By Brett Munster
September liquidations set the stage for Q4
Last newsletter, we laid out five structural tailwinds poised to drive capital into crypto this Q4—rising global liquidity, interest rate cuts, ETF momentum, corporate buying, and, yes, crypto finally getting a VIP pass into 401ks. Riding that wave, we were feeling pretty confident—some might even call it bullish. Then, of course, because this is crypto, the market staged a spectacular liquidation within 24 hours of publishing that newsletter, as if it had been waiting until I finished typing that last sentence. Which goes to show exactly why I am a long-term oriented investor and not a day trader.
On September 22, roughly $1.7 billion in leveraged positions were liquidated across futures and perpetual markets. That alone was the largest single-day liquidation wave in months, knocking out hundreds of thousands of small leveraged traders. Just days later, a second wave erupted with total 24-hour liquidations estimated between $1.1 billion and $1.2 billion. Two of the three biggest liquidation events of the year — and they happened within days of each other. Bitcoin fell about 7% from its high and ETH dropped 17%.
Was this the start of a full-blown crypto crash, or just a painful speed bump on the path to higher prices? Let’s walk through the facts.
At September’s outset, buyers were in the driver’s seat as digital-asset treasuries and institutional allocators jumped in. Capital inflows via ETFs were meaningful, and a parade of successful crypto IPOs (Circle, Bullish, Gemini, and Figure) helped stoke excitement. Meanwhile, U.S. lawmakers floated the idea of a “Strategic Bitcoin Reserve,” signaling that nation state adoption is no longer a fringe idea.
Then on September 17, the Fed delivered a dovish 25 basis point cut and explicitly left room for further easing. The macro backdrop was broadly supportive for risk assets, including crypto.
With that tailwind, leverage piled up. Open interest across crypto futures markets surged over the course of September. Many participants — especially in Ether and altcoins — leaned long in anticipation of a big Q4 rally. (Maybe they all read my last newsletter so in reality, this was all my fault.)
Once prices slipped slightly, the house of cards started to topple. A modest dip, especially in ETH and select altcoins, pushed prices below many traders’ maintenance margins, triggering forced liquidations. Those forced sales begat further price declines, triggering more liquidations — a classic deleveraging cascade. Because many altcoins and concentrated ETH books have relatively shallow liquidity, slippage amplified losses and widened the impact.
In short, the market had become overcrowded on bullish leverage, and a downward jolt forced simultaneous exits. Altcoins, with thinner markets, saw outsized volatility and slippage.
Painful as that week was, we believe these events ultimately clear the runway for a more sustainable rally into Q4 — rather than signaling a regime change. Here are a few reasons why.
1. It wasn’t a capitulation by long-term holders. On-chain metrics suggest ~94% of the liquidations were long positions — meaning the move was a purge of excessive leverage, not wholesale structural exit by deep-pocketed holders. Meanwhile, accumulation from large wallets indicates that stronger hands viewed this drawdown as a buying opportunity, absorbing the short-term panic. That pattern (retail panic → accumulation by longer-term wallets) tends to support more resilient upmoves.
2. Leverage is now sanitized. Derivatives trackers report that futures open interest fell from multi-week highs in the aftermath of the liquidation waves. Funding rates — which had been strongly positive (a sign of crowded longs) — re-centered toward neutral. Less open interest plus normalized funding means the market is in a much more stable position now.
3. Technically, this looks like a textbook reset. After a sharp drop, the market appears to already have found a support zone and prices have rebounded. The swings have been volatile, but the overall pullback hasn’t been too deep. Selling is slowing, and dip buying is picking up. This is a classic shakeout, clearing out weak hands and setting the stage for a stronger base.
4. Liquidity is standing by. Stablecoin supply continues to grow, signaling that a significant amount of capital is sitting on the sidelines, ready to deploy in Q4. Historically, increases in stablecoin supply often coincide with rising cryptocurrency prices, since more stablecoins in circulation typically translate to greater buying power entering the market.
All in all, the recent liquidation events on September 22 and 25, while painful, served as a necessary and healthy market reset rather than signaling the start of a bear market. These waves effectively purged overloaded leveraged long positions and eased funding and futures excesses all while coinciding with accumulation by stronger, more patient market participants. In doing so, they removed a significant amount of short-term leverage that had made the market fragile, leaving those positions smaller and less prone to cascading shocks. The market is now in a healthier position to absorb the tailwinds highlighted in our last newsletter setting the stage for a stronger, more stable rally in Q4.
Now, this isn’t to suggest that “Uptober” is guaranteed. A renewed macro shock—such as an inflation surprise, a geopolitical event, or a central bank misstep—could still rattle risk assets broadly. The altcoin space also remains more fragile than bitcoin, as thin markets and idiosyncratic behavior can still produce outsized moves. And while funding rates have normalized, they can quickly build up again if sentiment becomes frothy, reintroducing leverage risk.
With that being said, we believe the recent deleveraging wasn’t a derailment—it was a tune-up. By purging crowded long positions, easing extreme funding pressures, and allowing stronger hands to absorb the shakeout, the market has reset on a healthier, more stable foundation. That means the five structural tailwinds we highlighted in our last newsletter—rising liquidity, rate cuts, ETF momentum, corporate buying, and crypto’s 401(k) debut—can now flow into the market more effectively, without being distorted by excessive leverage or fragile positioning. Far from weakening our argument, the recent volatility actually strengthens it: Q4’s rally potential is now supported not just by macro and structural drivers, but by a cleaner, sturdier market ready to absorb fresh capital.
The Limits of Monetary Policy and the Case for Rules-Based Money
Money forms the foundation of every economy, enabling trade, investment, and the coordination of complex production and consumption networks. At the heart of this system lies monetary policy—the tools and decisions that govern the supply of money, the availability of credit, and the cost of borrowing. By adjusting liquidity, setting interest rates, and shaping financial conditions, monetary policy influences borrowing and lending, investment behavior and overall economic stability.
Yet the very mechanism designed to stabilize the economy—centralized, discretionary monetary policy—has repeatedly demonstrated its shortcomings. Uncertainty over how policymakers will manage the money supply, credit conditions, and borrowing costs undermines confidence. Businesses delay investment, consumers reduce spending, and financial markets fluctuate in anticipation of decisions made by a small group of unelected officials operating behind closed doors (ie: The Federal Reserve). Analysts and investors spend countless hours dissecting every nuance of Fed statements—not because of transparency, but because of the persistent uncertainty surrounding future actions.
The recent FOMC meeting illustrates the point. On September 17th, the Fed lowered interest rates by 25 basis points—a largely expected step—but guidance on the trajectory of future policy remained ambiguous. The Fed’s dot plot, intended to clarify individual members’ expectations for the federal funds rate, often adds to confusion rather than reducing it. While the median projection suggests two additional quarter-point cuts this year, individual forecasts diverge widely: six members anticipate no further cuts, two expect one, nine foresee two totaling 50 basis points, one favors a rate hike, and another projects a dramatic 125-basis-point reduction. Chair Powell has publicly emphasized that the expected two cuts are not guaranteed, highlighting the inherent unreliability of such guidance.
This divergence illustrates a deeper challenge of discretionary monetary policy: even policymakers cannot agree on the direction of the economy, let alone predict future policies designed to help it. Some favor tighter policy, others looser; some anticipate rate hikes, others multiple cuts. In a world where investing already demands navigating unavoidable risks, the added uncertainty created by opaque monetary policy only compounds the challenge for businesses and investors alike.
This is not an isolated case. At the start of 2024, Fed communications led markets to expect six rate cuts, but only two occurred—a discrepancy of 200%. A few years earlier, the Fed gave guidance that they would not raise interest rates until after 2023, only to raise them ten times in 2022, fueling the 2023 banking crisis in which we saw three of the four largest bank failures in U.S. history.
History further reinforces the lesson. The Fed was created on the premise that manipulating liquidity and interest rates could stabilize business cycles, moderate inflation, and mitigate recessions. In practice, however, data suggest that Fed interventions often amplify volatility. Since the Fed’s founding, the U.S. economy has experienced more frequent and severe recessions, not fewer.
For example, the National Bureau of Economic Research (NBER) tracks U.S. business cycles, marking periods of expansion and contraction. Analysis of this data shows that, since the Fed’s inception, recessions have become more severe over time, suggesting that the Fed’s monetary policies may have amplified economic volatility rather than mitigated it. Furthermore, research by the Federal Reserve Bank of San Francisco shows that prolonged periods of loose monetary policy often lead to excessive credit creation and asset bubbles, sowing the seeds of future crises. Despite its intent to stabilize the economy, the data shows that discretionary monetary interventions are more likely to exacerbate, rather than smooth, economic turbulence.
The problem is not the competence or intent of Fed officials—they are among the world’s top experts in monetary economics. The issue is structural: no matter how skilled or well-intentioned, humans cannot steer a complex, globally interconnected economy by manipulating interest rates and liquidity. When the cost of capital can swing from 2% to over 5% within a few years, money itself—the foundation of commerce—becomes unstable. Human judgment, constrained by limited information and prone to disagreement, cannot provide the consistency required for long-term economic stability.
If human-led monetary policy is inherently unpredictable, the logical alternative is a system governed not by discretion but by transparent, consistent rules—one in which the supply of money and the cost of borrowing are predetermined and enforceable without human intervention. A rules-based framework would allow economic actors to plan with confidence, free from the guesswork of interpreting policymakers’ intentions.
Bitcoin exemplifies this concept. Its supply is fixed at 21 million coins, released at a predictable, gradually slowing rate. The rules governing issuance are enforced not by a central bank but by the network’s code and consensus mechanism. Every rule is transparent, every issuance predictable, every transaction verifiable. There is no political or discretionary influence, no risk of sudden monetary expansion or contraction in response to economic forecasts, elections, or political pressure.
This predictability addresses the core weakness of discretionary policy: uncertainty. Instead of markets expending vast resources interpreting opaque signals, economic actors can make decisions knowing that the underlying rules will not shift with political winds or economic forecasts. Bitcoin is the only global asset with a monetary policy that is verifiable, independent, and unalterable—a system where trust is placed not in fallible human judgment but in publicly auditable rules.
Critics argue that a fixed monetary system cannot respond to shocks or crises. Yet this objection rests on the assumption that discretionary interventions are inherently stabilizing—a notion the historical record, as highlighted earlier in this article, does not support. Ad hoc policy often amplifies volatility. A transparent, rule-bound system may not allow for immediate adjustments, but it replaces uncertainty with stability. Business cycles will still exist, but stripped of artificially engineered interventions, the severity of both booms and busts would likely be reduced.
In short, a mathematically designed monetary system offers a superior alternative to discretionary policy. By codifying the rules that govern money, it removes unpredictability, reduces the risk of crisis from mistimed interventions, and enables rational long-term planning. Stability ceases to depend on the judgment of a few and becomes a built-in feature of the system.
Bitcoin is not a panacea for all economic challenges, but it demonstrates the possibility of a monetary framework grounded in transparency, predictability, and trust—qualities that discretionary human policy has consistently failed to provide.
In Other News
XRP and DOGE ETFs record highest debut volume of any ETF this year.
White House eyes year-end finish line for crypto market structure bill.
SEC Chair Atkins pushes “innovation exemption” to fast-track crypto products.
Visa pilots stablecoin payments for businesses sending money abroad.
Bitcoin ETF inflows surge past $2 billion this week as ‘Uptober’ momentum builds.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
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