The crypto market has yet to fully recover from the October crash, which triggered widespread losses and large-scale liquidations. 

Despite positive catalysts such as the rate cut, liquidity injections, and a falling US dollar index (DXY), a bull rally has failed to materialize for Bitcoin or the broader market, raising concerns among market participants. However, new data suggests that one of the key forces behind the market downturn, excess leverage, may be reducing.

Understanding the Nature of the Crypto Market Weakness

The October market crash resulted in the largest liquidation in cryptocurrency history. BeInCrypto reported that over $19 billion in leveraged positions were wiped out.

The event, dubbed “Crypto Black Friday,” was reportedly triggered by President Donald Trump’s announcement of a 100% tariff on China. Still, the continuation of the downturn revealed deeper vulnerabilities.

Additional liquidation waves followed throughout November. The market experienced liquidations exceeding $1 billion multiple times in the month.

These market declines stood out due to their detachment from typical catalysts. In mid-November, the Kobeissi Letter noted that Bitcoin’s value continued to fall, even after President Trump stated that making America “number one in crypto” was a top priority.

The post highlighted that the initial pressure came from institutional outflows. In a market with moderate leverage, such outflows would likely have resulted in a controlled pullback, reflecting a temporary imbalance between buyers and sellers rather than a sharp sell-off.

“The problem becomes excessive levels of leverage AMID these outflows…Excessive levels of leverage have resulted in a seemingly hypersensitive market,” the Kobeissi Letter stated.

This liquidation-driven selling created a cascading effect. Each wave of forced selling pushed prices lower, triggering further liquidations and accelerating the downturn. The result was a sharp and rapid decline.

Evidence of Leverage Reduction and Market Reset

The market structure has shifted significantly since the crash. According to Coinglass data, Bitcoin’s Open Interest has dropped sharply.

A decline in Bitcoin’s OI indicates that traders are closing futures and perpetual positions, reducing the total value of outstanding derivatives contracts. In practical terms, leverage is being flushed from the market.

Bitcoin Open Interest. Source: Coinglass

Alphractal reported that between August and November, Bitcoin saw the most leveraged trades in its history, with up to 80 million on 19 exchanges in a single day. This activity has decreased, with the 7-day average now at 13 million trades.

“After the major liquidation event in October, the market became far more cautious toward BTC and leverage itself,” the post read.

While Bitcoin shows clear signs of deleveraging, Ethereum presents a more nuanced picture. ETH reached a peak of nearly 50 million trades in 2025. Furthermore, its recent activity remains stronger, with a 7-day average of 17.5 million.

This suggests traders are shifting away from leveraged Bitcoin trades more. Analyst NoLimit further added that when it comes to altcoins, their current situation involves “excess leverage is being removed,” which is a positive sign.

Thus, while the market remains fragile, the reduction in leverage suggests that one of the main structural risks is weakening. If this trend continues, it could create a more stable foundation for a future recovery.