Main Points :
- The recent sharp correction in Bitcoin’s spot price, even near all-time highs, is best viewed as a forced deleveraging event rather than a reversal of trend
- Derivatives markets—through funding rates and option skew—still point to underlying conviction in further upside
- The sell-off cleanses speculative excess (a “ritual purge”) and resets the market for healthier growth ahead
- Distinguishing short-term noise from meaningful signals is critical for long-term investors
- Japanese (and global) investors should adopt strategies that lean into structural demand with disciplined risk control
1. Bitcoin’s sudden plunge near new highs — derivative markets still signal bullish conviction
In October 2025, Bitcoin experienced a volatile drawdown despite trading near all-time highs. On its face, such a retreat can unsettle many investors: after all, price falling from record levels often leads to questions about trend sustainability. However, when we look beneath the surface into derivative markets—especially perpetual futures and options—the narrative is markedly different: many metrics continue to reflect optimism and structural conviction in further upside.
Although spot prices dropped, the funding rate on perpetual futures has remained largely positive, indicating that long-position holders are still willing to pay shorts. This persistence suggests that market participants collectively view the dip as a temporary pullback rather than a trend reversal. Moreover, option markets have continued to price in a premium for calls relative to puts—i.e. implied volatility and skew remains tilted toward bullish bets. Such behavior is inconsistent with a market expecting sustained downside.
So even as the public sees a sharp drop, the background machinery of leverage and derivative sentiment affirms the belief that Bitcoin’s long-term uptrend is intact.
2. The real cause: forced deleveraging (a long squeeze) at overheated levels
A closer look at the mechanics of this drop reveals that it was largely driven by a long squeeze—a cascade of forced liquidations in leveraged long positions. In environments where many traders are betting on upside with high leverage, a relatively modest price dip can provoke margin calls and automatic liquidations, which in turn push the price further down, triggering more liquidations.
This kind of deleveraging purges speculative excesses in the short term. But crucially, it doesn’t invalidate the fundamentals underpinning Bitcoin’s appeal—if anything, it restores market health by removing weak hands. In that sense, the correction functions as a ritual cleansing of speculative froth, after which the market may resume a healthier ascent.
Because the long squeeze is mechanical and reflexive, it tends to happen quickly and violently. But once the pressure subsides, the underlying structural forces—institutional demand, limited supply, macro tailwinds—resume their influence more cleanly.
3. Noise vs. signal: why the dip is a long-term investor’s entry point
To navigate a correction like this, one must distinguish noise—short-term, reflexive market moves—from signal—structural shifts in demand, capital flows, and sentiment. In the recent event:
3.1 Noise: speculative liquidation and short-term capitulation
The panic we observe in spot markets often reflects emotional selling, forced deleveraging, and speculative repositioning. These are largely decoupled from deeper structural drivers. Yes, prices can overshoot on the downside, but that does not necessarily rewrite the long-term story.
When prices tumble, many investors panic-sell or halt their accumulation strategy. But if one views that volatility as noise rather than signal, one can capitalize on the dislocation rather than suffer from it. Derivative markets continue to whisper that the band is not over yet.
3.2 Signal: continued institutional flows and demand
True structural signals lie in sustained capital inflows to spot or ETF wrappers, balance sheet allocations from corporations, and adoption by large funds. Even during the dip, flows into spot Bitcoin instruments have remained positive in many cases, suggesting that institutional participants view the correction as a chance to accumulate rather than exit.
When those flows persist despite volatility, they reveal genuine confidence. That’s a much more reliable indicator than price alone.
Thus, the recent correction should be viewed not as a reversal but as a pause in a broader ascent—a tactical buying opportunity for those focused on long-term trends.
4. Strategy recommendations for Japanese investors: resist noise, lean into structure
Given this backdrop, how should Japanese (and global) investors act? Below are recommended strategies to navigate corrections calmly and effectively.
4.1 Use derivative indicators to filter noise
Rather than reacting to sharp price swings, investors should monitor derivative metrics like the funding rate, open interest trends, and option skew. For example:
- If the funding rate remains positive (or does not rapidly turn deeply negative), it suggests ongoing demand for longs
- If open interest does not collapse fully, it signals that participants are holding through stress
- If option skew continues to favor calls, that’s a sign of persistent bullish sentiment
By letting these indicators guide decisions, one can avoid overreacting to the “noise” in the spot market.
4.2 Dollar‐cost averaging: convert fear into opportunity
Corrections provide rare chances to buy at lower levels. Investors should continue or even increase their regular accumulation during dips—i.e. apply a disciplined dollar-cost averaging (DCA) strategy. The goal is not to “timing the bottom,” but to remain consistent and avoid emotional decisions.
In volatile times, having a predetermined accumulation plan helps remove psychological stress. The philosophy: “fear is the friend of compounding”—when prices fall, the opportunity to buy more units with the same capital enhances long-term returns.
4.3 Strict avoidance of leverage
This episode reinforces a timeless lesson: using leverage magnifies gains and losses. For long-term builders, the risk of forced liquidation often overwhelms the potential upside. Japanese investors aiming for sustainable crypto exposure should favor unlevered spot holdings.
By avoiding leverage, one preserves optionality—i.e. the ability to stay in the game, remain opportunistic, and synchronize one’s investment horizon with Bitcoin’s structural trends.
5. Recent developments & evolving landscape (2025)
To ensure that our discussion is current, here are some pertinent developments and trends emerging in 2025 that reinforce or nuance the above thesis.
5.1 Record derivatives activity and institutional adoption
The crypto derivatives sector has expanded dramatically in 2025, with futures and options combined trading volumes eclipsing $900 billion in Q3. Average open interest across exchanges also hit record levels. This shows institutional participation is not superficial—it is deep, structural, and growing.
5.2 Funding rates remain resilient
Although the recent sell-off produced volatility, funding rates across major exchanges have largely stayed in mildly positive territories. On KuCoin, for example, funding rates in the days around the crash hovered between +0.002% and +0.006%. That tells us longs are still paying to maintain exposure.
5.3 Occasional dips into negative funding
Note that there have been episodic dips in 72-hour average funding into negative territory—a sign of short-term stress or overreaction. But these typically reverse if structural demand remains strong. In other words, short periods of negative funding should not be seen as a full shift in trend.
5.4 Evolution of derivative regulation and exchange consolidation
Regulatory scrutiny over crypto derivatives is increasing, especially in key jurisdictions. At the same time, major platforms are consolidating: for instance, Coinbase’s acquisition of Deribit aims to integrate spot, futures, and options under one roof. This evolution points to greater institutionalization and maturation of the derivatives infrastructure.
5.5 Macro, narrative, and alternative flows
Beyond crypto-specific dynamics, macro narratives—such as monetary easing, inflation fears, and currency debasement—are pushing capital into non-fiat havens like Bitcoin and gold. Some entities, even public companies, are accumulating Bitcoin on their balance sheets as a hedge. These broader flows complement the structural crypto demand and provide an additional tailwind.
Summary & Final Thoughts
The dramatic drop in Bitcoin’s spot price may feel alarming—but when we dive deeper into derivatives markets, we see a different story. Rather than signaling the end of the bull run, this event appears to be a forced purge of speculative long positions—a cleansing that removes fragile capital and resets the stage for further structural ascent.
Derivative metrics such as funding rates and option skew still broadly favor longs. Meanwhile, institutional flows and macro tailwinds continue to underlie demand. The correction, then, is not a reversal, but a recalibration. For investors focused on long-term accumulation, this is precisely the kind of dislocation to lean into—provided you manage risk.
For Japanese investors, the prescription is clear: avoid being swayed by short-term noise, use derivative indicators as your compass, stick with disciplined dollar-cost averaging, and refuse to resort to leverage. The rising tide of institutions, regulatory maturation, and macro pressures all point toward a future in which Bitcoin continues to integrate deeper into the fabric of global capital markets.
Now is not a moment to capitulate. It’s a moment to steady conviction.
