What if October’s violent flush was the moment the market needed? After one of the largest liquidation waves in years, Bitcoin’s drawdown stalled near 4%, Ethereum snapped back, and futures positioning has been scrubbed clean. With open interest at multi‑year lows and momentum quietly flipping, Fundstrat’s Tom Lee says the stage is set for a late‑year bounce. The window to reposition before volatility returns may be shorter than it looks.

The “Reset” After the Flush

October’s liquidation cascade cleared out overextended leverage, but this time the damage was contained. BTC held firm, ETH recovered quickly, and spot prices stabilized instead of spiraling lower. This is the classic reset: positions reduced, volatility dampened, and a more balanced tape that can support trend resumption.

Signals Turning: Low OI, Cleaner Positioning

Futures open interest in BTC and ETH has slipped to cycle lows, historically coinciding with local bottoms. With leverage reduced and technicals improving, the market has fewer weak hands to force sell. For traders, this means a higher signal‑to‑noise environment where spot flows matter more than reflexive liquidations.

Watch these tells: - Open interest and funding rates staying muted as price grinds higher (constructive). - A rising spot premium over perps and a stable or slightly positive basis. - Improving market breadth (more majors printing higher highs, not just BTC dominance drifting).

Institutions and Macro: Quiet Tailwinds

Traditional finance is tiptoeing back: banks and brokers are piloting crypto collateral programs, and balance‑sheet policies for digital assets are slowly modernizing. If the Fed leans into further rate cuts, easier financial conditions typically favor risk assets—this cycle skewing toward macro assets like BTC and ETH rather than long‑duration “tech bets.” Correlation with equities remains elevated, so a steady S&P tends to underpin crypto bids. Caveat: liquidity is thinner than in peak cycles—moves can be fast both ways.

Actionable Playbook for the Weeks Ahead

• Favor spot over perps while OI is depressed; keep leverage conservative (≤2x) until trend confirms.
• Stagger entries via DCA or bid zones near prior liquidation shelves; avoid chasing single‑candle breakouts.
• Define invalidation on every trade (e.g., prior swing low) and use stop‑limits to avoid slippage.
• Track BTC dominance for risk‑on/risk‑off; rising dominance with rising price = healthier backdrop.
• Monitor ETH L2 activity (gas, DEX volume, stablecoin transfers); rising usage can front‑run price.
• Use options data: a normalizing put/call skew and stable IV on up‑moves signal constructive demand.
• Calendar for catalysts: FOMC, CPI, jobs, and large options expiries—adjust risk around prints.

Key Risks That Can Derail the Setup

• Sharp macro shocks (geopolitics, energy spikes) reigniting forced deleveraging.
• Hawkish Fed repricing rate‑cut odds, tightening liquidity.
• OI rebuilding too fast, inviting another long squeeze.
• Regulatory surprises that hit on‑ramps, stablecoins, or exchanges.

Bottom Line

A market with low leverage, improving technicals, and tentative institutional support offers asymmetric upside—if you respect risk. Let price prove strength, scale in deliberately, and make funding, OI, and spot flows your north stars. The worst may be past, but disciplined execution is what converts opportunity into P&L.

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