Crypto Sell-Off Unmasked: Leverage, Not ETFs, Fueled Market Slide

Crypto markets experienced a significant sell-off in October 2025, but contrary to expectations, institutional investors exiting via ETFs were not the main drivers.

JPMorgan's analysis shows that it was crypto-native leverage that precipitated the sharp declines in Bitcoin and Ethereum prices.

Bitcoin dropped 13.1% from $122,316 on October 3 to $106,329 by October 17. Ethereum's sell-off was even more severe relative to its market size.

The sharp moves coincided with a marked collapse in perpetual futures open interest—$12 billion for Bitcoin and $9-10 billion for Ethereum—highlighting forced liquidations rather than calm position exits.

Leveraged Futures, Not ETFs, Drove the Decline

JPMorgan found that spot ETF outflows were minimal amid the turmoil, with Bitcoin ETFs seeing $70.4 million in net outflows clustered around October 14–16 and Ethereum ETFs recording much larger $668.9 million outflows in early to mid-October.

Despite the larger ETH ETF redemptions , both assets' price moves were primarily influenced by a "cascade of deleveraging" in perpetual futures markets rather than ETF selling.

Perpetual futures require constant margin maintenance, and when prices drop, under-margined positions are liquidated through market orders.

This creates reflexive sell-offs exacerbated by cross-margining, which forces additional liquidations as collateral values fall.

Funding rates typically turned sharply negative during the sell-off, signaling distress in perpetual futures trading.

Open interest—an indicator of leverage in futures markets—fell steeply by about 40% in perpetual contracts for both Bitcoin and Ethereum between October 10 and 11.

The decline reflects genuine deleveraging and exit of leveraged positions, not just position rotation.

Signs of Market Bottom Forming

The coordinated sell-off on October 10 marks one of the largest liquidation events in crypto history, yet JPMorgan notes signals suggesting a potential market bottom.

These include funding rates rebounding toward zero, narrowing perpetual discounts to spot prices, and open interest starting to stabilize.

Bitcoin’s current market cap stands at $2.14 trillion with a 24-hour trading volume of $65.62 billion, while total crypto market capitalization is $3.64 trillion as of October 18, 2025.

Bitcoin dominance remains strong at 58.74%, showing sustained investor interest despite recent volatility.

JPMorgan's insights underscore the evolving market dynamic where "crypto-native" investors using high leverage on offshore and less regulated platforms trigger sudden sell-offs, while traditional institutional products like ETFs remain largely resistant to forced selling pressures.