Three factors flashing recovery signals after $500bn crypto wipeout

Crypto traders are still reeling from the chaos that wiped 11%, or roughly $500 billion, off the market’s total value in October.

But there are reasons to be optimistic.

“The macro setup is shifting fast,” wrote David Brickell and Chris Mills, the analysts behind the London Crypto Club’s weekly Connecting the Dots newsletter, on Sunday. “Liquidity indicators are tightening, and the Fed looks close to ending its quantitative tightening programme.”

This setup will “trigger a short-term correction before setting up the next parabolic leg higher into 2026,” they added.

Their comments come after one of the most volatile stretches ever for crypto markets. On October 10, US President Donald Trump’s threat to slam Chinese imports with a 100% tariff triggered the liquidation of $19 billion in leveraged positions.

While there are some signs of recovery, crypto is mainly trading sideways with Bitcoin down over 10% from all-time highs.

Here’s what to watch this week:

Trade war

Trade war fears linger in crypto markets, Brickell and Mills wrote.

That’s despite Trump offering a more conciliatory tone towards Beijing. On Friday, the US president said that the 100% duty was “not sustainable” in an interview with Fox News.

Trump now plans to meet Chinese President Xi Jinping in South Korea in two weeks to defuse tensions between Washington and Beijing.

“This is all just the ‘art of the deal and the‘TACO’ [Trump Always Chickens Out] trade remains alive and well,” the London Crypto Club analysts wrote.

Federal Reserve

The Federal Reserve is expected to cut interest rates in October. The CME FedWatch tool shows a 99% chance of a 0.25% cut in interest rates. Lower interest rates tend to bolster risk-on assets like crypto.

Dovish comments from the central bank’s officials have reinforced those expectations, Brickell and Mills said, hinting that the Fed may be nearing the end of its quantitative tightening cycle.

That means more money will be injected into the financial system. That’s typically good news for risk-on assets like crypto.

Coinbase expects the Fed to deliver two more rate cuts this quarter, unlocking part of the $7 trillion parked in US money market funds and potentially reigniting demand for risk assets.

Fed Chair Jerome Powell has said that reserves are “nearing the lower end of ample levels,” hinting the central bank may act this month.

Small bank stress

To be sure, there are also reasons to be concerned.

Some regional US banks are showing renewed signs of strain, Brickell and Mills said. Zions Bancorp took a $50 million loss on bad loans, and Western Alliance disclosed a borrower default, reviving fears of credit stress.

The Fed’s Beige Book showed consumer spending inching down and employers cutting headcount, signalling US economic weakness.

With bank funding stress building, Brickell and Mills say crypto underperformance is a reflection of tightening liquidity, the same “canary” seen in repo markets.

While they remain bullish on Bitcoin’s ability to recover from the latest wipeout, “underlying flickers of bank funding stress auger for caution,” Brickell and Mills said.