BTC dropped sharply from a high of about $126,000 at the beginning of the month to around $104,800, a decline of over 14%, breaking through key support levels. The technical breakdown triggered a chain reaction of liquidations, setting a historical record. The catalyst came from the macro level: the U.S. suddenly announced a 100% tariff on Chinese goods, leading to a spread of risk-averse sentiment, with institutions and quantitative funds reducing their risk exposure, further amplifying the downward trend. Meanwhile, on October 14, the U.S. Department of Justice announced the seizure of approximately 127,000 BTC from Cambodia's "Prince Group," valued at over $15 billion, marking the largest crypto asset seizure in history. The market is concerned about subsequent selling pressure, and risk appetite has cooled in the short term.

As of October 20, BTC hovered around $108,500, down about 5% from a week ago; ETH fell back to $3,980, still significantly below the early month high. Market sentiment quickly shifted from optimistic to cautious, and the sudden regulatory events have also become an important driver of this round of volatility. (Data source: CoinGecko)

Bottom Signal Resonance: On-chain Fund Inflows and Institutions Increasing Positions Against the Trend

On-chain data is releasing positive signals. In the early stages of the crash, a large amount of BTC flowed into exchanges for sale, but as prices hit bottom, the trend reversed—recently, Bitcoin has seen a net outflow, indicating reduced selling pressure and long positions being re-established. The supply of stablecoins remains stable, with USDT's market cap not experiencing a cliff-like reduction; instead, funds are entering the market through stablecoins to buy the dip, showing that market liquidity is still abundant. Notably, "whale addresses" are accumulating at lower prices. Wallets holding over 100 BTC have added about 16,000 BTC in just a few days, indicating long-term capital is positioning at the bottom. The staking situation for ETH is also robust, with no panic unstaking observed; instead, there are new deposits flowing in, indicating sustained long-term confidence. The market is gradually transitioning from extreme panic to a rational phase, with supply and demand structures tending to repair.

In the midst of retail panic, some institutions are choosing to increase their positions against the trend. Crypto investment firm BitMine has gradually increased its holdings by about 379,000 ETH (approximately $1.5 billion) within days after the crash, planning to raise its holdings to 5% of the total ETH supply. Co-founder Tom Lee stated, "This round of deleveraging has actually created long-term positioning opportunities." Similar strategies are also appearing in the BTC space. Historically, whenever institutional funds enter the market against the trend during severe market clearings, it often signifies that a bottom region is forming. Rational buying from institutions and ample funds are important forces stabilizing confidence in the current market.

Options Market: High Panic Hedging, Volatility May Reach a Turning Point

The options market experienced extreme volatility during the crash. The implied volatility (IV) of short-term contracts once soared to 50%, with deep out-of-the-money put options seeing a surge in demand, and the Skew was significantly bearish. Many market makers were forced to hedge their short Gamma, exacerbating the selling pressure in the spot market. However, as approximately $4.8 billion in options contracts expired, this selling pressure has gradually been released. Interestingly, some funds have begun to sell volatility and sell put options during the high IV phase, betting that the market will not continue to decline. Historical experience shows that when market hedging positions are concentrated and IV is high, it often indicates that panic is nearing its extreme—opportunities for reversal are brewing.

Macroeconomic Winds Turning Warmer: Fed Turns Dovish, Dollar Retreats, Risk Appetite Recovers

On the macro level, recent statements from the Federal Reserve have turned cautious, with the market generally expecting a pause in interest rate hikes within the year and possibly starting a rate-cutting cycle in 2025. The dollar index has retreated from its highs, and gold has also seen a pullback after reaching historical highs, indicating a easing of risk-averse sentiment. Meanwhile, U.S. stocks have stopped falling and rebounded, and the bond market has stabilized, with overall market risk appetite warming up. For the crypto market, this means threefold benefits: improved liquidity expectations, peak interest rates, and a weaker dollar. Historically, whenever macro liquidity warms up, Bitcoin often benefits first.

Altcoin Divergence: RWA and Platform Tokens Show Resilience

The altcoin sector shows significant divergence. High Beta tokens have generally fallen sharply, while projects with real revenue models or application scenarios have shown relative resilience. The RWA (Real World Assets on-chain) sector has performed outstandingly, with tokens like Centrifuge (CFG) and Tharwa (TRWA) rising against the trend in a volatile market. Exchange platform tokens (BNB, OKB) have seen much smaller declines than the market average due to solid fundamentals and buyback mechanisms. Market funds are shifting from speculative altcoins to assets with real value support, indicating a structural re-evaluation is occurring. This also means that the next round of capital rotation may first concentrate on leading projects and RWA themes.

Strategy Recommendations: Utilize Structured Products in Volatile Markets

During the phase of building a bottom in a volatile market, investors can implement strategies that allow for both offensive and defensive positions through structured products:

• Accumulator: Suitable for bullish investors to build positions in batches during downturns;

• Dual-Currency: Suitable for earning high returns in a volatile market;

• SharkFin: Suitable for investors who wish to preserve capital while participating in volatile returns;

• Snowball: Suitable for medium to long-term investors who seek stable returns while judging price ranges.

By utilizing a combination of derivatives, investors can achieve a balance between risk and return, seizing structural opportunities in a volatile market.

After this severe market clearing, the weaknesses of the market have been exposed, but signals of a bottom are also emerging. On-chain flows, institutional accumulation, macro warming, and options signals all point to a common conclusion: the panic phase may have passed, and the bottoming process is underway. Short-term volatility will continue, but the involvement of long-term capital and improvements in the macro environment are accumulating momentum for the next rebound.

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

Disclaimer: The market is risky, and investment should be cautious. This article does not constitute investment advice. Trading in digital assets may carry significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided in this content.

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