There are moments when crypto’s fiercely optimistic traders are forced to reckon with markets’ unwritten rules. October 10 2025 delivered one of those reality checks. A day when leverage was punished, liquidity vanished, and even seasoned participants found themselves staring at red screens as billions were wiped off the crypto market.
The anatomy of the crypto market meltdown
The spark for the carnage was a potent mix of macro triggers: trade tensions and tariff headlines drove a risk-off cascade. Within a single hour, Bitcoin plummeted by about 13%, and altcoins experienced even worse slippage. Some, like ATOM, briefly plunged to near-zero on illiquid exchanges before partial recoveries.
Market-wide, more than $20 billion in leveraged positions were liquidated across centralized and decentralized platforms, making it, as Bitwise portfolio manager Jonathan Man noted, the largest blowout in crypto’s history.
This was not a slow bleed. Weeks of bullish build-up and sky-high open interest evaporated from the crypto market overnight, resetting market positioning to where it stood months prior. In total, over $65 billion in open interest vanished from the system.
Who really got washed out?
It’s tempting to say “retail got wrecked.” But Wolf of All Streets’ Scott Melker, echoing the consensus of several analysts, set the record straight:
“The people who got liquidated weren’t retail investors. They were crypto natives and traders using leverage on decentralized exchanges. As always… This was painful, but it wasn’t a retail flush. It was a leverage washout of our most ardent believers.”
The data support this. New retail flows are increasingly buying spot or large-cap ETFs, largely immune to internal DeFi leverage mechanics. The traders left holding the bag were those running high-leverage perpetuals. In other words? Crypto veterans, not first-timers.
Why was the damage so extreme?
The answer, as recounted in Jonathan Man’s detailed post-mortem, lies in market structure. Perpetual futures (“perps”) are zero-sum: when the losers owe more than they can pay, the entire system is stressed.
In ordinary conditions, margin calls and liquidations are absorbed naturally. But as volatility spiked, liquidity providers pulled back. Thin order books on altcoins led to disproportionate price moves, with auto-deleveraging (ADL) shutting out even the profitable traders in some cases.
Certain platforms, like Hyperliquid, benefited through on-chain liquidity pools, capitalizing on forced sales while traders saw positions disappear at a fraction of their value. By the end of the day, even sophisticated market-neutral strategies were caught off guard as operational risk and slow-moving collateral led to sudden losses across the entire crypto market.
CeFi vs. DeFi: a tale of two worlds
Centralized exchanges bore the brunt with cascading liquidations, particularly in long-tail tokens, while DeFi weathered the storm better because of strict collateral standards and hardcoded price mechanisms.
For example, protocols like Aave and Morpho required high-quality collateral and protected stablecoin prices, limiting the risk of a DeFi-wide death spiral. There were still pain points: USDe dropped to $0.65 on some centralized venues, and anyone using it for margin was swiftly liquidated.
Wide spreads, sometimes $300 or more between exchanges, created rare arbitrage opportunities for nimble professionals, but the broader takeaway is more sobering.
More than $20 billion vaporized from the crypto market, but spot buying remained steady. Prices recovered from extremes, and leverage’s excesses were forcibly purged from the ecosystem. As Man described, operational excellence and liquidity management, not just market direction, determined who weathered the storm. As Bitwise CEO Hunter Horsley commented:
“One of the biggest liquidation events in Bitcoin’s history — And it’s down only 15%. Remarkable sign of strength for BTC. Nothing stops this train.”
Crypto’s inherent volatility and its growing macro sensitivity mean such purges are both inevitable and healthy, restoring balance and reminding every participant that leverage isn’t just risky; it’s ruthless.
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