Crypto Weekly Digest | $19 Billion in Liquidations -Has the Panic Sell-off Left Bitcoin Undervalued?

Last week, global financial markets experienced intense volatility, with risk assets coming under widespread pressure following tough remarks on US-China trade tariffs by President Donald Trump. Against this backdrop, the highly leveraged cryptocurrency market was hit hard, with approximately $19 billion in positions liquidated across the network within 24 hours.

Despite the panic selling, some market analysts noted that the current market dynamics bear structural similarities to the "Black Swan" event of March 12, 2020, when BTC plunged from $8,000 to $3,158 (however, it later soared to approximately $70,000). They argue that this sell-off, like the one in 2020, was driven by an external, non-fundamental shock rather than systemic risk from within the market.

Analysts emphasize a more critical macroeconomic context: the Federal Reserve has recently initiated an interest rate-cutting cycle. This aligns with the backdrop of the "3/12" crash in 2020, after which the Fed entered a period of massive monetary easing. At that time, the improvement in liquidity ultimately fueled a significant rally in risk assets, including cryptocurrencies.

Subsequent market developments seem to partially support this view. After Mr. Trump later made more moderate statements, risk-off sentiment in the market quickly cooled. Crypto assets, led by Bitcoin, began to rebound, recovering most of their previous losses. Market sentiment has now stabilized.

Last week's U.S. government shutdown may not completely derail the progress of cryptocurrency legislation, but it has undoubtedly had a negative impact, according to industry insiders. As Congress failed to reach an agreement on government funding, the government entered its second week of shutdown, with thousands of employees furloughed and federal agency operations severely limited.

Just before this disruption, lawmakers on the Senate Banking Committee were deeply involved in drafting a comprehensive bill to regulate the crypto industry, which aims to clearly define regulatory authority over digital assets between the CFTC and the SEC. Meanwhile, the Senate Agriculture Committee, which has jurisdiction over the CFTC, has not yet released its version of the bill. Typically, staff from federal agencies play a crucial advisory role in the legislative drafting process. However, with many staff members on furlough, Kristin Smith, President of the Solana Policy Institute, stated this "is probably the biggest setback at the moment," as the shutdown prevents them from continuing their work.

On October 10, the U.S. government shutdown entered its ninth day. With no budget in place, the crypto policy agenda remains uncertain, but Washington insiders insist that the momentum for policy advancement has not been entirely lost. Although the House of Representatives is in recess due to the shutdown, the Senate appears to be continuing its sessions on budget and crypto matters.

Two sources familiar with the matter stated that the Senate Banking Committee remains committed to advancing crypto market structure policy, even if it means holding hearings during the government shutdown. They added that committee leadership hopes to hold a markup session for the Responsible Financial Innovation Act by the end of the month, regardless of whether a budget is passed.

Before the shutdown, one source indicated that the draft bill was "close to completion," but with reduced federal agency staffing, it is now expected to take more time to move forward. According to sources, agency staff who collaborate with congressional committees on policies like the crypto market structure bill have been mostly furloughed during the shutdown, reducing the likelihood of the draft being released soon.

Due to limited federal agency personnel, no new spot crypto ETFs are expected to be approved before the shutdown ends. According to the SEC's shutdown operational plan, the agency will not review or approve registration statements, nor will it issue notices of effectiveness. Given the SEC's new universal listing standards and the significant work invested by issuers and agency staff before the shutdown, two issuers expressed confidence that their new products would be quickly approved once federal agencies resume operations.

In an interview, Ark Invest founder and CEO Cathie Wood shared her optimism for Bitcoin, stablecoins, and emerging crypto projects. She believes Bitcoin will become the largest and unshakable asset in the crypto market and emphasized the significant value of stablecoins in global payments and the DeFi ecosystem.

– There won't be a large number of truly promising cryptocurrencies. In the pure crypto space, Bitcoin is dominant. Besides that, there are stablecoins, which are also cryptocurrencies.

– Bitcoin has three key roles. First, it is the foundation of a global monetary system; second, as an L1, it has never been hacked; third, it is the pioneer of the crypto-asset space.

– Beyond these, we are also watching some emerging projects, like Hyperliquid. This project is reminiscent of Solana in its early stages and is already starting to prove its value and compete with industry giants.

– We will also focus on other services, like money market funds, and projects related to the Solana ecosystem, such as Jito.

– We have not invested in gold, but that doesn't mean it's a bad investment.

The CIO of Bitwise posted on October 7th that various favorable factors have converged, and Q4 will see record-breaking capital inflows into Bitcoin ETFs—strong enough to push BTC's price to a new all-time high. There are three reasons: 1. The crypto industry is winning over major wealth management platforms like Morgan Stanley and Wells Fargo, which control vast assets and are allowing advisors to make crypto allocations for clients. 2. The "debasement trade" is a hot theme on Wall Street this year, and governments are indeed devaluing their currencies. 3. There is optimism for Bitcoin's Q4 returns, and higher prices will stimulate greater demand for Bitcoin ETFs.

JPMorgan stated that the global adoption of stablecoins could drive trillions of dollars into the U.S. dollar in the coming years, even though estimates of potential demand for this digital asset vary widely. "Rather than accelerating de-dollarization, the proliferation of stablecoins is more likely to reinforce the US dollar's primacy in the global financial system," wrote the JPMorgan team including Kunj Padh, Meera Chandan, and Octavia Popescu in a Tuesday report.

Estimates for the ultimate size of the stablecoin market vary greatly among bank strategists, even within JPMorgan itself. One emerging markets equity strategy team projects the market will eventually expand to about $2 trillion. The bank's U.S. interest rate strategists are more conservative, estimating a size of around $500 billion. At the high end of this range, JPMorgan's FX strategists expect that by 2027, an additional $1.4 trillion in U.S. dollar demand will be needed to support the growth of the stablecoin market. While this number is large, it is still far below the latest BIS statistic of an $8.6 trillion average daily turnover for U.S. dollar currency pairs.

MicroStrategy posted on X (formerly Twitter) on Tuesday that with Bitcoin hitting an all-time high of $126,080 on Monday, the value of its 640,031 BTC holdings briefly surpassed $80 billion. This brought its corporate treasury value close to that of Amazon, Google, and Microsoft, each of which holds between $95 billion and $97 billion in cash or cash equivalents.

MicroStrategy's routine Bitcoin purchases, combined with the rise in Bitcoin's value, have already pushed its treasury value past that of Nvidia, Apple, and Meta (Meta had considered a proposal to explore Bitcoin as a treasury asset, but it was voted down by a vast majority of shareholders in June).

Elon Musk's SpaceX currently holds $1 billion worth of Bitcoin.

Corporate treasuries of U.S. companies hold 947,958 BTC (approximately $115.2 billion).