Crypto Crash Just A ‘Growing Pain’ As Market Nears Bottom, Kobeissi Letter Says

The recent cryptocurrency market downturn is being characterized as a "growing pain," with projections indicating the market is approaching a bottom. This sentiment is supported by the anticipation of increased global liquidity, which has reached a record $137 trillion.

In a detailed analysis shared on X, the macro research outlet The Kobeissi Letter stated that the recent market sell-off represents a "structural" shift in market dynamics rather than a fundamental collapse in crypto's underlying value. The firm highlighted that the fundamental value of crypto assets has consistently improved, even as market dynamics evolve. Historically, every downturn exceeding 25% in the crypto space has ultimately been followed by new record highs, despite initial calls for the end of crypto.

The analysis also pointed to incoming liquidity, citing Japan's planned stimulus package exceeding $110 billion and US President Donald Trump's proposal for $2,000 stimulus checks for millions of Americans. These factors are expected to add to the existing record global M2 money supply.

"As with any efficient market, the wrinkles will work their way out," The Kobeissi Letter concluded, expressing confidence that "the bottom is near."

Crypto Markets Experience Significant Correction

The commentary from The Kobeissi Letter comes amidst a sharp correction in cryptocurrency markets. Major cryptocurrencies such as Bitcoin and Ethereum have experienced significant drops, with both plunging more than 10% in the past week. Ethereum has seen a 17.5% decrease over the past month.

Other altcoins have also been affected. XRP has declined by 10% in the last week, while Solana has fallen 16% over the same period and 23.4% in the past month.

To substantiate its assertion that crypto is nearing a bottom, the firm presented a comparative chart of Bitcoin and gold performance. For over 12 months, gold and Bitcoin had demonstrated a high correlation, both functioning as safe-haven assets. However, gold has outperformed Bitcoin by 25 percentage points since early October. The Kobeissi Letter suggests that if this correlation is to resume, it indicates a potentially positive outlook for Bitcoin.

Leverage Identified as Key Factor in Market Crash

The Kobeissi Letter identified excessive leverage as a primary driver of the crypto market crash. The firm noted that traders frequently employ leverage ratios of 20x, 50x, or even 100x, explaining that even a minor price movement of 2% at 100x leverage can result in the liquidation of a trade.

This widespread use of leverage among millions of traders creates a "domino effect," making the market highly susceptible to sharp liquidations once prices begin to decline. The firm views the current forced liquidation of these positions as a painful but necessary reset before the next phase of accumulation.

The correction reportedly began on October 10, following President Trump's announcement of 100% additional tariffs on China's exports. This event led to a record $19 billion in leveraged positions being liquidated.

The analysis further indicated that crypto funds experienced outflows totaling approximately $1.2 billion in the first week of November alone. Over the preceding 16 days, leverage contributed to three separate instances of liquidations exceeding $1 billion, with daily liquidations of over $500 million becoming a common occurrence.