There are times when fiercely optimistic crypto traders are forced to consider the unwritten rules of the markets. October 10, 2025 delivered one of these reality checks. On a day when leverage was punished, liquidity disappeared and even seasoned participants found themselves staring at red screens as billions were wiped from the crypto market.
The Anatomy of the Crypto Market Collapse
The spark for the carnage was a potent mix of macroeconomic triggers: trade tensions and headlines about tariffs led to a cascade of risk aversion. In one hour, Bitcoin fell by around 13% and altcoins experienced an even more serious skid. Some, like ATOM, briefly plunged to near zero on illiquid exchanges before a partial recovery.
Market-wide, more than $20 billion in leveraged positions were liquidated across centralized and decentralized platforms, making it, as noted by Bitwise portfolio manager Jonathan Man, the largest blowout in crypto history.
It wasn’t a slow bleed. Weeks of bullish buildup and dizzying open interest evaporated overnight from the crypto market, resetting market positioning to where it was months before. In total, more than $65 billion in open interest disappeared from the system.
Who was really taken away?
It’s tempting to say that “retailing is a wreck.” But Scott Melker of Wolf of All Streets, echoing the consensus of several analysts, set the record straight:
“The people who were liquidated were not retail investors. They were crypto natives and traders using leverage on decentralized exchanges. As always… It was painful, but it wasn’t a retail hunt. It was an erasure of the leverage of our most ardent believers.”
The data confirms this. New retail flows are increasingly purchasing spot or large-cap ETFs, largely immune to the internal mechanisms of DeFi leverage. The traders who held on were those operating highly leveraged perpetuals. In other words? Crypto veterans, not newbies.
Why was the damage so extreme?
The answer, as Jonathan Man’s detailed autopsy recounts, lies in market structure. Perpetual futures (“perps”) are zero-sum: when losers owe more than they can pay, the entire system is put under stress.
Under ordinary conditions, margin calls and liquidations are absorbed naturally. But as volatility increased, liquidity providers withdrew. Low order books on altcoins have led to disproportionate price movements, with automatic deleveraging (ADL) excluding even the most profitable traders in some cases.
Some platforms, like Hyperliquid, benefited from on-chain liquidity pools, capitalizing on forced sales as traders saw their positions disappear at a fraction of their value. Ultimately, even sophisticated market-neutral strategies were caught flat-footed as operational risk and slow collateralization led to sudden losses across the entire crypto market.
CeFi vs DeFi: a tale of two worlds
Centralized exchanges have been hit hardest by cascading liquidations, particularly in the case of long-tail tokens, while DeFi has weathered the storm better thanks to strict collateralization standards and hard-coded pricing mechanisms.
For example, protocols like Aave and Morpho required high-quality collateral and protected stable prices, limiting the risk of a DeFi-scale death spiral. There were still problems: USDe fell to $0.65 on some centralized sites, and anyone using it for margin purposes was quickly liquidated.
Wide spreads, sometimes $300 or more between exchanges, have created rare arbitrage opportunities for nimble professionals, but the broader findings are sobering.
More than $20 billion was vaporized in the crypto market, but spot purchases remained stable. Prices recovered from extreme levels and excess leverage was forcibly removed from the ecosystem. As Man described it, operational excellence and liquidity management, not just market direction, determined who weathered the storm. As Bitwise CEO Hunter Horsley commented:
“One of the largest liquidation events in Bitcoin history – and it’s only down 15%. A remarkable sign of strength for BTC. There’s no stopping this train.”
Crypto’s inherent volatility and increasing macroeconomic sensitivity mean that such purges are both inevitable and healthy, restoring balance and reminding every participant that leverage is not only risky; it’s merciless.
