Takeaways:
U.S. & China tariff war triggered a massive market-wide crash
Over-leverage caused ~$20B in liquidations
USDe briefly depegged due to CEX lag and panic selling
ETF inflows and whale buys show confidence returning
Crash reset the market for the next recovery phase
I/ Market Impacts
The crypto market experienced one of its most severe single-day downturns on October 11 following the U.S. vs China tariff war, leading to a broad market sell-off. Major indexes fell sharply: the Dow dropped 1.90%, the S&P 500 fell 2.71%, and the Nasdaq declined 3.56%.
Crypto markets also faced massive panic selling, wiping out an estimated $430B–$890B in total market capitalization.
This downturn led to approximately $20B in total liquidations across all markets, with the majority of the pain coming from the long side over $16.7B in long positions were liquidated, accounting for more than 80% of the total daily liquidation volume.
The crash highlighted vulnerabilities in leveraged trading, geopolitical tensions, and overall market psychology.
II/ Main Causes
Tariff War Between the U.S. and China – The Trigger
The primary catalyst was U.S. President Donald Trump’s announcement on October 10, 2025, of 100% tariffs on Chinese imports, including critical software and tech products, effective November 1.
This marked an escalation in U.S.–China trade tensions, coming in response to Beijing’s new export controls on rare-earth minerals essential for industries such as EVs, missiles, and solar panels. Trump described China’s actions as “hostile,” catching markets off guard and sparking immediate panic.
Over-Leverage Loop Through Borrowing
High levels of borrowed funds (up to 100x leverage) amplified the sell-off. When prices dipped, automated liquidations triggered a cascade effect forcing the sale of collateral and driving prices down further. Thin liquidity in altcoins and cross-margin systems on exchanges worsened this “chain reaction.”
Liquidation volume on one of the largest lending platforms, Aave, surged to over $210M, the highest level in the past six months.
The composition of liquidated collateral and debt assets indicates that whales were engaging in leveraged loops using yield-bearing BTC, ETH, and altcoins as collateral while borrowing stablecoins such as USDT and USDC to amplify their positions.
Over-Leverage in Perp Trading
The market hype, fueled by numerous positive factors supporting a bullish outlook and the continuation of the perpetual futures trend from previous periods, led to a surge in open interest across the market. At its all-time high on October 2, total perpetual open interest reached $1.2T.
Following the “black swan” event on October 10, perpetual OI dropped below $1T, revealing the market’s overhype and underlying fragility. Notably, the crash didn’t just affect traders several well-known projects and organizations also suffered severe impacts.
One of the biggest consequences was the depegging of the USDe stablecoin issued by Ethena.
USDe De-peg
There were multiple factors that affected USDe’s price on October 10. However, the project confirmed that its fundamentals remain strong, all features are still functioning efficiently, and USDe has since regained its peg.
So, what happened?
The main causes appear to stem from CEX lag, panic selling, and margin calls leading to a liquidation cascade.
Panic selling: Amid the market crash, many traders sold USDe in panic, causing it to temporarily depeg.
CEX lagging: During the depeg period, major platforms like Binance experienced lags, temporary halts, and oracle issues. This prevented arbitrage bots from operating, allowing the price to drop freely without arbitrage support.
Margin calls: Many large holders were using USDe as collateral for leveraged positions on CEXs. When USDe depegged on these exchanges despite remaining pegged in Ethena’s primary marke they faced margin calls, which exacerbated the sell-off.
Afterward, USDe quickly regained its peg as arbitrage resumed and Ethena processed redemptions without issues. The project’s governance token, ENA, fell around 40% but partially recovered soon after.
Suspected Insider Activity
There is evidence of a wallet that shorted BTC and ETH just before Trump’s tariff announcement and the subsequent market crash. It is suspected to belong to an insider or organization that had prior knowledge of the event and sought to profit from it.
Source: @SpecterAnalyst on X
III/ Will Crypto Bounce Back in 2025?
Bitcoin’s $100K level is the key test right now if it holds, the market could stabilize, but if it breaks lower, more selling may follow. Still, it’s not all bad news. Large investors are gradually returning, with crypto ETFs recording about $5.9 billion in inflows in early October 2025.
On-chain data shows mixed signals: some whales are taking profits, while others have accumulated over 53,000 BTC in Q3, indicating continued long-term confidence.
If global tensions ease and capital continues flowing into ETFs, the market could begin to recover in 2026. It may take time, but history shows that every major drop has eventually led to the next big rally.
