Historical Perspective on the October Crypto Collapse: Multiplying Capital Losses

According to Frank Holmes, CEO of Hive Digital Technologies, a long-term perspective is key to understanding why the crypto market recovery is taking longer than expected. In his analysis, Holmes draws comparisons with previous financial crises to explain the true scale of the impact on the market.

The sharp crypto sell-off that began in mid-October 2024 is not just routine volatility. Holmes states that the permanent losses incurred far exceed those experienced during the FTX crisis. It’s not just about larger numbers, but fundamentally different types of losses from a market recovery perspective.

Six Times Greater Losses: Why FTX Is Not a Suitable Comparison

“This is much bigger than FTX,” Holmes reveals. The scale of losses is about six times the magnitude of that crypto exchange crisis. However, comparing numbers alone doesn’t fully explain why the market struggles to find a clear bottom.

The crucial difference lies in the fate of the funds. In the FTX case, despite large losses, much of the money could eventually be traced and returned to the economy. This time, the situation is very different—funds have vanished from the system without clear traces to recover. That’s why Holmes emphasizes that the “missing” capital isn’t just a matter of numbers but reflects deeper structural damage.

Parallel with Black Monday 1987: Lessons from Market History

Holmes frames the October 2024 event through the lens of previous market collapses he has experienced firsthand. The Black Monday crash in 1987 offers valuable insights into how volatility can amplify itself.

In 1987, early portfolio hedging strategies using futures unintentionally accelerated selling. The mechanism was simple yet dangerous: when the index dropped one percent, algorithms sold ten times the initial amount. When it dropped another one percent, sales multiplied again. “It became self-fulfilling,” Holmes describes, creating a global market shutdown and widespread economic damage in the financial sector.

A similar phenomenon recurred during the October 2024 crisis, but with more complex mechanisms involving leverage trading and margin calls.

Margin Liquidation: When Capital Vanishes from the System

The critical point that sets the October 2024 crisis apart is the scale of margin liquidations. “Many hedge funds ran out of funds,” Holmes explains. Those leveraging their portfolios to implement delta-neutral strategies all suffered total losses.

This liquidation removed far more capital from the system than previous crises. Unlike FTX, where assets still existed (albeit troubled), this forced liquidation meant capital was truly lost from the ecosystem. The ripple effect is a reduction in total liquidity available to support market recovery.

Additional pressure came from traditional financial markets. The rise in Japanese bond yields triggered the unwinding of carry trades worth about $500 million. This wave added new pressure to the crypto markets throughout early 2025, prolonging a sell-off that should have stabilized.

Recovery Phase: How Long Will It Take to Reach the Bottom?

The recovery cycle depends on how much capital is permanently destroyed and how long it takes to rebuild. Holmes analyzes historical timelines: when China forced miners out, the market hit bottom within three months. After FTX, recovery took two to three months.

But the October 2024 crisis is different. Holmes initially expected the bottom in mid-January, about three months after the sell-off, but new pressures emerged that shook that expectation. The unexpected rise in Japanese bond yields added another month to the healing cycle.

Nevertheless, Holmes is beginning to see signs of stabilization that may finally form. Based on historical perspectives and seasonal timing, he notes the potential bottom could be around mid to late February 2025. However, a key warning remains: market cycles never follow a perfect schedule.

Conclusion: The Importance of Understanding the Extent of Damage

Holmes still views mid-October 2024 as a truly defining event—not because it caused panic (markets have experienced that before), but because its mechanism of erasing capital takes longer to rebuild. This long-term perspective is crucial for investors trying to understand the recovery timeline and when the market will truly rebound.