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October 2025 Flash Crash

On October 10, 2025, crypto markets experienced the largest single-day liquidation event in history. Over $19 billion in leveraged positions were wiped out in hours—approximately nine times larger than any previous single-day total. An overleveraged market met a liquidity vacuum, and the result was a cascade.

Summary

  • Triggered by Trump's surprise 100% China tariff announcement at 20:50 UTC on a Friday
  • $19.3 billion liquidated across 1.62 million accounts
  • Market maker order book depth collapsed 98% within 40 minutes
  • BTC fell ~14% ($122K → $104K), ETH dropped ~20%
  • Post-crash liquidity never fully recovered—analysts called it a "structural shift"

The Trigger

At approximately 20:50 UTC on Friday, October 10—when traditional U.S. equity markets were closed—President Trump announced via social media that he would impose 100% tariffs on Chinese imports, alongside new software export controls. The announcement was a response to China's expanded restrictions on rare earth mineral exports.

With equity markets closed, crypto absorbed the full shock. The timing was particularly devastating: no circuit breakers, no institutional hedging, and limited market maker coverage during U.S. off-hours.

Timeline of Events

Figure 1: October 2025 crash timeline.

timeline
    section October 10
        20.50 : Trump announces 100% China tariffs, BTC at $122K
        21.00-22.00 : Initial sell-off, $7B liquidated, BTC drops to $110K
        22.30-23.00 : Market makers withdraw, order book depth collapses 98%
        23.00-01.00 : Free-fall phase, BTC hits $104K low, altcoins near zero
    section October 11
        04.00-08.00 : Stabilization begins, ADL activates across exchanges
        08.00 : BTC recovers to $112K
    section October 12
        Morning : Market cap rebounds above $4T, open interest down 50%

Impact by the Numbers

METRIC VALUE
Total liquidations $19.3 billion
Accounts liquidated 1.62 million
Long positions (% of liquidations) 87%
Largest single liquidation $200 million ETH position (Hyperliquid)
Market cap erased ~$370 billion
Open interest reduction ~50%
BTC price decline ~14% ($122K → $104K)
ETH price decline ~20% (below $3,500)

The liquidation total was approximately nine times larger than any previous single-day event, surpassing even the FTX collapse and Terra/Luna implosion in terms of single-day forced selling.

Market Maker Withdrawal

The crash exposed the fragility of exchange liquidity. Between 20:40 and 21:20 UTC, tracked market depth collapsed from $1.2 million to $27,000—a 98% drop. BTC's top-of-book depth shrank over 90% on major venues. Bid-ask spreads widened from single-digit basis points to double-digit percentages.

This demonstrated what happens when crypto Market Makers withdraw simultaneously—unlike traditional finance where designated market makers have obligations to maintain orderly markets. See Market Makers for context on how crypto market makers operate without regulatory obligations.

Figure 2: Order book depth collapse.

graph TD
    subgraph "Before Crash (20:00 UTC)"
        B1["BTC Order Book Depth<br/>~$20M at 1% from mid"]
        B2["Spreads: Single-digit bps"]
        B3["Market makers active"]
    end

    subgraph "During Crash (23:00-01:00 UTC)"
        D1["BTC Depth: $27K<br/>(98% collapse)"]
        D2["Spreads: Double-digit %"]
        D3["Market makers withdrawn"]
    end

    subgraph "After Crash (November)"
        A1["BTC Depth: ~$14M<br/>(30% below pre-crash)"]
        A2["Spreads: Elevated"]
        A3["Structural shift confirmed"]
    end

    B1 --> D1 --> A1
    B2 --> D2 --> A2
    B3 --> D3 --> A3

    style B1 fill:#90EE90
    style B2 fill:#90EE90
    style B3 fill:#90EE90
    style D1 fill:#FF6B6B
    style D2 fill:#FF6B6B
    style D3 fill:#FF6B6B
    style A1 fill:#FFE4B5
    style A2 fill:#FFE4B5
    style A3 fill:#FFE4B5

Market makers had 20-40 minutes of warning before complete withdrawal. This was not malicious—it was a protective reaction to rapidly devaluing inventory they could not hedge. But the coordinated retreat turned a correction into a cascade.

Exchange Failures

Binance

  • Interface froze with API failures
  • Insurance fund deployed $188 million
  • USDe stablecoin de-pegged to $0.62
  • Index pricing miscalculations affected liquidations

Coinbase

  • Intermittent disruptions throughout the crash
  • BTC price diverged nearly 9% (~$10,000) from other venues
  • Transfer delays prevented arbitrage

Robinhood

  • Temporarily halted crypto trading entirely
  • Users unable to exit positions during peak volatility

Hyperliquid

  • First auto-deleveraging (ADL) event in over two years
  • Processed $10 billion in forced position closures
  • Maintained 100% uptime and zero bad debt

Auto-Deleveraging (ADL)

With order books empty, exchanges couldn't close underwater positions through normal liquidation. auto-deleveraging forcibly closed profitable positions to cover losses.

How ADL Works

  1. Exchanges identify accounts that can't be liquidated normally
  2. The most profitable counter-positions are identified
  3. Those positions are forcibly closed to offset losses
  4. Profitable traders absorb the bad debt

Figure 3: Auto-deleveraging mechanism.

sequenceDiagram
    participant Underwater as Underwater Long
    participant Exchange
    participant Insurance as Insurance Fund
    participant Profitable as Profitable Short

    Note over Underwater: Position underwater<br/>Cannot be liquidated normally
    Underwater->>Exchange: Position marked for liquidation
    Exchange->>Insurance: Check insurance fund
    Insurance-->>Exchange: Insufficient to cover
    Exchange->>Profitable: Identify most profitable shorts
    Exchange->>Profitable: Force close positions at bankruptcy price
    Note over Profitable: Profits partially confiscated
    Note over Exchange: Bad debt absorbed<br/>by counter-parties

Binance, Bybit, and Hyperliquid triggered ADL for tens of thousands of accounts. Hedge positions disappeared in minutes. Traders who were correctly positioned for the crash had their profits partially confiscated to cover counterparty losses.

ADL Risk

Auto-deleveraging means your winning positions can be forcibly closed during extreme volatility. Being right about market direction doesn't guarantee you'll realize those profits.

Root Causes

The crash was not caused by fraud, insolvency, or institutional failure (unlike Terra/Luna or FTX). The root causes were structural:

Pre-Existing Conditions

INDICATOR VALUE RISK SIGNAL
BTC Open interest growth (YTD) +374% ☒ Extreme
SOL open interest growth (YTD) +205% ☒ Extreme
Funding rates (Oct 6) ~30% annualized ☒ Elevated
Cross-margin concentration High ☒ Systemic

Contributing Factors

  • ☒ Excessive leverage — Open interest had grown to unprecedented levels
  • ☒ Concentrated positions — Large share of exposure on unified (cross-asset) margin venues
  • ☒ Elevated funding rates — Climbed from ~10% to nearly 30% annualized by October 6
  • ☒ Illusory liquidity — Order books appeared deep but evaporated under stress
  • ☒ Off-hours timing — Announcement hit when traditional markets were closed
  • ☒ Infrastructure fragility — Transfer delays prevented arbitrage and price convergence

Aftermath: The "Structural Shift"

By mid-November, liquidity had not recovered. Analysts described the change as a "structural shift" rather than temporary dislocation.

Liquidity Metrics Comparison

METRIC PRE-CRASH POST-CRASH CHANGE
BTC depth (1% from mid) ~$20M ~$14M -30%
ETH depth (1% from mid) ~$8M ~$6M -25%
Market maker appetite Active Cautious Structural

Market makers adopted "a more deliberate and enduring risk-off positioning." The combination of ETF outflows, Federal Reserve uncertainty, and weak directional conviction suppressed market-making appetite indefinitely.

The reduced liquidity created a feedback loop: thinner order books mean larger price moves for the same volume, which increases risk, which further suppresses market-making appetite.

Key Actors

Market Makers

  • Wintermute: CEO publicly denied crisis, but on-chain analysis indicated large pre-crash BTC transfers to exchanges
  • General withdrawal: Market makers pulled bids within 20-40 minutes of initial announcement
  • Post-crash positioning: Most remained cautious through November, contributing to "structural shift"

Exchanges

  • Binance: Largest liquidations, insurance fund deployment, interface failures
  • Hyperliquid: First ADL in two years but maintained zero bad debt
  • Robinhood: Trading halt drew regulatory scrutiny

Traders

  • Retail: Disproportionate losses; 87% of liquidations were long positions
  • Leveraged longs: Bore the brunt of the cascade
  • One short seller: Reportedly profited $80-200 million, though ADL mechanisms prevented full position realization

Lessons

For Traders

  • ☑ Leverage amplifies both gains and losses exponentially during volatility
  • ☑ Off-hours exposure creates asymmetric risk (no circuit breakers, limited hedging)
  • ☒ "Liquid" markets can become illiquid faster than you can exit
  • ☒ ADL mechanisms can confiscate profits from correctly-positioned traders
  • △ High open interest and elevated funding rates signal overleveraged markets

For Market Structure

  • ☒ Crypto lacks the circuit breakers that protect traditional markets
  • ☒ Cross-venue arbitrage breaks down when transfers are delayed
  • ☒ Insurance funds are insufficient for tail-risk events

References

Primary Sources

Additional Analysis

Changelog

DATE AUTHOR NOTES
2026-01-04 Artificial. Generated by robots.
2026-01-08 Denizen. Reviewed, edited, and curated by humans.