By Matt Hougan, Chief Investment Officer, Bitwise

Compiled by: Golden Finance

Being a long-term cryptocurrency investor can be frustrating at times.

When I invest in cryptocurrencies, I'm essentially making a multi-year bet on the future of money and finance. I firmly believe that a robust digital currency (Bitcoin) will provide a significant escape from the continued debasement of the US dollar and other fiat currencies; that stablecoins will revolutionize payments; and that tokenization will forever change the way we trade stocks and bonds.

I made these investments with the expectation that they would pay off in years, even decades. So far, things have been going quite well. Bitcoin has risen more than 350-fold over the past decade and has been the world's best-performing asset in every cycle.

But not all cryptocurrency investors are like this. Some make highly leveraged investments—up to 100x—hoping to get rich quick. These investments sometimes succeed, sometimes fail.

Most of the time, I can safely ignore the "casino" nature of cryptocurrency because it's just noise; it won't fundamentally change the trajectory of cryptocurrency. But occasionally, it becomes too noisy to ignore. Last weekend was one such example.

At 4:57 p.m. ET on Friday, President Trump tweeted on Truth Social, threatening to impose a 100% tariff on all imports from China. The move was in response to China's threat to cut off exports of rare earth metals, which are critical to U.S. technology manufacturing.

The tweet sounded like a major escalation in the global trade war. With stock markets closed, traders desperate for answers turned to the one place that never closes: the crypto market.

Bitcoin prices plummeted. As prices fell, leveraged traders faced automatic liquidations, causing prices to fall further and entering a downward spiral. Nearly $20 billion in leveraged positions were liquidated, the largest such liquidation in crypto history. Bitcoin's trading price plummeted by 15% at one point. Altcoins performed even worse, with Solana dropping by 40% at one point.

But then the market quickly reversed, rising as fast as it had fallen. The Trump administration de-escalated the trade war, and cryptocurrency prices rebounded. By Monday morning, Bitcoin was trading back at $115,000, roughly where it was before Trump's tweet. It was as if the flash crash had almost never happened.

The question I've been pondering ever since is: "Does the October 11 crash matter?"

My answer this time is "not important." Cryptocurrencies rebounded quickly because the fundamentals of their prospects—such as their underlying technology, security, or regulatory environment—hadn't changed. But "not important" isn't a guaranteed answer. In some cases, moves like Friday's can certainly have long-term implications for cryptocurrencies.

In this week's memo, I wanted to walk you through the list of things I consider to determine whether market volatility like last Friday's is a blip or a major event.

Question 1: Did any major market players collapse?

Whenever a significant market correction occurs, Bitwise's first action is to conduct channel checks with partners and service providers, from custodians to liquidity providers. Even a sharp market correction driven by technical factors can cause real damage if it fundamentally impacts large institutions like hedge funds or prominent market makers. In this case, the damage appears to be limited to individual investors. Some firms suffered losses, but it appears they all survived. This is one reason why cryptocurrencies rebounded so quickly.

Question 2: How does blockchain technology perform?

The second question I often ask is how cryptocurrencies—and, more specifically, blockchains themselves—are performing. Market volatility is a stress test for the cryptocurrency market. Can they withstand such high trading volumes? Are decentralized exchanges performing well? Are websites being shut down?

Cryptocurrencies have fared reasonably well, if not perfectly, during this pullback. Many DeFi platforms performed flawlessly: Uniswap, Hyperliquid, Aave, and others all saw no losses. However, a few centralized platforms, like Binance, experienced problems; in fact, it was forced to refund nearly $400 million to traders. Overall, cryptocurrencies performed as well as, or even better than, traditional markets under similar circumstances.

Question 3: What does my inbox look like?

The third question I ask is what my inbox looks like. If I'm bombarded with emails, calls, or texts from investors, I know the market is really in a panic and it might take a while to calm down.

This time, I didn’t react at all. While I received numerous inquiries from the media and received numerous responses from crypto Twitter, professional investors largely ignored the news .

What's next?

All of this suggests that the October 11th flash crash won't have any lasting impact. The long-term forces driving this market—improving regulation, increasing allocations by institutional investors, and a growing understanding that cryptocurrencies are disrupting all traditional markets—remain intact. A longer-term perspective also helps: By 2025, Bitcoin is up 21%, while the Bitwise 10 Large Cap Cryptocurrency Index is up 22%.

Crypto markets may be a bit nervous in the short term. Market makers and liquidity providers typically withdraw from the market within a few days of large market fluctuations, and the lack of liquidity can cause prices to rise or fall sharply.

But I expect that over time, the market will slowly regain its vitality and refocus on the fundamentals of cryptocurrencies. At that time, I think the bull market will continue.