Cryptocurrencies plummeted in value on Friday in a brief but major flash crash, costing investors billions of dollars and exposing the industry’s volatility.
Traders were shocked when President Donald Trump promised new tariffs on Chinese imports, causing a sell-off in risky assets such as tech stocks and cryptocurrency and a flight to safe havens such as gold and silver, both of which are trading at record highs.
From bitcoin to meme coins, cryptocurrencies fell as speculators liquidated their holdings and closed highly leveraged positions amid the rapid, unexpected slump.
The mini-crash resulted in a record $19 billion in liquidated holdings, according to CoinGlass statistics.
Although cryptocurrency prices have subsequently rallied, The Kobeissi Letter reports that about 1.6 million traders liquidated their positions on Friday.
What happened?
Fearful investors shifted their wagers away from riskier investments and toward the alleged safety of gold and government-issued Treasury bonds after Trump threatened to impose tariffs on Friday. The tech-heavy Nasdaq Composite plummeted 3.56%, and at its lowest, bitcoin plunged 15%. It was the worst day since April for the S&P 500.
In the afternoon of Friday, Bitcoin dropped from about $122,500 to about $104,600. The second-largest cryptocurrency in the world by market value, Ethereum, dropped almost 21%.
Senior market analyst Lukman Otunuga of FXTM stated, “A risk-off stampede was the catalyst for the aggressive crypto selloff.”
Coins that were highly speculative took a significantly heavier hit: According to Coinmarketcap statistics, Dogecoin had a 50% decline. At its lowest, the value of President Donald Trump’s $TRUMP coin dropped by around 63%.
What is leverage?
Many highly leveraged traders who borrowed money to boost the amount of their wagers contributed to the decline. This high-risk strategy has become commonplace in cryptocurrency trading.
The reward from a leveraged bet is sweet when it goes well. However, traders may be vulnerable to significant losses if they are caught in the midst of a sharp market movement.
When it becomes clear that the losses will exceed investors’ capacity to repay the wager, exchanges have the option to immediately cancel highly leveraged bets. The market shock’s magnitude and scope were exacerbated by the forced closure of positions.
The move on Friday was a prime illustration of how leverage may increase short-term volatility in a market that is open around-the-clock, according to Samir Kerbage, CIO of the cryptocurrency asset management company Hashdex. “Forced liquidations and margin calls spread throughout venues as prices began to decline.”
What else took place?
A stablecoin that was trading on the cryptocurrency platform Binance momentarily lost its one-to-one correlation with the US dollar, which alarmed investors about possible technical issues in the market.
According to a statement from Binance, “some platform modules experienced brief technical glitches, and certain assets had de-pegging issues due to sharp market fluctuations.”
Social media users also expressed worries about whether insider trading could have been involved and about anonymous accounts that held cryptocurrency wallets and might have profited from shorting the market. Even while insider trading rumors have been common in some areas of the cryptocurrency market, it can be very challenging to prove.
Is cryptocurrency back on track?
After falling below $105,000 on Friday, Bitcoin stabilized on Monday, hovering around $115,000, although it hasn’t recovered all of its losses as of yet. On October 6, Bitcoin reached a record high above $126,000.
“ETF adoption, institutional inflows, and regulatory clarity are structural forces that continue to support long-term growth,” Kerbage of Hashdex stated.
Even if stocks and cryptocurrency had a minor recovery on Monday, market volatility remains. A refuge in the face of uncertainty, silver futures surged 7% on Monday to reach a record high.
