Compass Investments

On paper, digital funds represent the apogee of decentralization.

But does it match the reality? The October collapse was a harsh sobering experience for crypto investors – billions were lost in liquidations, leaving HODLers in deep minus. What triggered it?

The concerted actions of the major players.

In light of this, the crash demonstrated how concentrated the market remains. Nevertheless, the principle of “buy when you’re scared” is still an indicator of the bottom. And as the end of November approaches, bitcoin whales seem to be resuming this tactic.

To make sense of the current stage of the market, it’s helpful to take a step back.

We are past the middle of the fourth quarter, and the declines of October and November are still being felt. Total crypto market capitalization fell 20.7% to $3.06 trillion, the worst quarterly decline since the first half of 2022.

That said, Bitcoin [BTC] is trading 27% below its pre-crisis level of $122k, posting a -20% return in Q4, making this BTC’s worst quarterly decline since 2018. But what exactly was the trigger for this decline?

Initially, the sell-off was triggered by an overlap of macroeconomic factors. Tensions between the United States and China, MSCI disagreements, MSTR scrutiny, government shutdowns and the Fed’s halt to data releases all weakened risk appetite, causing panic among retail participants and triggering massive margin closures.

However, the matter was not limited to macroeconomics.

Long-term holders (Satoshi era HODLers), as well as large and new whales, made significant sales.

In aggregate, it looked like a coordinated withdrawal of funds by the major players, which led to a decrease in the supply of BTC in LTH by about 180000 coins.

Historically, when retail panics, the whales come out.

During the 2022 cycle, BTC plunged from $66k to $42k, and wallets holding 100,000-10000 BTC accumulated about 67,000 BTC, which equaled about $3.44 billion at the time. It was a classic example of the “buy fear” principle.

However, in recent times, the recent wave of whale-side selling has put the stated ideal of decentralized cryptocurrencies to the test, as a few powerful holders continue to dictate market direction. The result? Strategic bets on the futures market, exacerbating short-term turbulence.

Simply put, some whales didn’t just not buy on the decline, they capitalized on it. For example, Hypurrscan recorded how one whale opened a short position in BTC with 10x leverage for $235 million just ten days after the collapse.

A month later, another analyst noted a similar maneuver.