Author: Tanay Ved, Coin Metrics Compiled by: GaryMa, Wu Shuo Blockchain Key points summary Demand from major absorption channels such as ETFs and DATs has weakened recently, while the deleveraging events in October and the macroeconomic backdrop of declining risk appetite continue to put pressure on the crypto asset market. • Leverage in the futures and DeFi lending markets has been reset, with positions becoming lighter and cleaner, thereby reducing systemic risk. • Spot liquidity has not yet recovered, and both mainstream assets and altcoins remain weak, making the market more fragile and more susceptible to unexpected price fluctuations. introduction Uptober started strong, fueled by Bitcoin hitting a new all-time high. However, this optimism was quickly shattered by the flash crash in October. Since then, BTC has fallen by approximately $40,000 (over 33%), with altcoins suffering an even greater blow, pushing the overall market capitalization close to $3 trillion. Despite positive fundamental developments this year, price performance has shown a clear divergence from market sentiment. Digital assets appear to be at the crossroads of multiple external and internal forces. At the macro level, uncertainty surrounding a December rate cut, coupled with recent weakness in tech stocks, has exacerbated the decline in risk appetite. Within the crypto market, core absorption channels such as ETFs and Digital Asset Vaults (DAT) are experiencing outflows and increased cost pressures. Meanwhile, the market-wide liquidation that occurred on October 10th triggered one of the most severe deleveraging events in recent years, and its aftershocks continue as market liquidity remains shallow. This report will break down the drivers behind the recent weakness in the crypto asset market. We will delve into ETF fund flows, perpetual futures and DeFi leverage, as well as order book liquidity, to explore how these changes reflect the current market conditions. The macroeconomic environment has shifted to a decline in risk appetite. The performance divergence between Bitcoin and major asset classes is widening. Gold has surged more than 50% year-to-date, driven by record central bank demand and ongoing trade tensions. Meanwhile, tech stocks (NASDAQ) lost momentum in the fourth quarter as the market reassessed the probability of a Fed rate cut and the sustainability of AI-driven valuations. As our previous research has shown, the relationship between BTC and "risk assets" like tech stocks and "safe-haven assets" like gold fluctuates cyclically with the macroeconomic environment. This means it is particularly sensitive to sudden events or market shocks, such as the flash crash in October and the recent decline in risk appetite. As the anchor of the entire crypto market, Bitcoin's pullback continues to spread to other assets. Although themes such as privacy occasionally show brief performance, they are generally still in sync with BTC. ETFs and DAT: Demand weakens Bitcoin's recent weakness is partly due to the weakening of funding channels that have been supporting it for much of 2024–2025. ETFs have seen net outflows for several consecutive weeks since mid-October, totaling $4.9 billion. This is the largest round of redemptions since April 2025, when Bitcoin fell to around $75,000 due to tariff expectations. Despite the significant short-term outflows, on-chain holdings remain on an upward trend, with the BlackRock IBIT ETF alone holding 780,000 BTC, representing approximately 60% of the total supply of spot Bitcoin ETFs. If funds return to a pattern of sustained net inflows, it would indicate that this channel is stabilizing. Historically, ETF demand has been a key absorber of supply when risk appetite improves. Digital asset treasuries (DATs) are also facing pressure. As markets decline, the market capitalization of their equity and crypto holdings is compressed, putting pressure on the net asset value premium that underpins their exponential growth mechanism. This will limit their ability to raise new capital through stock issuance or debt issuance, thus limiting their room to increase their “per-crypto asset” allocation. Smaller or newer DATs are particularly sensitive to this change and will be more cautious when their cost base and equity pricing become unfavorable. Strategy—currently the largest holder of DAT—holds 649,870 BTC (approximately 3.2% of the total supply) at an average cost of $74,333. As shown in the chart below, Strategy's accumulation accelerated significantly when BTC rose and its stock price performed strongly, but has slowed noticeably recently, without becoming an active selling force. Even so, Strategy remains in a profit position, with its cost basis below the current price. If BTC falls further, or if it faces the risk of being removed from the index, Strategy may come under pressure; however, if the market reverses and its balance sheet and valuation improve, it is expected to resume a stronger pace of accumulation. On-chain profitability metrics also reflect this situation. Short-term holders' SOPR (<155 days) has fallen into a loss range of ~23%, which typically indicates a "capitulation" sell-off by the most sensitive holding group. Long-term holders are still profitable on average, but SOPR also shows a mild selling tendency. If STH SOPR returns above 1.0, while LTH selling pressure eases, it means the market may have regained stability. Crypto Market Deleveraging: Perpetual Futures, DeFi Lending and Liquidity The liquidation wave on October 10th triggered a multi-level deleveraging cycle spanning futures, DeFi, and stablecoin leverage, the effects of which have not yet fully dissipated. Leverage cleansing in perpetual futures Within just a few hours, perpetual futures experienced the largest forced deleveraging in history, wiping out more than 30% of the open interest accumulated over several months. Altcoins and platforms with a high retail market share (such as Hyperliquid, Binance, and Bybit) saw the steepest declines, consistent with the aggressive leverage previously accumulated in these sectors. As shown in the chart below, current open interest remains significantly lower than the pre-crash peak of over $90 billion, and subsequently declined slightly further. This indicates that systemic leverage has been significantly cleared, and the market has entered a stabilization and repricing phase. Funding rates have also declined, reflecting a reset in bullish risk appetite. BTC funding rates have recently hovered in the neutral or slightly negative range, consistent with the market's lack of clear directional confidence. DeFi deleveraging The DeFi lending market has also undergone a gradual deleveraging process. Active lending on Aave V3 has been declining steadily since its peak at the end of September, as borrowers reduced leverage and repaid debts. The contraction in stablecoin lending was most pronounced, with the depegging of USDe causing a 65% drop in USDe lending volume and further triggering a liquidation chain of synthetic dollar leverage. ETH-related lending also contracted, with WETH and LST-related loans decreasing by 35-40%, indicating a significant exit from cyclical leverage and yield strategies. Spot liquidity is shallow Spot market liquidity failed to recover after the October 10th settlement. Order depth (±2%) on major exchanges remains 30–40% lower than at the beginning of October, indicating that liquidity has not yet recovered despite price stabilization. With fewer orders, the market is more vulnerable, and even minor trades can trigger excessive price shocks, exacerbating volatility and amplifying the impact of forced liquidations. Altcoins are experiencing even worse liquidity. Order book depth outside of mainstream assets has declined more sharply and for a longer period, indicating continued risk aversion and decreased market maker activity. While a comprehensive improvement in spot liquidity could mitigate price shocks and promote stability, current order book depth remains the most obvious indicator that systemic pressures have not yet dissipated. in conclusion The digital asset market is undergoing a comprehensive recalibration, characterized by weak demand for ETFs and DAT, leverage rebalancing in futures and DeFi, and persistently shallow spot liquidity. These factors are suppressing prices but simultaneously making the system healthier: lower leverage, more neutral positioning, and greater emphasis on fundamentals. Meanwhile, the macroeconomic environment remains headwinds: weakness in AI tech stocks, fluctuating expectations of interest rate cuts, and declining risk appetite continue to dampen market sentiment. Only when major demand channels (ETF inflows, DAT accumulation, and stablecoin supply growth) recover, coupled with a rebound in spot liquidity, will the market be able to stabilize and reverse. Until then, the market will continue to be caught in a tug-of-war between a macroeconomic environment of declining risk appetite and internal structural changes in the crypto market.Author: Tanay Ved, Coin Metrics Compiled by: GaryMa, Wu Shuo Blockchain Key points summary Demand from major absorption channels such as ETFs and DATs has weakened recently, while the deleveraging events in October and the macroeconomic backdrop of declining risk appetite continue to put pressure on the crypto asset market. • Leverage in the futures and DeFi lending markets has been reset, with positions becoming lighter and cleaner, thereby reducing systemic risk. • Spot liquidity has not yet recovered, and both mainstream assets and altcoins remain weak, making the market more fragile and more susceptible to unexpected price fluctuations. introduction Uptober started strong, fueled by Bitcoin hitting a new all-time high. However, this optimism was quickly shattered by the flash crash in October. Since then, BTC has fallen by approximately $40,000 (over 33%), with altcoins suffering an even greater blow, pushing the overall market capitalization close to $3 trillion. Despite positive fundamental developments this year, price performance has shown a clear divergence from market sentiment. Digital assets appear to be at the crossroads of multiple external and internal forces. At the macro level, uncertainty surrounding a December rate cut, coupled with recent weakness in tech stocks, has exacerbated the decline in risk appetite. Within the crypto market, core absorption channels such as ETFs and Digital Asset Vaults (DAT) are experiencing outflows and increased cost pressures. Meanwhile, the market-wide liquidation that occurred on October 10th triggered one of the most severe deleveraging events in recent years, and its aftershocks continue as market liquidity remains shallow. This report will break down the drivers behind the recent weakness in the crypto asset market. We will delve into ETF fund flows, perpetual futures and DeFi leverage, as well as order book liquidity, to explore how these changes reflect the current market conditions. The macroeconomic environment has shifted to a decline in risk appetite. The performance divergence between Bitcoin and major asset classes is widening. Gold has surged more than 50% year-to-date, driven by record central bank demand and ongoing trade tensions. Meanwhile, tech stocks (NASDAQ) lost momentum in the fourth quarter as the market reassessed the probability of a Fed rate cut and the sustainability of AI-driven valuations. As our previous research has shown, the relationship between BTC and "risk assets" like tech stocks and "safe-haven assets" like gold fluctuates cyclically with the macroeconomic environment. This means it is particularly sensitive to sudden events or market shocks, such as the flash crash in October and the recent decline in risk appetite. As the anchor of the entire crypto market, Bitcoin's pullback continues to spread to other assets. Although themes such as privacy occasionally show brief performance, they are generally still in sync with BTC. ETFs and DAT: Demand weakens Bitcoin's recent weakness is partly due to the weakening of funding channels that have been supporting it for much of 2024–2025. ETFs have seen net outflows for several consecutive weeks since mid-October, totaling $4.9 billion. This is the largest round of redemptions since April 2025, when Bitcoin fell to around $75,000 due to tariff expectations. Despite the significant short-term outflows, on-chain holdings remain on an upward trend, with the BlackRock IBIT ETF alone holding 780,000 BTC, representing approximately 60% of the total supply of spot Bitcoin ETFs. If funds return to a pattern of sustained net inflows, it would indicate that this channel is stabilizing. Historically, ETF demand has been a key absorber of supply when risk appetite improves. Digital asset treasuries (DATs) are also facing pressure. As markets decline, the market capitalization of their equity and crypto holdings is compressed, putting pressure on the net asset value premium that underpins their exponential growth mechanism. This will limit their ability to raise new capital through stock issuance or debt issuance, thus limiting their room to increase their “per-crypto asset” allocation. Smaller or newer DATs are particularly sensitive to this change and will be more cautious when their cost base and equity pricing become unfavorable. Strategy—currently the largest holder of DAT—holds 649,870 BTC (approximately 3.2% of the total supply) at an average cost of $74,333. As shown in the chart below, Strategy's accumulation accelerated significantly when BTC rose and its stock price performed strongly, but has slowed noticeably recently, without becoming an active selling force. Even so, Strategy remains in a profit position, with its cost basis below the current price. If BTC falls further, or if it faces the risk of being removed from the index, Strategy may come under pressure; however, if the market reverses and its balance sheet and valuation improve, it is expected to resume a stronger pace of accumulation. On-chain profitability metrics also reflect this situation. Short-term holders' SOPR (<155 days) has fallen into a loss range of ~23%, which typically indicates a "capitulation" sell-off by the most sensitive holding group. Long-term holders are still profitable on average, but SOPR also shows a mild selling tendency. If STH SOPR returns above 1.0, while LTH selling pressure eases, it means the market may have regained stability. Crypto Market Deleveraging: Perpetual Futures, DeFi Lending and Liquidity The liquidation wave on October 10th triggered a multi-level deleveraging cycle spanning futures, DeFi, and stablecoin leverage, the effects of which have not yet fully dissipated. Leverage cleansing in perpetual futures Within just a few hours, perpetual futures experienced the largest forced deleveraging in history, wiping out more than 30% of the open interest accumulated over several months. Altcoins and platforms with a high retail market share (such as Hyperliquid, Binance, and Bybit) saw the steepest declines, consistent with the aggressive leverage previously accumulated in these sectors. As shown in the chart below, current open interest remains significantly lower than the pre-crash peak of over $90 billion, and subsequently declined slightly further. This indicates that systemic leverage has been significantly cleared, and the market has entered a stabilization and repricing phase. Funding rates have also declined, reflecting a reset in bullish risk appetite. BTC funding rates have recently hovered in the neutral or slightly negative range, consistent with the market's lack of clear directional confidence. DeFi deleveraging The DeFi lending market has also undergone a gradual deleveraging process. Active lending on Aave V3 has been declining steadily since its peak at the end of September, as borrowers reduced leverage and repaid debts. The contraction in stablecoin lending was most pronounced, with the depegging of USDe causing a 65% drop in USDe lending volume and further triggering a liquidation chain of synthetic dollar leverage. ETH-related lending also contracted, with WETH and LST-related loans decreasing by 35-40%, indicating a significant exit from cyclical leverage and yield strategies. Spot liquidity is shallow Spot market liquidity failed to recover after the October 10th settlement. Order depth (±2%) on major exchanges remains 30–40% lower than at the beginning of October, indicating that liquidity has not yet recovered despite price stabilization. With fewer orders, the market is more vulnerable, and even minor trades can trigger excessive price shocks, exacerbating volatility and amplifying the impact of forced liquidations. Altcoins are experiencing even worse liquidity. Order book depth outside of mainstream assets has declined more sharply and for a longer period, indicating continued risk aversion and decreased market maker activity. While a comprehensive improvement in spot liquidity could mitigate price shocks and promote stability, current order book depth remains the most obvious indicator that systemic pressures have not yet dissipated. in conclusion The digital asset market is undergoing a comprehensive recalibration, characterized by weak demand for ETFs and DAT, leverage rebalancing in futures and DeFi, and persistently shallow spot liquidity. These factors are suppressing prices but simultaneously making the system healthier: lower leverage, more neutral positioning, and greater emphasis on fundamentals. Meanwhile, the macroeconomic environment remains headwinds: weakness in AI tech stocks, fluctuating expectations of interest rate cuts, and declining risk appetite continue to dampen market sentiment. Only when major demand channels (ETF inflows, DAT accumulation, and stablecoin supply growth) recover, coupled with a rebound in spot liquidity, will the market be able to stabilize and reverse. Until then, the market will continue to be caught in a tug-of-war between a macroeconomic environment of declining risk appetite and internal structural changes in the crypto market.