The largest Bitcoin liquidation in history has ended! The Bitcoin leverage rate reset may ignite a new bull run.

Bitcoin liquidation set a historic record last week, with more than $10 billion in futures open contracts evaporating in a single day, marking the largest scale reset of Bitcoin leverage in history. However, Bitwise Chief Investment Officer Matt Hougan believes that this historic Bitcoin liquidation will not affect the bullish structure; instead, it may pave the way for a more stable market foundation, provided that the price can break through the key resistance of $117,100.

Bitcoin liquidation hits a historic high, leverage bubble completely cleared

(Source: Glassnode)

On October 16, the trading price of Bitcoin was about $111,000, down 1.38% from the previous day. There are views in the market that the recent record Bitcoin liquidation events indicate a market reset, but the fundamentals have not been fundamentally affected. Therefore, this may pave the way for a potential structural recovery in the future.

Bitwise Chief Investment Officer Matt Hougan stated in a report on October 14 that the historic Bitcoin liquidation over the weekend does not affect its bullish outlook. Hougan noted that the drop caused cryptocurrency prices to fall from their historical highs and subsequently stabilize around $110,000, but it is unlikely to have “any lasting impact” and emphasized that the fundamental outlook for BTC remains unchanged.

Hougan wrote in the report: “I expect the market to take a breather and refocus on the fundamentals of cryptocurrencies. When this happens, I believe the bullish market will continue to develop rapidly.” This optimism is not blind but is based on an in-depth analysis of market structure. Historical experience shows that large-scale Bitcoin liquidations often clear excessive leverage from the market, creating conditions for healthier subsequent pumps.

According to Glassnode data, Bitcoin futures open interest experienced one of the largest single-day declines in history during this event, with over $10 billion evaporated in leveraged positions. This astonishing number highlights the enormous leverage bubble that had accumulated in the market before the price correction. When the price suddenly dropped, these high-leverage positions were forcibly closed, triggering a chain reaction that further exacerbated the price decline.

Despite the surge in volatility, Glassnode analysts pointed out that the latest pullback seems to stem from targeted Close Positioning rather than a broader sell-off. They described this decline as a “derivatives market reset,” similar to the massive Bitcoin liquidation events following the FTX collapse in May 2021 and November 2022. Analysts particularly emphasized that while such events can be severe, they often help eliminate excessive risk and “lay the groundwork for a more stable market structure in the future.”

This viewpoint is supported by historical data. Looking back at previous large-scale Bitcoin liquidation events, although they caused severe fluctuations in the short term, the market often managed to establish a more solid foundation after the leverage was cleared, accumulating momentum for the next round of pump. The key is whether this liquidation has truly eliminated excessive speculation or is just a temporary adjustment.

At the same time, spot trading activity has surged sharply during the recent fluctuations, reaching the highest level so far in 2025. This phenomenon is worth noting, as an increase in spot trading volume typically reflects genuine buying and selling demand, rather than merely leveraged speculation. If the spot market can remain active, it will provide more reliable support for Bitcoin prices, reducing the excessive reliance on the derivatives market.

Key Price Levels and Market Structure After Bitcoin Leverage Reset

(Source: Glassnode)

As Hougan makes an optimistic forecast, the Bitcoin price remains within the cost basis percentile range of 0.85-0.95 (from $108,400 to $117,100). Glassnode analysts noted in a report on Wednesday that if the price fails to break through $117,100, the top cryptocurrency will face a greater risk of a pullback. This price level is not only a technical resistance, but also a critical watershed for market psychology.

Analysts have clearly warned: “Historically, when prices fail to hold this area, it usually leads to long-term adjustments, and consistently dropping below $108,000 is a key warning signal of structural weakness.” This prediction based on historical data provides investors with a clear risk assessment framework. If Bitcoin's rebound after liquidation fails to break through $117,100, the market may need more time to digest the oversupply and restore confidence.

From the supply quantile cost model perspective, the current price range represents the average cost area for most holders. Within this range, selling pressure and buying interest often form a balance, making the price prone to sideways consolidation. Only when the price breaks through the upper limit or falls below the lower limit will the market enter a new trend phase. Therefore, the breakthrough of $117,100 is crucial for confirming the continuation of the bullish market after the Bitcoin leverage rate reset.

The data from the options market provides another important perspective. Glassnode emphasizes that defensive positions surged significantly a few days before the market downturn. The put/call volume ratio, which measures the balance between bearish and bullish bets, skyrocketed to above 1.0 and closed around 1.4 while BTC hovered around $121,700.

This data is crucial as it shows that professional traders have been actively preparing for risk even before the Bitcoin liquidation occurs. Glassnode analysts wrote: “While such a sudden pump does not always predict a downturn, it often indicates structural pressure or concentrated hedging, suggesting that traders have been actively preparing for risk even before a broader wave of liquidation starts.”

This prescient hedging behavior reflects market participants' concerns about the excessive leverage of Bitcoin. When the put/call ratio rises to such high levels, it typically indicates that market sentiment has shifted from extreme optimism to caution. These experienced traders are protecting their positions by purchasing put options, essentially insuring themselves against potential upcoming volatility.

In hindsight, these defensive positions proved to be wise. When the Bitcoin liquidation truly occurred, those traders who hedged in advance were able to reduce their losses and may even have profited from the decline. In contrast, those speculators who excessively used Bitcoin leverage suffered heavy losses, with many high-leverage positions being forcibly Closed Position within a few hours.

Due to the market not fully recovering yet, Glassnode analysts point out that the reflow of spot Bitcoin exchange-traded funds (ETFs) and stable on-chain accumulation are crucial for restoring confidence and confirming a continued recovery. The fund flows of spot ETFs have been an important indicator of institutional investor sentiment. If the ETF can achieve a net inflow again, it would indicate that institutional investors view this Bitcoin liquidation as a buying opportunity rather than the start of a trend reversal.

On-chain accumulation data is equally important. The accumulation behavior of long-term holders usually reflects confidence in the fundamental value of Bitcoin. If on-chain addresses continue to increase their holdings after the Bitcoin leverage reset, it will be a strong bullish signal. Conversely, if long-term holders also start distributing their chips, it may signal that a deeper correction is on the horizon.

From a broader market structure perspective, this historic Bitcoin liquidation may mark an important turning point. During the early and mid stages of a bull market, the accumulation of leverage is normal, as investors are confident about future price trends. However, when leverage accumulates to extreme levels, the market becomes fragile and susceptible to any negative news or technical pullbacks.

The large-scale liquidation of Bitcoin leverage this time is actually a manifestation of the market's self-correction mechanism. By forcibly closing positions with excessive leverage, the market has eliminated potential instability factors, creating conditions for a healthier rise in the future. If the judgments of analysts from Hougan and Glassnode are correct, this adjustment may just be a temporary pullback in the bullish market, rather than the end of the trend.

The key lies in the market reaction in the coming weeks. If Bitcoin can successfully break through $117,100, and ETF funds start flowing back in while on-chain accumulation continues to increase, then this Bitcoin liquidation could indeed lay a solid foundation for the next phase of the pump. Conversely, if the price continues to hover in the current range or falls below $108,400, the market may need a longer time to digest this impact.