The Source of the Recent Crypto Market Crash

On October 11, 2025, the cryptocurrency market experienced extreme volatility following the impact of Trump’s tariff policy, with altcoins suffering severe losses. The total liquidation across the crypto market exceeded $12 billion, primarily from long positions. In contrast, the U.S. stock market—though shaken by geopolitical uncertainty—fell by only 1–2%. Approximately 1.5 million traders were liquidated, and altcoins dropped 70–80% on average, while Bitcoin briefly fell below $105,000 before rebounding. Based on current market information, the deeper decline in crypto compared to equities was mainly due to massive circular loan liquidations on crypto exchanges and large-scale deleveraging by market makers. This report provides a concise analysis of the root causes behind this downturn.

Many exchange users employ circular lending to amplify capital utilization and yield. Investors repeatedly perform operations such as:

After 4–5 rounds, the original capital base is magnified by nearly fourfold, significantly increasing systemic leverage. According to platform data, USDe’s price on Binance once plunged to $0.65, while WBETH fell below $560 and BNSOL dropped under $40. These de-pegging events triggered automatic liquidation loops within the circular lending mechanism, leading to a cascade of margin calls and forced sales.

Arthur Hayes, co-founder of BitMEX, pointed out that after Jump Trading’s exit, market-making capital had become heavily concentrated among top-tier projects. When the tariff shock hit, liquidity providers prioritized protecting Tier 0 and Tier 1 assets, even reallocating funds away from smaller altcoins. This reallocation left low-cap tokens completely unsupported, causing their prices to collapse. Worse still, many market makers were using USDe as collateral for derivatives positions. When USDe’s price crashed, the value of their margin accounts halved, effectively doubling their leverage ratios overnight. Even seemingly “safe” 1x long positions were forcibly liquidated due to margin erosion.

The October 11, 2025 crypto crash represents a classic case of macro triggers compounded by technical fragility. While the drawdowns of major coins mirrored U.S. equities, the extreme losses in high-risk altcoins revealed systemic weaknesses in over-leverage and liquidity mismatch. Ultimately, this event served as a concentrated release of systemic risk, exposing the fragility of crypto’s interconnected leverage structure.