A violent flush can be the spark for the next leg up—and that’s exactly the setup many see after the largest crypto deleveraging in five years. Market veteran Tom Lee argues that a cleaner derivatives book, potential Fed rate cuts, and surging stablecoin-driven activity on Ethereum’s L1/L2 stack could prime Bitcoin and ETH for a year-end 2025 run. The question for traders: how do you position when leverage is washed out but momentum is rebuilding?

What’s happening

The October 10 deleveraging event wiped out elevated open interest and forced weak hands out of the market. According to Lee, Bitcoin behaved like a store of value through the stress, while Ethereum’s on-chain demand—particularly from stablecoin flows across L1 and L2—remains a structural tailwind. Combined with a friendlier macro backdrop as rate cuts take hold, the tape looks cleaner for potential trend continuation into year-end.

Why this matters to traders

- Lower open interest and normalized funding often reduce whipsaw risk and set the stage for more organic spot-led advances. - Rate cuts historically improve risk appetite and liquidity, supporting higher-beta crypto moves. - Persistent stablecoin settlement on ETH signals real utility and fee throughput, a positive for network value capture and L2 activity.

Key signals to watch

• Open Interest and Funding: Look for subdued OI with neutral-to-negative funding as price grinds higher—classic sign of a healthier uptrend.
• Spot vs. Perps: Rising spot volumes outpacing perpetuals indicates stronger conviction.
• Stablecoin Flows on ETH: Monitor transfer volumes, active addresses, and L2 throughput; sustained growth supports ETH demand.
• BTC Dominance: A steady or rising dominance during up-moves suggests risk is cycling into majors first.
• Macro Tape: Fed communication, labor data, and inflation prints can reprice rate-cut odds—watch the front end of the yield curve.

Opportunities on the table

• BTC: Treat prior deleveraging lows as a risk marker; constructive as long as price bases above those levels with contained funding.
• ETH: Favor pullback entries when on-chain activity (stablecoin settlement, L2 TPS) remains firm and gas fees normalize after spikes.
• Pairs and Rotations: If BTC leads, consider ETH lag-catchup setups; if ETH on-chain metrics accelerate, rotate incrementally.

Risks and invalidations

• Macro Shock: Sticky inflation or hawkish surprises could undercut the rate-cut narrative.
• Leverage Rebuild: Rapid OI expansion alongside rising funding without price progress signals froth and invites another flush.
• On-Chain Drop-off: If stablecoin activity fades, ETH’s relative bid may weaken.

Actionable takeaway

Keep it simple: if BTC and ETH hold above their Oct-10 deleveraging lows while OI/funding stay contained, initiate staged entries with tight invalidations just below those lows. Add on strength only when spot leads and perps remain disciplined.

The bottom line

The market has been reset. If macro winds stay supportive and on-chain demand persists, majors have room to trend. Trade the levels, respect the leverage signals, and let spot drive your bias.

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