposed to the private key that grants authorization to move assets. While current encryption methods make deriving a private key from a public one challenging, the emergence of sufficiently powerful quantum computers could potentially breach this security.
“The significant vulnerability arises from the reuse of approximately 4.33 million BTC worth of addresses. Reusing an address whose public key becomes visible in a transaction links any remaining or subsequent assets to the same key. About 1.94 million BTC are held in transactional structures like P2PK and Taproot, where public keys are directly visible.”
Glassnode identifies that roughly 1.79 million Bitcoin on exchanges have visible public keys, representing 57% of exchange-determined assets. This ratio has climbed two percentage points from May’s 55%.
Despite concerns that AI might threaten cryptographic technologies, Arthur Hayes, CEO of Flop Labs and investment director at Maelstrom, maintains a bullish outlook for the crypto market. In his October 8 analysis, Hayes contends that substantial price rallies often begin amidst anxieties, with an expansion in the money supply driving prices higher.
Citing examples such as the 2017 Bitcoin block size debate, the COVID-19 pandemic in 2020, and the collapse of FTX alongside central bank rate hikes in 2023, Hayes perceives current AI-driven cryptographic fears under the same “FUD”—Fear, Uncertainty, and Doubt—framework. According to Hayes, the next phase of growth will hinge on the influx of liquidity into the system.
