Crisis Moment in the Cryptocurrency Market: Lessons from the October 11, 2025 Crash and Structural Vulnerabilities

On October 11, 2025, the cryptocurrency market recorded a historic crash. This market collapse was not merely a temporary volatility but revealed the structural vulnerabilities of the entire market. Subsequent analysis in the following days clarified how multiple factors layered together contributed to this plunge.

Official data from CoinGlass allows us to understand the scale at that time. As of 9:00 AM, the 24-hour liquidation volume reached $19.2 billion, with 1.64 million liquidation events recorded. The largest single liquidation order exceeded $200 million. However, according to testimonies from involved parties, these official statistics only represent part of the picture, and the actual liquidation data is estimated to be around $30 billion to $40 billion.

The Impact of Trump Tariffs on the Entire Risk Asset Market

On that day, the announcement of new tariffs on Chinese products by U.S. leaders directly triggered market panic. The rapid deterioration of US-China trade tensions exerted selling pressure across global risk assets. As risk aversion intensified, investment funds flowed into relatively safe assets such as the US dollar and US Treasuries.

The cryptocurrency market, including flagship assets like Bitcoin and Ethereum, was at the forefront of this selling pressure. The sharp decline in the crypto market not only affected the industry internally but also had a cascading impact on all market participants leveraging their positions.

Market Vulnerability Created by Leverage Accumulation: The “Longs Killing Longs” Mechanism

However, tariffs alone cannot fully explain why the entire cryptocurrency market collapsed overnight. The fundamental reason lies in the fact that most of the market’s prosperity was built on leveraged funds.

Over the past few months, major digital assets like Bitcoin repeatedly hit new all-time highs. Yet, much of the capital behind these rises was not from sustained long-term investments but from leverage accumulated through futures trading, lending markets, and liquidity mining rewards.

When negative news spread, these high-leverage long positions were the first to be hit. Once support levels were broken, forced liquidations (stop-outs) occurred one after another, amplifying selling pressure. The market fell into a negative spiral of “longs killing longs.” Each liquidation triggered subsequent ones, causing a catastrophic chain reaction across the entire market.

A typical example is USDE. Since the official implementation of a 12% subsidy policy, many market participants engaged in leverage trading for arbitrage purposes. This mechanism was highly attractive in bullish markets, attracting vast capital inflows in a short period and serving as a key driver of market vitality. However, on October 11, selling pressure caused USDE to experience a significant decoupling, dropping temporarily to $0.66. This fluctuation became a symbolic event of the crash, shocking many market participants.

Liquidity Castle in a Night: The Limitations of Market Maker Dependence

Even more severe was the complete paralysis of market maker (MM) functions. According to analysis by Greeks.live, a market data platform, the funds of currently active market makers are relatively limited. They focus liquidity provision mainly on Tier 1 projects like Bitcoin and Ethereum, with only limited support for mid- and small-cap altcoins.

In the past, when large market makers exited the market, liquidity supply became highly dependent on these active MMs. At the same time, there was a lack of comprehensive tail risk hedging mechanisms to cope with extreme market conditions. While normal market situations could be managed, in extreme trading environments, these mechanisms proved insufficient.

During the panic caused by Trump tariffs, market makers had to prioritize securing safety for major projects, rapidly increasing liquidity support for them. As a result, the altcoin market entered a state of complete counterparty loss, with almost no market participants remaining to absorb selling pressure.

Tokens like IOTX plummeted to near zero within minutes, vividly illustrating the reality of liquidity exhaustion. In recent years, the surge of new projects led to over-allocation of funds among active MMs, and the lack of derivatives necessary for tail risk mitigation became evident across the entire market. On this day, the fragility of this market structure was fully exposed.

Additional factors worsened the situation. The crash occurred during Friday night (early Saturday morning Asia time), an unfortunate timing. European, American, and Asian market makers each have defined trading hours, and normally, some liquidity recovery can be expected during trading hours. However, if this had happened during weekday trading hours, liquidity might have recovered more quickly. Unfortunately, the crash during Friday night delayed market recovery and exacerbated the damage.

Survival Strategies Learned from the Crisis: Preparing for the Next Cycle

Following the crash, some participants identified market opportunities from multiple perspectives. On October 10, an early Bitcoin investor increased short positions on Bitcoin and Ethereum via hyper-liquidation, accumulating over $1.1 billion. After the crash, this investor successfully realized substantial profits. Other insightful market participants also exploited arbitrage opportunities in tokens like USDE, BNSOL, and WBETH, which experienced decoupling phenomena.

Overall, the October 11 crash was not caused by a single factor but resulted from the combined effects of three dynamics. First, an unexpected macroeconomic policy change—a black swan event. Second, the structural vulnerability of the market built over long-term leverage accumulation. Third, the complete failure of market maker liquidity protection mechanisms. When these three factors coincided, the market rapidly descended into chaos.

The cryptocurrency market is never a stable investment environment; rather, it is a domain fraught with hidden dangers. Bull markets often involve leverage illusions, and unforeseen events can strike at any time. For individual investors, the top priority should be survival amid market upheavals, not immediate profit maximization.

Surviving allows one to seize new opportunities in the next cycle. Conversely, if positions are forcibly liquidated, one may be forced out of the market entirely, losing the chance to re-enter. Remembering this fundamental principle and maintaining long-term activity in this turbulent environment is the true path to success.