Post-US$19bil crash, crypto faces new reality

WASHINGTON: A year ago, crypto was riding a wave of White House support, Wall Street enthusiasm and expectations of a new golden age.

Then came October’s historic crash, wiping out a record US$19bil in leveraged bets in a single day, setting off an industry-wide retrenchment and exposing the fragility of a market structure supposedly coming of age.

About 12 months later, market bellwether bitcoin remains more than 30% below its record high.

Attempts at a sustained rally have repeatedly faltered and traders have been slow to rebuild the leveraged positions that once powered crypto’s biggest booms. 

Total open interest in bitcoin-linked perpetual futures – a gauge of traders’ appetite for leveraged bets – stood at about US$45bil a year ago, according to CryptoQuant data.

It more than halved in the six months after the crash.

Bitcoin’s recent rally above US$80,000 restored some confidence, but open interest in the world’s biggest token remains well off its peak. 

Still, the malaise hasn’t stopped banks and major trading firms from experimenting with digital assets.

More important than whether leverage returns is whether the market itself has become more resilient, said Julia Zhou, president at crypto market maker Caladan.