After experiencing a brief and rare &#34;independent market&#34; on Tuesday—where U.S. stocks fell while cryptocurrencies rose—the harsh reality delivered a heavy blow to the bulls just 24 hours later.
On Wednesday, the price of Bitcoin plummeted by 4%, briefly falling below the $90,000 mark, with an intraday low of $88,522. Meanwhile, Ethereum (ETH) suffered even more, crashing by 6.5% and losing the $3,000 threshold.
This crash occurred against the backdrop of a rising Nasdaq index, completely shattering the narrative of crypto assets as &#34;safe-haven assets.&#34; More concerning is that a crisis led by leveraged funds is brewing deep within the market: on one side, institutional funds are decisively exiting, while on the other, retail investors are frantically &#34;bottom-fishing&#34; in a gamble.
K33 Research's research director Vetle Lunde warned that this abnormal combination of &#34;high leverage with no rebound&#34; systematically increases the risk of a future &#34;run.&#34; These trapped bullish traders not only face asset depreciation but also have to pay persistently high funding rates, making them the most vulnerable link in the market.
<h2>The Most Severe &#34;Meat Grinder&#34; Since 2017</h2>
&#34;This is not just an ordinary pullback; this is a historically significant correction.&#34;
Vetle Lunde, research director at the well-known crypto research firm K33 Research, wrote in a recent report. Data shows that Bitcoin has fallen nearly 30% from its historical high of $126,000 set in early October, within just 43 days.
Lunde pointed out that among all market adjustments lasting over 50 days since March 2017, the current drawdown ranks among the &#34;most severe.&#34;
Market sentiment indicators have plummeted to rock bottom. The &#34;Crypto Fear and Greed Index&#34; is currently firmly stuck in the &#34;extreme fear&#34; range.
This panic sentiment is visually reflected in the capital markets: the stock price of Bitcoin holder MicroStrategy (MSTR) plummeted over 8%, hitting its lowest point in more than a year; stablecoin issuer Circle (CRCL), mining company Bitfarms (BITF), and Hive Digital (HIVE) were all severely affected, with significant declines.
<h2>A Large Number of Retail Investors &#34;Catching Falling Knives&#34;</h2>
The most dangerous signal in the current market is not merely the price decline, but the extreme abnormal structure emerging in the derivatives market.
According to media reports, despite the continuous drop in Bitcoin prices, the open interest in Bitcoin perpetual futures on offshore exchanges surged by over 36,000 contracts last week, with a nominal value exceeding $3.3 billion. This is the largest single-week increase since April of this year.
Typically, in a downtrend, as bulls stop-loss and exit, the financing rates should turn negative. However, bizarrely, the current financing rates remain high.
What does this mean? During the price collapse, a large number of aggressive speculators are increasing their leverage to go long against the trend, attempting to &#34;catch falling knives&#34; in hopes of profiting from a rebound
Many traders did not buy at the current price but instead placed a large number of limit orders, hoping to accumulate at lower levels. However, the continuous decline in prices triggered these pending orders, causing these leveraged positions to be trapped as soon as they were executed.
Vetle Lunde expressed concern about this: &#34;The open interest of perpetual contracts has returned to the levels seen at the market peak in October. The occurrence of this during a price decline systematically increases the risk of a future 'long squeeze.'&#34;
In other words, if prices continue to fall, this additional $3.3 billion in leverage will fuel the next round of crashes, triggering a chain of liquidations.
<h2>ETF Bloodletting Continues</h2>
In contrast to the frenzied gambling of retail investors in the offshore market is the withdrawal of domestic institutional investors in the United States.
The Chicago Mercantile Exchange (CME) — the main battleground for U.S. institutional investors — is currently experiencing unusually quiet trading, with very narrow premiums, indicating that institutions are cautious about the future market.
More intuitive data comes from ETF fund flows.
Data from Farside Investors shows that over the past five trading days, investors have withdrawn nearly $2.3 billion from U.S.-listed spot Bitcoin ETFs. Such a scale of capital outflow indicates that Wall Street's patience has run out.
&#34;Bitcoin's price has fallen below the average cost basis of U.S. Bitcoin ETF holders,&#34; Lunde pointed out. This means that the vast majority of incremental funds entering the market through ETFs are currently in a state of loss, and this &#34;underwater&#34; status is likely to trigger stop-loss sell-offs, further exacerbating downward pressure.
Satraj Bambra, CEO of hybrid exchange Rails, sharply pointed out the current state of liquidity exhaustion: &#34;The clearing event on October 10 that evaporated $19 billion in derivative positions created a huge liquidity vacuum that has yet to be repaired. There are simply not enough new buyers entering to absorb the selling pressure; both the spot and derivative markets are overwhelmed by sell orders.&#34;
<h2>Where is the Bottom?</h2>
Faced with such a perilous market, the most pressing question for investors is: where is the bottom?
K33 Research provided two potential scenarios:
· Optimistic Scenario: If the current pullback follows the patterns of the two deepest pullbacks in the past two years, Bitcoin may find a bottom between $84,000 and $86,000. This would require the market to quickly digest the leverage bubble in the offshore market in the short term.
· Pessimistic Scenario: If panic spreads and ETF outflows continue, the market may experience a natural further decline, targeting $74,433. This price is not only the low point from April this year but also the average entry price for Strategy (MSTR).
Looking back at history, K33 analyzed the previous seven market cycles characterized by &#34;aggressive retail and institutional withdrawal,&#34; and the result was that in six of those instances, Bitcoin experienced further significant declines, with an average monthly drop of 15%
Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk

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The cryptocurrency market has experienced the most severe adjustment since 2017, with Bitcoin's price plummeting by 4% and Ethereum dropping by 6.5%. Institutional funds are withdrawing, while retail investors are frantically bottom-fishing, leading to high leverage risks in the market. K33 Research warns that this situation increases the risk of future market runs. Market sentiment is extremely fearful, and the stock prices of related companies have significantly declined

- Following a brief and rare "independent market" where U.S. stocks fell while cryptocurrencies rose, Bitcoin plummeted 4% to below $90,000, and Ethereum dropped 6.5% below $3,000.  
- The market is facing a crisis driven by leveraged funds, with institutional investors exiting and retail traders aggressively buying the dip, increasing the risk of a future "long squeeze."  
- K33 Research suggests that if the current downturn follows past patterns, Bitcoin could find support between $84,000 and $86,000, but if panic spreads, it may drop to $74,433.

Leveraged "gamblers" are buried, institutional funds withdraw, and the cryptocurrency market experiences its most severe adjustment since 2017