Why did the crypto market sentiment suddenly become so pessimistic?

Original Title: Why Did Crypto Sentiment Get So Bearish? Original Author: Jack Inabinet, Bankless Translated by: Peggy, BlockBeats

Original author: Rhythm BlockBeats

Source:

Reprinted: Mars Finance

Editor’s Note: Just four days after Bitcoin set a historic new high, the crypto market faced an unprecedented “10/10 flash crash”, with not only mainstream coins plummeting but also multiple altcoins going to zero, and exchanges falling into a liquidation crisis. Meanwhile, high-leverage yield funds like Stream Finance experienced successive blowups, revealing the fragile nature of the “just trust me” bubble. The optimistic sentiment on social media quickly turned to panic, and market confidence suffered a heavy blow.

This article reviews the sequence of events and attempts to answer a key question: why has the sentiment in the crypto market suddenly become so pessimistic? In the current context of a bubble burst intertwined with a crisis of trust, we may be standing at a new cycle turning point.

The following is the original text:

On Monday, October 6, 2025, Bitcoin reached a new all-time high, surpassing the $126,000 mark for the first time. Whether in the trenches of Crypto Twitter or in the newsrooms of CNBC, holders are immersed in the ubiquitous “fog of hope.”

Despite the fundamentals not changing much in the month that followed, just four days later on October 10, the crypto market faced a crisis—“10/10 Flash Crash” is now regarded as the largest liquidation event in crypto history.

In this catastrophic downturn, mainstream cryptocurrencies plummeted by more than double digits, many altcoins went to zero, and several exchanges are on the brink of bankruptcy (almost all mainstream perpetual contract platforms triggered automatic liquidation mechanisms due to the inability to pay short selling profits).

Although Trump's election as president is seen as a positive for the cryptocurrency industry—from establishing a strategic Bitcoin reserve to appointing seemingly pro-crypto regulators—the prices of crypto assets have continued to remain sluggish.

Aside from the brief surge after Trump's election in November last year, the ratio of the total market capitalization of the cryptocurrency market (TOTAL) to the S&P 500 index has remained stable for nearly a year. In fact, since Trump was officially inaugurated on January 20, this ratio has even shown a remarkable negative growth.

As the market continues to digest the aftermath of the 10/10 liquidation, more and more issues are starting to come to light.

Just this Monday, Stream Finance announced its bankruptcy. This is a “trust me and you're good” type of crypto yield fund managing up to $200 million, relying on leverage to provide depositors with returns above the market. Its “external fund manager” lost approximately $93 million in assets during operations.

Although the details have not been disclosed, Stream is likely the first “Delta Neutral” strategy fund to publicly implode due to the 10/10 automatic liquidation mechanism. Despite the structure having long raised questions, this collapse still caught many lenders off guard—they chose to sacrifice safety for higher returns without clear risk signals.

After the Stream explosion, panic quickly spread throughout the entire DeFi ecosystem, and investors began to collectively withdraw from similar high-risk yield strategies.

Although the chain reaction of Stream has not yet fully spread at present, this incident has exposed the risks of the increasingly popular “circular stablecoin mining” strategy in DeFi — that is, leveraging existing high-risk strategy deposit certificates to obtain higher returns.

The loss disclosed by Stream also reveals the huge losses that the Delta Neutral Fund may face during the automatic reduction of positions on 10/10: the short hedge was forcibly canceled by the system, while the spot long position instantly went to zero.

Although the headlines have shifted, it is certain that the losses on October 10 were catastrophic.

Whether through public operations in DeFi or secret operations in CeFi, there are billions of dollars in leverage within crypto yield funds. It remains uncertain whether the market has sufficient liquidity to cope with potential waves of liquidation in the future.

It is currently unclear who is “naked swimming,” but it is certain that there are people in the crypto casino who are no longer wearing swim trunks. If the market drops again, especially after the lawsuit alleging that centralized exchanges were insolvent during the liquidation period on 10/10 broke out, the question is no longer “will something go wrong,” but rather “can the entire industry withstand it.”