Bitcoin has hit liquidation levels last seen during the FTX collapse, but this time the shock came from a market overloaded with unprecedented leverage rather than fraud or exchange failure.

According to some analysts, leverage flushes like this have historically created strong medium-term opportunities, even as broader risks and late-cycle uncertainties remain.

The Spark Behind the Liquidation Wave

Bitcoin has just equalled FTX-era liquidation levels, but this time the cause isn’t an exchange implosion or hidden fraud. Instead, the shock came from a market overloaded with leverage—a buildup that grew quietly for months before breaking open in a matter of hours.

“The market has never carried this much leverage. In 2021, open interest peaked at $16.5 billion. In this cycle, it reached $47.5 billion– three times more. This [illustrates] how aggressive investors have become during this cycle,” Darkfost told BeInCrypto.

Liquidations occur when traders who borrow heavily are unable to maintain their positions once prices move against them. When leverage is stretched across the entire market, even a modest drop can trigger a wave of automated selling.

That is precisely what unfolded this week. The tens of billions of dollars in open interest had accumulated across exchanges, leaving the market vulnerable to any meaningful downturn.

Once Bitcoin slipped, the pressure broke. Forced liquidations cascaded through the system, each one accelerating the next.

“This all-time high in open interest occurred just before the events of October 10 and the series of major liquidations that followed, which increased the short-term volatility,” Darkfost added.

The scale and speed of the wipeout immediately drew comparisons to the FTX collapse.

Fresh Strength After the Shake-Out

Liquidation totals now resemble those seen in November 2022, with more than 9,000 to 10,000 BTC wiped out in a single day. But that’s where the similarity ends. 

In 2022, the market unraveled because of fraud and the failure of a major exchange. This time, the crash came from excessive leverage and normal market mechanics. That difference is crucial. 

The current shake-out does not signal structural failure. Instead, it reflects over-confident positioning and a crowded derivatives market. The unwinding was violent because the leverage was extreme. Yet once that excess leverage washed out, the picture begins to shift. 

“Historically, these deleveraging phases have often offered solid medium-term opportunities, just like after the FTX crash… which marked the end of the bear market,” Darkfost noted. 

Additionally, funding rates turned negative, a sign that traders backed away from overly bullish leveraged bets. Open interest also eased and didn’t rebound immediately, reducing the risk of another rapid wave of forced selling. 

At the same time, spot trading spiked—one of the strongest days of the year—indicating that real buyers, not borrowed money, were stepping in.

“A market rebuilding itself on spot after a leverage flush is a sign that a bottom may be forming. This is exactly the kind of signal you want to see after such a liquidation event,” Darkfost added.

This is where the window of opportunity opens.

Caution Amid a Cleaner Market

When large amounts of leverage are flushed out of the system, the market often becomes more stable. 

But Darkfost argued that before viewing this moment as an opportunity, it’s important to understand why these events happen so violently in the first place. Episodes like this highlight a persistent problem in the crypto industry: many traders still lack a basic understanding of risk.

“People need real education when it comes to risk management. Crypto remains lightly regulated and extremely accessible, and it is possible to use extreme leverage with huge amounts of capital,” he said, adding, “[If] an investor doesn’t perfectly know how to manage risk, their net worth can suffer heavy losses. The higher the leverage, the shorter the lifespan of the trade.”

With that warning in place, Darkfost also noted that the broader environment is not entirely straightforward.

“Given the current context, it is worth adding some nuance because we have reached the end of the cycle for those who still believe in that periodicity. The macro picture is not entirely clear yet and other concerns are emerging, including the possibility that MSCI could identify treasury heavy companies like MSTR.”

Only after acknowledging these risks does the larger historical pattern come into focus. Once excessive leverage is cleared, markets often return to a healthier footing. 

After the FTX collapse, a similar reset marked the end of the bear market and the start of a months-long recovery. A comparable dynamic may be taking shape again—although this time with more nuance and more variables at play.