Haris ondaden

Yesterday’s crypto crash explained with damage, how it happened, and why

We saw the biggest crash in the history of crypto with $19.2 billion liquidated and approx $800 billion in value wiped out across the board.

Altcoins were hit the hardest , with many dropping 50%or more in just hours.

Prices for some tokens, like IOTX on Binance, even briefly hit zero due to the chaos.

But what exactly started this crash?

To break it down simply, think of it like a chain reaction in a highly leveraged game of musical chairs.

When the music stops, a lot of players get forced out, making things worse for everyone.

Step 1: The Setup and why was the market vulnerable?

Crypto trading, especially on CEXs, often involves leverage: borrowing money to amplify bets on price moves.

Traders use "margin" accounts where they put up collateral (like other cryptos) to borrow more.

"Cross-margin" means one pool of collateral backs multiple trades across different assets.

By early October 2025, the market was overheated:

High Leverage Everywhere: Traders were maxed out on longs (bets prices would rise), especially in altcoins and memes.

Open interest (total bets) was sky-high, making the market fragile.

Diluted Market: There are now over 50 million tokens (expected to hit 100 million soon), spreading liquidity thin.

Many are low-quality memes listed for quick exchange profits, leading to pump-and-dump cycles.

External Triggers: Trump tariffs triggered this initial crash.

Bitcoin and Ethereum dipped first, dragging everything else down due to high correlations.

Altcoins were particularly at risk because they have thinner order books (fewer buyers/sellers), so small sells can cause big drops.

Step 2: The Trigger and Cascading Liquidations

Once prices started falling (e.g., Bitcoin breaking key levels), the real damage began.

Auto-Liquidations Kick In: Exchanges automatically sell collateral to cover loans when positions go underwater.

For cross-margin users, this means dumping whatever assets they hold and that's often altcoins to pay back borrows.

Domino Effect: One liquidation causes more price drops, triggering more liquidations. Over $550 million in futures positions were wiped out in a few minutes.

This created a "liquidation cascade" or "flush," where panic spreads fast and caused $20B+ in liquidations.

And this is exactly why I always tell you guys to please be careful from leverage.

Ending on positive note: Never give up, if you got hit don’t worry, you will bounce back harder.

if history repeats, events like these actually start the biggest bull run.

2020 Covid crash started 2021 altseason, FTX & Luna crash markets the bottom of $15,400 for Bitcoin and it’s now up 8x from there.

I think we will still see a parabolic Q4 and market markers just set the stage for it with all the longs wiped out.