TL;DR
- A US-China trade war dispute triggered a record-breaking $19.33 billion crypto liquidation event, wiping out 1.6 million leveraged traders in a single day.
- The crash was amplified by a “liquidity vacuum” where market makers pulled orders, causing a cascade of forced selling and controversial auto-deleveraging by major exchanges.
- To prevent liquidation, traders must use lower leverage (2x-5x), maintain excess collateral, use stop-losses cautiously, avoid averaging down, and diversify their positions.
On October 10, 2025, the largest single-day crypto liquidation occurred, wiping more than $19 billion in leveraged positions. Bitcoin, Ethereum, and major altcoins plunged before staging a partial rebound by Monday. It’s a bare, brutal and familiar reminder that high leverage, thin order books, concentrated liquidity, and algorithmic trading can transform a “positive” crypto market to a cascading strategy for the non-vigilant.
The Day Crypto Markets Faced Their Largest Liquidation Ever
Crypto is still the most volatile market til date, and the market gave us a stark reminder, affecting over 1.6 million traders across major exchanges worldwide. Bitcoin kickstarted the downfall, falling from $122,574 to $104,782, a 14.5% drop, sending shockwaves through the entire market. Ethereum quickly followed a similar trajectory with loses at 11-21% drop ($4,783 → $3,574-$3,878).
CHECK OUT: Nigeria Crypto Tax 2026 Guide: Calculate and Report Your Gains
With crypto’s top two sinking, altcoin soon bore the brunt of the selloff. Solana crashed more than 30%, XRP plunged 22-42% drop ($3.65 → $2.33-$2.81 range), and Dogecoin saw a staggering 50% decline during the flash crash. Within hours, the crypto liquidation had cleared $7 billion, and conservative tallies later confirmed $19.33 billion in forced closures as per Coinglass. As of the time of writing, Bitcoin hovered around $114,683—up 0.5% on the day, off a Sunday low near $106,770, and still 9.2% below its October 6 record high.
How the US-China Trade War Ignited Market Panic
Why did crypto crash so violently on that Friday afternoon? The trigger was none other than President Donald Trump announcing a 100% tariff on Chinese goods, on top of the existing 30% tariffs. Additional export controls hinted a “any critical software” taking effect on November 1 or sooner.
The gauntlet was thrown, reviving the US-China trade was driving a deeper wedge between the two nations. Any veteran trader would realize this means drastic change, hammering risk sentiments, and driving synchronized declines across equities and digital assets. Major U.S. indices posted their steepest losses in months on Friday before rebounding on Monday.
Trump’s tariff threats against China shake global markets. Photo: TradingView
The S&P 500 fell 2.7%, marking its steepest decline since April. The Nasdaq Composite dropped 3.56%, while the Dow Jones shed 1.9%. But cryptocurrencies, with their characteristically higher volatility and leverage-saturated market structure, experienced amplified pain.
The tariff announcements did their job, scaring investors, shaking the “institutional” crypto investors, causing a chain reaction, reminding us that cryptocurrencies are a fragile balance between demand, supply and the difference between millions and a flat zero.
Anatomy of a Crypto Market Crash: When Leverage Meets Liquidity Vacuum
The crypto liquidation had vast ripple effects in under 3 days, and the chaos snarled the entire market.
For starters, market makers, entities responsible for providing buy and sell quotes that create liquid markets, pulled their orders to avoid breaching risk limits. The thinned order books collapsed Bitcoin’s market depth by over 80%. Modest price movements soon became violent swings as forced liquidation found unnatural buyers.
Bitcoin and cryptocurrencies have been rebounding following mass liquidations. Source: CoinGecko
During the crypto market crash, total perpetual futures open interest plummeted 43%, from $217 billion to $123 billion. On Hyperliquid alone, open interest collapsed 57%, from $14 billion to $6 billion.
Perhaps most controversially, the crash triggered auto-deleveraging (ADL) mechanisms on several major exchanges. ADL represents a “last resort” measure that exchanges deploy when their insurance funds cannot cover losses from liquidations. Doug Colkitt, founder of decentralized exchange Ambient Finance, compared it to “crushing everyone at the casino poker tables until everyone else runs out of chips.
Hyperliquid activated cross-margin ADL for the first time in over two years. Bybit auto-deleveraged over 50,000 short positions totalling $4.65 billion. Even profitable traders found their positions forcibly closed as exchanges socialized losses to maintain platform solvency.
Historical Context: 2.27 Times Larger Than the May 2021 Event
Single-day crypto liquidations are not a first for the industry. However, the October 2025 cryptomarket crash eclipsed what was once considered Bitcoin’s darkest day. May 2021, the market almost “died” when $8.5 billion in positions were liquidated following China’s mining ban announcement and environmental concerns raised by Elon Musk.
Ethena Labs founder Guy Young compares USDe stability on Curve to USDC on Binance. Source:X
The 2025 event was 2.27 times larger in dollar terms, despite causing smaller percentage price drops. Bitcoin fell 30% in May 2021 compared to 14.5% in October 2025. Ethereum dropped 44-46% in 2021 versus 11-21% in 2025.
The difference reflects a market that’s larger today but still susceptible to the same failure mode:
- Excessive leverage builds in bullish phases.
- An external shock hits.
- Forced selling starts; market makers step back; depth collapses.
- Liquidations beget more liquidations.
- Insurance funds strain → ADL.
In short, maturation (spot ETFs, deeper institutional participation, bigger absolute OI) has expanded the market. In 2021, the market was valued at around $2 trillion, and now it’s over $4 trillion. Open interest in Bitcoin futures alone grew eleven-fold, from $19 billion to $217 billion. However, the growth of the market also led to the development of the risk. It’s just the same architecture, at a larger scale, and now even global institutions run the risk of losing millions.
What recovered—and where risk still sits
By Monday, crypto and stocks bounced. BTC climbed back toward $115K, while the Dow, S&P 500, and Nasdaq gained roughly 1.4%, 1.7%, and 2.2%, respectively. LMAX Group’s Joel Kruger argued the rebound implies liquidity dynamics, not fundamentals, drove the drop.
ATOM/USDT, IOTX/USDT, ENJ/USDT one-day chart on Binance. Source: TradingView
However, he cautioned that confidence could be tested again if external shocks resurface. With volatility elevated across the curve, early signs point to a choppy road.
Practical Risk Management for Volatile Markets
Ultimately, the US-China trade war flare‑up was the spark, but the tinder was structural: leverage, thin depth, and the ADL backstop. Thus, learning how to protect crypto from liquidation is a must-have arsenal for any trader.
First, use the right amount of leverage. High leverage makes both profits and losses bigger. Some exchanges offer leverage of 20x to 100x, but beginners should start with 2x to 5x. The crash in October showed that even traders with a lot of experience and high leverage could lose everything in a matter of minutes.
Second, keep enough collateral on hand that is more than what exchanges require. This buffer can handle changes in the market and give you some breathing room when things get really volatile. It’s very important to keep an eye on your margin ratio, which is the maintenance margin divided by the margin balance. If this ratio gets too high, you have to add collateral or lower your position size.
Third, use stop-loss orders wisely, but traders should know that these aren’t foolproof ways to protect themselves. When the market is very volatile and order books are thin, stop-losses may go through at prices much worse than expected, or they may not stop liquidation at all.
Fourth, don’t add to losing positions to make your losses worse. When the market crashes, the urge to “average down” actually lowers your liquidation price and makes it more likely that your whole position will close. The event in October showed that what looks like a short-term drop can quickly turn into a full-blown cascade.
Lastly, don’t put all your money into one leveraged position. Instead, spread it out across different assets. When the market crashed, Bitcoin lost 14.5% of its value, while Dogecoin lost 50%. This shows that correlation isn’t always perfect, even when the whole market is selling off.
