What does the biggest crypto washout in five years mean for your next trade—and why is a legacy bank’s quiet nod to crypto collateral suddenly shifting risk premia? Fundstrat’s Tom Lee sees an end-2025 setup that’s unusually asymmetric: open interest at historic lows, technicals turning up, and ETH usage growing even as price lags. If liquidity returns, the path of least resistance may surprise the skeptics.

What’s happening

A massive Oct. 10 deleveraging—tied in part to renewed U.S.–China tensions—flushed the market, marking the largest liquidation event in ~five years. Despite that shock, Bitcoin only slipped 3–4%, signaling resilient demand. Derivatives open interest in BTC and ETH is now at or near cycle lows, while technicals are improving from oversold conditions.

JPMorgan has indicated it’s open to using BTC and ETH as collateral, a structural shift that could marginally lower perceived counterparty risk and broaden institutional use cases.

On-chain, Ethereum activity is climbing across Layer 1 and Layer 2—driven by stablecoin settlement—even though price hasn’t fully reflected the growth. Outside crypto, Fundstrat remains bullish on the S&P 500 into year-end amid expected Fed cuts and receding skepticism.

Why this matters to traders

- Low open interest means thinner positioning and fewer forced liquidations—less downside reflexivity and cleaner trend signals if spot demand picks up. - Resilience through a historic wipeout strengthens BTC’s “store of value” narrative, narrowing left-tail scenarios. - A major bank considering crypto as collateral can improve liquidity pathways over time—especially for market makers and OTC desks. - ETH usage up, price lagging creates a potential catch-up thesis if network demand continues to outpace valuation.

How to position (tactically)

• Rebuild with rules: Scale into spot BTC/ETH on pullbacks to rising MAs; cut fast if trend breaks. Avoid full-size entries in a single tranche.
• Watch derivatives tells: Track OI, funding, and basis. A healthy rebuild is rising OI + flat-to-slightly-positive funding, not runaway longs.
• Express upside efficiently: Use call spreads when implied volatility is mid-range; roll winners rather than chase.
• Lean into ETH’s usage: Monitor L2 TPS, fees, and stablecoin net inflows; add on on-chain growth with price confirmation.
• Liquidity map: Note prior liquidation zones; expect mean reversion into those “air pockets” as OI returns.
• Macro overlay: If Fed easing resumes and S&P trends higher, beta tailwinds favor crypto risk; fade rallies if that correlation breaks.

Key risks to respect

• Macro relapse: Re-escalation in U.S.–China tensions or upside inflation surprises could tighten financial conditions again.
• Policy/regulatory shocks: Adverse rulings or enforcement actions can freeze liquidity quickly.
• False starts: Low OI can magnify wicks; wait for breadth (spot volumes, sustained HL structure) before sizing up.
• Bank integration is gradual: JPM’s collateral posture may be incremental, not an immediate floodgate.

One actionable takeaway

Build a staged re-entry plan: accumulate BTC/ETH on dips while OI rebuilds from lows; add on confirmation when you see rising spot volumes, stable funding, and steady stablecoin inflows. If you prefer defined risk, initiate call spreads now and convert to spot on trend confirmation.

Bottom line

A cleansed derivatives stack, resilient BTC price action, growing ETH activity, and incremental institutional acceptance form a constructive backdrop into 2025. The edge goes to disciplined traders who let positioning and on-chain data lead, not headlines.

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