$16.7 Billion Bitcoin Shakeout: K33 Says Market Reset Could Spark Next Bull Run

Crypto Market Enters Healthier Phase After Record $16.7 Billion Liquidation, Says K33 Research

The cryptocurrency market is entering what analysts call a “healthier and more sustainable” phase after one of the most dramatic liquidation events in recent memory. According to research and brokerage firm K33 Research, the sharp deleveraging across Bitcoin and altcoin markets has cleansed months of excessive leverage and speculation, setting the stage for a more stable recovery in the weeks ahead.

In a note released this week, Vetle Lunde, Head of Research at K33, described the event as “constructively bullish,” arguing that the massive unwinding of leveraged positions, while painful for traders, is ultimately a positive reset for the digital asset ecosystem.

Record Leverage Wipeout in Bitcoin

Data from K33 shows that Bitcoin perpetual open interest fell by nearly 50,000 BTC on October 10 — an 18.6% decline, marking the steepest single-day drop since August 2023. The move erased an estimated $16.7 billion in leveraged long positions, forcing many traders out of the market as funding rates turned sharply negative.

Perpetual futures, which are a major driver of market liquidity and volatility, saw one of the widest divergences from spot prices since the 2020 pandemic crash. The perpetual contracts traded at a 5.1% discount to the spot Bitcoin price — the largest deviation in over four years.

“This flush was long overdue,” said Lunde. “The market had become dangerously over-leveraged, and this event effectively purged much of that built-up risk. It’s not pleasant, but it’s a necessary step toward rebuilding a stronger foundation for future growth.”

Historical Patterns Suggest a Bottom

K33’s analysis indicates that similar liquidation events in the past three years have frequently coincided with market bottoms. The firm’s research shows that when daily declines in open interest exceeded 10%, Bitcoin’s subsequent drawdowns were minimal, often followed by strong multi-month rallies.

“These kinds of structural resets have historically preceded periods of outperformance,” Lunde wrote. “While short-term pain is inevitable, the data suggests that such large-scale deleveraging often marks the exhaustion point of downward momentum.”

However, the analyst cautioned that liquidity will likely remain thin in the short term as traders and institutions rebuild positions following forced liquidations. “The market needs time to heal,” he added. “After such a large unwind, participants are typically cautious, which can result in a temporary stagnation before confidence returns.”

Altcoins Suffer Heavier Damage

While Bitcoin bore the brunt of the market reset, altcoins faced even steeper declines. K33’s report highlighted that relative leverage in altcoin perpetual contracts dropped from 4.1% to 3.2% — a 91-basis-point fall, equivalent to a 22.1% reduction in notional leverage, the most severe contraction in nearly four years.

Some altcoins witnessed extreme volatility. Cosmos’ ATOM token, for instance, briefly crashed from $4.06 to just $0.001, reflecting the chaos of cascading liquidations and thin liquidity. Exchanges were forced to trigger auto-deleveraging mechanisms to prevent a full-blown systemic collapse, forcibly closing both profitable short positions and liquidating long positions caught on the wrong side of the trade.

Lunde described the event as “rare and destabilizing but ultimately cleansing.” According to him, “The system worked as designed — it removed excessive risk and restored balance. Such shakeouts, though violent, are essential for long-term sustainability.”

The Market Reset: From Fear to Foundation

Market analysts say this correction may signal a shift from speculative trading toward fundamentals-driven accumulation. With leverage now largely purged, traders are expected to rebuild positions gradually, focusing on long-term opportunities rather than short-term speculative gains.

K33 noted that structural risks have significantly diminished, creating a healthier environment for long-term investors. “The leverage that fueled the past few months’ volatility has been reset. We now see a more stable base forming, supported by increasing institutional engagement and clearer macroeconomic signals,” Lunde stated.

The report also emphasized that macro tailwinds — including expectations of looser monetary policy, strong institutional demand, and the potential approval of new Bitcoin and Ethereum ETFs — are likely to provide additional support for the market’s recovery.

Institutional Interest and ETF Catalysts

Institutional investors, who had been cautious during the high-leverage phase, are reportedly returning. Several U.S. asset managers, including BlackRock, Fidelity, and VanEck, are awaiting regulatory approval for new spot Bitcoin and Ethereum ETFs that could open the door to billions in fresh capital inflows.

Lunde pointed out that the normalization of funding rates and open interest levels could create a favorable setup for these institutional flows. “The timing couldn’t be better,” he said. “As the market stabilizes, large players will be looking for efficient entry points. The combination of a cleaner market structure and incoming ETF demand could provide exactly that.”

He added that such conditions often represent the “smart money phase” of the market cycle — a period when institutional capital quietly accumulates before broader retail participation resumes.

Lessons From the Liquidation

This liquidation wave serves as a stark reminder of how fragile the crypto market can become when leverage runs unchecked. Analysts note that while the crypto sector has matured significantly since the 2020 crash, speculative excesses still pose periodic risks.

“Every major correction in crypto’s history has followed a buildup of leverage,” said Lunde. “It’s part of the industry’s learning curve. What’s encouraging now is that the market seems to be resetting faster and recovering more efficiently each time.”

Observers also point to improvements in exchange risk management systems, automated liquidation protocols, and better liquidity coordination compared to previous cycles. “While the volatility remains, the systemic resilience is improving,” said one analyst at K33.

Outlook: Gradual Recovery and Accumulation Phase

Looking ahead, K33 expects a period of consolidation and gradual recovery through late Q4 2025. Bitcoin’s ability to hold above key technical support levels could signal the beginning of a new accumulation phase, similar to those seen in early 2021 and mid-2023.

“The path forward may not be explosive, but it’s likely to be constructive,” said Lunde. “Investors should think in terms of months, not days. What we’re seeing now is a rebuilding process, not a speculative frenzy.”

He concluded that with leverage normalized, liquidity improving, and macro conditions turning supportive, the next leg of the crypto bull market may already be forming beneath the surface.

“For disciplined investors, this is not the time to panic — it’s the time to prepare,” Lunde emphasized. “The groundwork for the next major uptrend is being laid right now.”

Source: CMC

Writer @Ellena

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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