Understanding the Recent Bitcoin and Ethereum Sell-off: Insights from JPMorgan
In the wake of a significant sell-off in Bitcoin (BTC) and Ethereum (ETH), JPMorgan has provided insights attributing this market downturn primarily to crypto-native leverage rather than the actions of institutional investors. According to the bank, while spot exchange-traded funds (ETFs) and Chicago Mercantile Exchange (CME) futures exhibited minimal forced selling, the perpetual futures markets experienced a sharp deleveraging that significantly impacted both cryptocurrencies. These observations underscore crucial dynamics within the crypto market, shaped by leverage, liquidations, and market structures.
From October 3 to October 17, Bitcoin’s value plummeted by 13.1%, decreasing from $122,316 to $106,329. Concurrently, the perpetual open interest in Bitcoin dipped dramatically from approximately $70 billion to $58 billion, indicating a decline of about $12 billion. This notable drop signals forced liquidations, rather than the more typical scenario of orderly position exits. Notably, data from Farside Investors highlights that Bitcoin spot ETFs experienced only $70.4 million in net outflows, mainly concentrated between October 14 to 16, a figure that pales in comparison to the extent of the price movement and leverage flush currently affecting derivatives markets.
Ethereum endured an even harsher deleveraging phase relative to its market size. The perpetual open interest for Ethereum experienced a fall from roughly $28 billion down to between $19 billion and $20 billion on October 10, translating to a decline ranging from $9 billion to $10 billion. Moreover, Ethereum’s spot ETFs recorded net outflows amounting to $668.9 million across several dates, notably on October 9, 10, 13, and 16. This figure is nearly 9.5 times more than the net outflows for Bitcoin ETFs during the same timeframe, with significant redemptions occurring on October 10 and 13.
Despite the more considerable institutional responses reflected in Ethereum ETFs, JPMorgan maintains that the driving force behind price movements in both cryptocurrencies was the deleveraging within the perpetual futures market. The report indicates that ETF flows exhibited minimal forced selling in contrast to the drastic effects seen in derivative markets. For instance, Ethereum’s open interest saw a decrease of around 35%, while Bitcoin’s dropped by roughly 17%. The unraveling of leverage across crypto-native platforms resulted in a coordinated sell-off, particularly noticeable on October 10.
Understanding the mechanics behind perpetual futures is critical to grasping why this sell-off occurred. Perpetual futures inherently exaggerate price movements due to the leverage they employ. When market prices decline, margin ratios can slip, compelling exchanges to liquidate under-margined positions via market orders, which can lead to rapid price declines further exacerbated by thin order books. The effect intensifies when cross-margining comes into play, as collateral values diminish in alignment with asset prices, catalyzing a cascade of forced sell orders among previously secured positions.
Key indicators in the market help to elucidate the situation further. During downturns, funding rates for perpetual futures typically convert to negative, with the asset trading at a discount compared to the spot index. The market generally stabilizes when funding rates move back toward zero, and the perpetual premium or discount aligns with spot prices. A simultaneous sharp drop in open interest aligns with the sell-off metrics, underscoring that the leverage was pulled from the system rather than shifting to new short positions. Bitcoin’s 17% and Ethereum’s 35% decline in open interest clearly signal genuine deleveraging within the market.
Looking ahead, the rebuilding of a constructive market environment after a significant deleveraging process takes time and is primarily driven by spot activity. The recovery or stabilization of prices is expected to accompany a gradual increase in open interest, with funding rates approaching neutrality and the perpetual basis recovering toward a tighter range. Observing Bitcoin around October 18, 2025, it was ranked #1 by market cap, showing a modest increase of 1.27% within a 24-hour span, indicating market stabilization efforts amidst ongoing analysis and reaction to past volatility.
In conclusion, the recent actions in the Bitcoin and Ethereum markets highlight the profound influence of leverage and the mechanics of perpetual futures. Understanding these dynamics is essential for navigating the current crypto landscape where volatility and risk are ever-present. As investors seek stability, it’s crucial to remain informed and evaluate the overall market health characterized by funding rates, open interest, and ETF flows.
