After $20 Billion Wiped Out, Bitwise Reassures Investors: ‘Crypto Remains on a Bullish Path

Crypto Market Flash Crash Was Just a Shakeout, Not a Breakdown, Says Bitwise CIO Matt Hougan

The cryptocurrency market experienced one of its most dramatic weekends in recent memory, with Bitcoin briefly tumbling by double digits and more than $20 billion in leveraged positions liquidated. Yet according to Bitwise Chief Investment Officer Matt Hougan, the sudden plunge wasn’t the beginning of a broader collapse—it was simply a violent but temporary shakeout.

Hougan, a widely respected voice in digital asset investing, told clients this week that the crash was driven primarily by excessive leverage rather than any structural weakness in crypto’s fundamentals. In his analysis, the sharp sell-off revealed a market still sensitive to short-term shocks, but also resilient enough to recover quickly—an encouraging sign for long-term investors.

A Flash Crash Triggered by Geopolitical Fear

The market turmoil began late Friday when former U.S. President Donald Trump posted on Truth Social that his administration would impose a 100% tariff on all Chinese imports if reelected. Because traditional financial markets were closed at the time, traders turned to the only major market still open—crypto. Bitcoin, Ethereum, and other digital assets quickly became the epicenter of global risk repricing.

Within hours, Bitcoin plunged as leveraged long positions began to unwind in a domino effect that turned into the largest liquidation event in crypto history. At one point, Bitcoin traded near $100,000 on some exchanges—a steep 15% drop—while Ethereum lost more than 20%, and Solana’s SOL token plunged by as much as 40%.

The dramatic moves caused widespread panic among retail traders, many of whom saw positions erased in minutes. Yet by Monday morning, Bitcoin had recovered to around $115,000 after Trump appeared to soften his stance and downplay his earlier comments. The quick rebound, Hougan noted, was proof that the market’s fundamentals remained intact.

Leverage, Not Fundamentals, to Blame

In a detailed note to investors on Tuesday, Hougan emphasized that what the market witnessed was “a mechanical unwind of leverage,” not a reflection of any real deterioration in crypto’s underlying value proposition.

“This was not a fundamental event,” he wrote. “The technology didn’t break. The institutions didn’t fail. What broke was overconfidence in leverage.”

According to data from multiple analytics firms, more than $20 billion worth of leveraged long positions were wiped out during the crash—setting a record for the largest single-day liquidation in the history of digital assets. Hougan argued that such leverage-driven corrections are part of crypto’s evolution, particularly in bull markets when speculative activity often reaches unsustainable levels.

“Whenever markets move quickly, leverage builds up faster than anyone expects,” he noted. “When that leverage is unwound, prices can fall violently. But that doesn’t change the long-term story.”

Institutions Remain Steady as Retail Traders Take the Hit

Hougan and his team at Bitwise reached out to their network of custodians, liquidity providers, and institutional partners following the event to assess potential fallout. Their conclusion: losses were largely confined to individual traders using high leverage, not the institutions that form crypto’s backbone.

“Every major partner we spoke to reported normal operations,” Hougan said. “Some experienced short-term volatility and losses, but no one blew up. The system worked.”

This distinction is crucial. During previous crypto crashes—such as the collapses of Terra, FTX, and Celsius—structural failures at major institutions triggered contagion across the entire ecosystem. This time, however, decentralized protocols like Uniswap, Aave, and Hyperliquid continued functioning flawlessly, while most centralized exchanges handled the stress with minimal disruption.

“From a technological perspective, crypto passed the test,” Hougan explained. “Blockchains kept processing transactions. DeFi platforms worked exactly as intended. Even under historic stress, the system stayed resilient.”

Market Psychology and Investor Behavior

Hougan’s third key observation came not from data or charts—but from his inbox. Despite the chaos, he received almost no panicked messages from institutional investors.

“When markets are truly breaking, my phone explodes,” Hougan said. “This time, it was quiet. The media went wild, but long-term investors didn’t flinch.”

He interpreted this as a sign that the investor base for digital assets has matured. Instead of viewing volatility as an existential threat, professional investors now see it as a normal feature of a growing market.

“This is what a resilient market looks like,” Hougan wrote. “Price swings are uncomfortable, but they don’t derail conviction.”

Lessons for the Next Phase of the Bull Market

The Bitwise CIO also warned that the aftermath of major volatility events often brings a short-term decline in liquidity, as market makers and trading firms temporarily pull back. This can result in exaggerated price movements—both up and down—over the following days or weeks.

“Liquidity providers naturally take a step back to recalibrate after large moves,” Hougan said. “That can make markets feel thinner and more erratic for a while. But as confidence returns, liquidity flows back and stability improves.”

He expects the market to “catch its breath” before resuming its long-term uptrend.

“The underlying forces driving crypto adoption—regulatory clarity, institutional involvement, and blockchain innovation—remain intact,” Hougan concluded. “This event was a reminder of how volatile crypto can be in the short term, but also how robust it has become in the long run.”

A Market Growing Up

The episode underscored a larger theme: crypto’s gradual maturation from a speculative playground into an established financial ecosystem. In previous cycles, a shock of this magnitude might have sparked mass liquidations, exchange failures, and cascading bankruptcies. This time, however, the infrastructure held up.

Decentralized finance (DeFi) platforms continued to operate autonomously. Custodians safeguarded assets. Stablecoins maintained their pegs. Even centralized exchanges—long criticized for operational risk—demonstrated greater transparency and robustness than in years past.

“Crypto’s plumbing is far stronger than it was even two years ago,” Hougan said. “That’s an underappreciated story of progress.”

He also credited ongoing regulatory developments, such as the U.S. approval of spot Bitcoin ETFs and expanding frameworks for digital asset custody, with giving institutional investors more confidence to remain steady through volatility.

“Five years ago, a crash like this might have scared institutions away for good,” he said. “Now, they see it as part of the cycle.”

Looking Ahead

While the headlines focused on short-term chaos, the Bitwise CIO believes the long-term picture for crypto remains bullish. Institutional capital continues to flow into the space, global regulators are creating clearer rules, and technological innovation within blockchain networks continues to accelerate.

“Volatility doesn’t destroy long-term value—it creates opportunity,” Hougan wrote. “Each correction flushes out weak hands and resets the market for its next leg higher.”

In his view, this latest flash crash will soon fade into the background as the market refocuses on adoption, scalability, and real-world utility.

“Crypto’s story is bigger than a single weekend’s volatility,” Hougan concluded. “It’s about building a new financial system that’s faster, fairer, and more open. That mission didn’t change because of a few days of panic.”

As the dust settles, investors appear to agree. Bitcoin’s recovery, coupled with continued institutional interest, suggests that confidence in the asset class remains deeply rooted. If anything, the episode may serve as a reminder that crypto markets, though volatile, are increasingly capable of weathering their own storms.

Source: CoinMarketCap

Disclaimer

The content published on nyohoka.com is for informational and educational purposes only. It should not be considered as financial, investment, trading, or legal advice. Cryptocurrency and digital asset investments carry a high level of risk and may not be suitable for all investors.

We do not guarantee the accuracy, reliability, or completeness of the information provided. nyohoka.com and its authors are not responsible for any losses or damages that may arise from the use of this content.

Always do your own research (DYOR) and consult with a qualified professional before making any financial decisions.