Today marks exactly one year since the crypto market’s most violent crash in history. I want to dissect how it happened, not just revisit old news.
My thesis: high leverage doesn’t cause a market crash on its own. What’s more dangerous is how collateral assets are valued, because a small dip can amplify itself into a cascade of liquidations.
On October 10, 2025, roughly $19 billion worth of positions were liquidated in just a few hours. The trigger was a flare-up in tariff tensions, but the crash was far more severe than that news alone should have caused.
The reason lies in collateral. Some assets used as collateral, including the synthetic dollar USDe, temporarily lost value right on the largest exchange’s internal order book, because the exchange used its own price as the valuation benchmark instead of anchoring it to an average across multiple sources.
The drop in collateral value caused positions to be revalued lower than they actually were. The system automatically sold to reduce exposure, and those sell orders pushed prices down further. The cycle kept feeding itself.
More than 1.6 million accounts were liquidated at the same time. That doesn’t mean 1.6 million people guessed the price direction wrong; it means the collateral mechanism amplified an ordinary drop into a catastrophe.
There’s another layer that few people pay attention to: auto-deleveraging. When the exchange can’t liquidate losing traders quickly enough, it forces profitable traders to close their positions early to balance the books. So some people who hadn’t even bet on the wrong direction had their positions closed in the middle of the crash.
I also have to consider the opposite scenario: perhaps no pricing mechanism was needed at all. A sufficiently severe news shock can crash any highly leveraged market; the collateral issue may just be an accompanying detail, not the main cause.
What would prove me wrong: if the next time there’s a similarly shocking news event, the market only falls in line with its liquidity, without a wave of cascading liquidations far exceeding the scale of the news, then the argument about this collateral mechanism would be much weaker.
What to watch from here: whether major exchanges change how they price collateral after this incident, and whether the next major volatility event on $BTC brings another wave of liquidations far out of proportion to the news, or just a drop commensurate with it.
For those of you using leverage today, the lesson isn’t to give up leverage. It’s to know which sources your exchange uses to calculate collateral prices—one source alone or an aggregate of several—because that small detail is what determines whether your positions survive or get wiped out in an unexpected shock.
I’ll leave you with a question: have you ever asked which sources your exchange uses to calculate the price of your collateral?
Personal observation, not investment advice
#BitcoinRecoversTo$82K #TinFed #BitcoinShortTermHoldersReach4.08MBTC