Something in crypto has BROKEN.

On 10/10, some Market Maker went bankrupt.

An operational bankruptcy:

The MM suffers such large losses that it can no longer operate, but the company still exists (is not legally bankrupt, so it has no obligation to disclose anything publicly).

This would cause 20-40% of market making to disappear (increased volatility of x2-x4).

The risk falls on the rest of MM that may be "touched" taking a step back, as they do not want to assume that risk in the current situation.

This lack of market creation leads to an increase in volatility and an increase in the Sell Offs we see, which in turn causes liquidations in futures.

That's why the price action of BTC & ETH looks more like that of a memecoin than that of a large-cap macro asset.

Why does this illiquidity favor more declines than rises?

Due to market asymmetry: when the price drops, there is an automatic mechanism that accelerates the fall 👇

1- The price falls.
2- Liquidations are activated.
3- That causes more drop.
4- That drop causes even more liquidations.

When it goes up, there is no equivalent automatic mechanism:

1- The price rises
2- Some shorts are liquidated

But shorts always have much less volume than longs in bullish cycles, the market maker usually absorbs sales, not purchases.

When an MM disappears:

Bids disappear above all.

Asks don't matter that much, nobody "needs" to buy urgently...

Result:

If someone wants to sell strongly and there is no one absorbing, the price drops in an illiquid vacuum.

ETFs are not friends:

They are net sellers, when an ETF wants to sell, an intermediary ( the AP) manages it.

This AP, to reduce the risk while selling OTC ( sometimes takes days ), covers the position in futures.

If the price drops, profit with the short

If the price goes up, you lose with the short but gain with the spot

In conclusion: Although the institution's sale is OTC, it directly affects the futures market by adding selling pressure.
This increases the risk to some "touched" MM that are not willing to take it on.

When OTC sales are finalized, the AP closes the short and the market rebounds, leaving a price action worthy of a memecoin 🤡

NONE of this is demonstrable, the affected MM, if they have operational bankruptcy, will not say it. But you just have to look at the chart...

When and how is this resolved?

1. HOW:

MM assume and close losses by "shutting down" all positions that pose a risk:

- They liquidate bad trades
- They close unbalanced hedges

They leave their exposure at zero so that the price can no longer hit them.

Rebalance inventory:

- They order what is left to them
- They sell what is left over
- They buy what is missing

They leave everything in balance to be able to operate again.

2. WHEN:

When the forced sale of ETFs (APs ends, ceasing to be shorted )

When the market enters exhaustion:

- The one who was panicking has already sold, and selling pressure is decreasing.
- There are no longs left to liquidate
- Turn down the volume and return to disinterest

CONCLUSION:

If a MM really went bankrupt on 10/10 and has been quietly releasing positions via CEX (non traceable), all the damage is already on the chart: forced sales, empty OBs, absurd volatility, and MMs out.

An official announcement of that bankruptcy ( if it arrives ) could mark a strong rebound, because it would confirm that there is no longer a major player liquidating in the background.

For the MMs, that confirmation removes operational uncertainty ( along with the end of ETF sales ) and allows them to start taking risks again and rebuild liquidity.

It's all speculation without data to back up what I'm saying, yet all it takes is to look at today's chart to understand that something is BROKEN 👇