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Key Takeaways
The crypto market suffered from the worst liquidation event in its history last weekend.
Panic was spurred in part due to a Donald Trump tweet suggesting renewed tariff efforts against Chinese imports.
This caused an initial dip which sent shockwaves through the over-leveraged market, causing investor positions to begin unwinding.
This created a ripple effect, as more and more investors lacked the collateral to maintain their leveraged positions.
The market has stabilised, but hasn’t recovered. Is this the beginning of the end of the bull run? Or is it the shakeout the market needed?
It was a Saturday morning like any other – wake up, check the weather, shake off the rust and grab a glass of water.
But, as the kettle boiled and the prospect of caffeine began tantalising me, a series of concerning messages hit my phone.
‘What’s going on?’. ‘Are you seeing this?’
A quick visit to my crypto portfolio confirmed my suspicion. The market was crashing, and hard.
In a matter of 60 minutes, altcoins such as DOGE, SUI and LINK were flashing losses of 50%. Some even fell as hard as 80%. All in an hour’s work.
Now, nearly a week on and with the dust settling, it’s time to take a breath and find some answers.
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Trump tweet acts as kindling
It was the single-biggest day of liquidations in the crypto market history. In 24 hours, $19 billion USD was wiped from the derivatives market.
With an event of this magnitude, the answer to ‘Why’ is not so cut and dry.
What we do know, is that a Trump tweet suggesting reignition of the tariff war – targeting Chinese goods with import taxes of 100% – was a major catalyst.
Trump’s threat sent an initial shockwave through the market, with investor sentiment mostly taking the form of, ‘Ugh, not again’.
But there’s more to the story. Let’s dig a bit deeper.
Liquidity and leverage
The market was reeling, and the tricky macroeconomic landscape revealed the full weight of its instability.
As we’ve touched on frequently in previous Squawks, the Federal Bank in the United States has been walking a tightrope. For much of 2025 the Chair, Jerome Powell, had been resistant to lowering interest rates due to residual inflation – which has been hanging around since post-pandemic.
But with the labour market improving, Powell and the Feds eventually relented, implementing a rate cut in September with the likelihood of more to come.
As we’ve established before, lower interest rates decrease the cost of borrowing money. This can make higher-risk, higher-reward assets – such as cryptocurrency – more appealing due to the injection of liquidity.
In particular, the ‘lower cost of money means that margin trades, where investors increase their positions through leverage, can become more popular.
While margin trading can significantly amplify profit, the same can be said for losses.
So, when a portion of the market is over-leveraged, and cannot cover the spike in volatility that comes from, say, a concerning Trump tweet, these positions start to get liquidated.
To put it simply: When the market is built on borrowed money, a small scare can trigger a domino effect of forced selling, causing a crash.
Dominoes begin to fall
This is key to what happened last weekend. Big, leveraged positions were either sold or forcibly liquidated (as investors couldn’t cover their losses), which can cause a drop in market value, which in turn can wreck more leveraged positions, and so on.
To hone in this point, in the weeks leading up to the crash, total open interest in crypto derivatives had surged to over USD $230 billion. Looking at CoinGlass data, this was a clear all-time-high – re-affirming that the market was likely running too hot, with too many investors holding leveraged positions they could not tank in the event of a downturn.
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What have we learned?
It would be an exaggeration to suggest the market has returned to pre-crash levels, with most altcoins still flashing double-digit weekly losses.
But, what appeared to be a calamity in that mad hour of liquidations, eventually settled as a rapid, but not unprecedented, market dip.
Bitcoin in particular demonstrated its resilience, holding $100k USD to keep its 150-day streak alive. Meanwhile, Ethereum is still flirting with the $4k USD milestone and is up 50% over the past 12 months.
So, what have we learned?
It was another reminder that risk mitigation should be a key aspect of an investment strategy. It is likely too many in the market were riding the euphoria of falling interest rates and rising prices, opening high-risk positions that were doomed to unwind.
There’s little doubt the events of last weekend will loom in the back of investor minds for the next few months. Some may see the crash as a harbinger, that the bull run of 2025 is shutting up shop.
But maybe it was the wipeout we needed, a reminder to the market to adopt risk sensibly, even if macroeconomic conditions become more favourable.
Time will tell.
Swyftx Flows
The buy-to-sell ratio for unique Swyftx orders is nominally >$20,000 AUD (rolling data over the last 7 days, captured at 09:00 am AEST).
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