A cold spell or crypto winter? Understanding the latest bitcoin and ethereum selloff

After a euphoric start to the year, bitcoin and ethereum are now deep into correction territory. Since late October, both have shed considerable value, with bitcoin dropping more than 20% from its highs and ethereum following suit. The recent leg down, triggered over the weekend by headlines of a hack and deepened on Monday, has left many investors wondering: is this just a temporary chill or the start of a new crypto winter?

At the time of writing, bitcoin trades just above USD 88,000 while ethereum has dropped toward the USD 2,800 level. That puts both assets at key technical and psychological inflection points, especially when considering the broader macroeconomic picture, evolving monetary policy expectations, and current options market positioning.

1. What triggered the latest drop?

While the catalyst most widely cited was a Sunday exploit (allegedly tied to a large exchange or bridge protocol), the selloff appeared to be already in motion. In fact, flows had been weakening throughout November, and market breadth across digital assets had been narrowing. The hack merely served as a spark in an already dry forest.

Another contributor may be Japan. With Japanese yields surging to multi-year highs, global liquidity dynamics are shifting. If the Bank of Japan is truly exiting yield curve control, that removes a global source of cheap capital, impacting risk assets broadly, including crypto.

Add to that the broader market narrative: after the approval of spot bitcoin and ethereum ETFs, a classic 'buy the rumour, sell the fact' pattern has played out. Despite strong inflows into IBIT and ETHA over previous months, these ETFs have seen net outflows during this downturn.

2. Context matters: selloffs are not unusual

The current correction, while sharp, is not unprecedented. Bitcoin has seen multiple 30–40% drawdowns even within broader bull markets. As the chart below illustrates, each of the last three major selloffs (in March 2024, July 2024, and now) have seen peak-to-trough moves exceeding -30%.

3. Positioning: base, bear and bull scenarios

To assess where we go next, it helps to anchor the discussion in potential macro and market scenarios.

• Base case: Markets remain choppy but constructive as rate-cut expectations remain in play for 2026. Bitcoin stabilizes around USD 80,000–90, 000 and options volatility drifts lower. This is supported by softening inflation data, modest ETF inflows, and lack of further negative headlines.
• Bear case: Continued risk-off sentiment driven by geopolitical surprises, a hawkish Fed, or a failed ETF demand narrative. Bitcoin could slide toward the 61.8% Fibonacci retracement (USD 57,800) and ETH retests levels around USD 3,200.
• Bull case: A dovish pivot, combined with renewed ETF inflows and technical breakouts, could lift bitcoin toward USD 100,000 again. Ethereum could regain the USD 5,500–6, 000 area.

Why is the base case the most likely right now? Because implied volatility in the options market has not exploded higher, suggesting that despite the drop, the market is not in panic mode. Moreover, there’s still notable ETF interest even on down days, and recent macro data continues to support rate cut pricing across most developed economies.

4. What the options market is telling us

Even if you’ve never traded an option in your life, options data can provide valuable insight into what the market expects. It’s a bit like reading the room, options prices reflect where investors believe volatility is headed, and how likely big price swings might be in the near term. Especially in uncertain periods like this one, those clues can be helpful for shaping expectations.

Let’s translate the ETF price levels back into spot prices for clarity. At the time of writing:

• IBIT (iShares Bitcoin Trust) trades at USD 48.50, which corresponds roughly to a spot bitcoin price of ~USD 86,500.
• ETHA (iShares Ethereum Trust) trades at around USD 21.00, implying a spot ethereum price of ~USD 2,800.

Option prices on both instruments suggest a one-week expected move of ±7–8%, which is relatively elevated but not extreme. This range represents the market's collective estimate of how much prices could swing in the short term. In other words, the options market is effectively pricing in the possibility that bitcoin could move up or down by around USD 6,000 and ethereum by several hundred dollars within the next week. That implies traders are bracing for further volatility, sharp daily moves, fast reversals, and potential headlines that can rapidly shift sentiment, even if they aren't positioning for a full-scale meltdown.

5. Positioning and gamma: how options flows can amplify or calm the next move

Before diving into the current positioning, it’s worth taking a moment to explain what gamma actually is. In the options market, gamma measures how sensitive an option’s delta is to changes in the price of the underlying asset. That might sound abstract, but here’s a simple way to think about it: imagine a car's steering wheel. The further you turn it, the more sharply the car turns. In this analogy, market makers are the drivers, and as prices move closer to popular strike levels, they need to adjust their hedges more frequently and more aggressively. That can amplify price swings, especially when gamma exposure is high.

This brings us to IBIT, where the current price (USD 48.50) sits just below the so-called 'gamma flip' level at USD 49. When price is below this flip point, market makers tend to hedge in a way that reinforces the direction of the move, selling into strength and buying into weakness. This behaviour can heighten volatility. In contrast, if the price moves back above the gamma flip, those same hedging flows may help stabilise the market.

The chart background highlights two important zones:

• The red zone on the left shows where price is below the gamma flip level. In this area, market makers’ hedging behaviour tends to increase volatility.
• The green zone on the right shows where price is above the gamma flip level. Here, hedging flows typically dampen volatility, contributing to market stability.

ETHA shows a similar profile, though less pronounced. If spot prices can rise above the flip zones, gamma exposure could shift into a stabilizing regime. For now, traders should expect more chop, especially into the Friday expiration.

Conclusion: a moment of recalibration, not collapse

Crypto’s latest correction feels painful, but not atypical. The market remains highly narrative-driven, and positioning is adjusting after a period of extreme optimism. Barring a new wave of negative headlines or macro surprises, the current move looks more like a healthy shakeout than the start of a deeper winter. That said, this doesn’t mean prices can’t go lower, markets can always overshoot in both directions. What’s clear is that volatility is likely to persist, regardless of which scenario ultimately unfolds.

The next few sessions will be key. Traders and investors alike would do well to watch ETF flows, gamma levels, and central bank speak closely.