Why the recent crypto crash triggered historic liquidations and what investors should know
The crypto market often feels like a roller coaster, but some crashes cut deeper than others. Recently, triggered by headlines around trade tensions, the market saw its largest-ever liquidation event: $1.3 billion wiped out within 24 hours. What caused such a brutal sell-off? More importantly, what does it mean for your portfolio? In this article, we dive into the major drivers behind this recent turmoil, especially leverage trading’s outsized role, uncover patterns from past crises, and explain how these factors impact your risk and opportunity as a crypto investor.
The Cycle of Crypto Crashes: History Repeats
The crypto market has faced several sharp sell-offs tied to big external shocks:
- March 2020: COVID-19 pandemic shocks global markets. Over $1.2 billion in crypto liquidations within a day. Market rebounded strongly afterward.
- November 2022: Collapse of FTX exchange triggers $1.6 billion in liquidations. Recovery followed after initial panic.
- February 2025: Donald Trump's tariff announcements spurred a $2.2 billion liquidation cascade before a full market rebound.
Each event shows a familiar pattern: a sudden headline sparks massive liquidations, but the market bounces back once investor panic peaks.
The Latest Shock: Tariff Threat Sparks Historic Liquidations
Last week’s announcement from Trump about raising tariffs on Chinese goods by 100% triggered a sell-off worse than all previous events:
- $1.3 billion in liquidations within 24 hours
- The largest single-day crypto liquidation event ever, over 10x the size of the FTX collapse
- Approximately 1.66 million traders saw their portfolios liquidated
Mainstream media seized on this to declare a full bear market incoming. But on-chain data suggests the root cause is more nuanced.
Leverage: The Double-Edged Sword of Crypto Trading
Leverage lets traders borrow capital to increase exposure beyond their own funds. For example:
- 10x leverage means a $1,000 investment controls $10,000 in crypto.
- Gains multiply accordingly, but so do losses.
- If an asset’s price drops 10%, a 10x leveraged position can be wiped out entirely.
During the recent crash, tokens with leverage options (like Uniswap and Render) saw flash crashes of 80-90%. Meanwhile, tokens without leverage options (like Nexo and Origin Trail) dropped less than 15%.
| Token Type | Price Drop in Recent Crash | Leverage Availability |
|---|---|---|
| Uniswap, Render | 80-90% | Up to 100x leverage |
| Nexo, Origin Trail | Less than 15% | No leverage available |
This stark contrast shows that leverage was a key amplifier of the recent market turmoil, not just panic selling.
Answer Box: What caused the $1.3 billion liquidation event in crypto?
The record $1.3 billion 24-hour liquidation was mainly driven by extreme leverage trading. When a trade is leveraged, small price drops cause forced liquidations, creating a cascade effect. Tokens allowing up to 100x leverage (like Uniswap) suffered price crashes of up to 90%, while tokens without leverage options saw much milder declines.
What This Means for Investors
The crypto market’s love for headlines remains, but leverage’s role now magnifies movements far beyond fundamentals. This means:
- Sharp liquidations can steepen corrections, but often signal a market bottom.
- Tokens without leverage options tend to be more stable during sell-offs.
- Understanding leverage risks can help avoid catastrophic session wipeouts.
Risk Factors: What Could Go Wrong Next?
- Continued Geopolitical Risk: Tariff wars may escalate, causing more headline-driven crashes.
- Leverage Abuse: Excessive use may trigger bigger liquidation cascades beyond current levels.
- Market Sentiment: Negative media coverage can prolong sell-offs regardless of fundamentals.
Investors should prepare for volatility and not expect straight-line recoveries. Stay informed about leveraged trading trends on your chosen assets.
Actionable Takeaways
- The largest crypto liquidation event ever was triggered more by leverage unwind than panic selling.
- Tokens without leveraged trading saw far smaller declines, highlighting leverage’s outsized risk.
- Big headline shocks tend to trigger liquidation cascades but often mark buying opportunities.
- Closely monitor leverage levels if you trade volatile tokens—your risks multiply.
- Keep a diversified portfolio including assets with low leverage availability to reduce crash vulnerability.
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FAQ: Quick Answers from the Latest Crypto Crash
Q: Why did the crypto market crash so hard recently?
A: The crash was mainly due to leverage trading unwinding after tariff war fears sparked a steep sell-off.
Q: What is leverage in crypto?
A: Leverage allows traders to borrow capital to increase their position sizes, magnifying gains and losses.
Q: Which tokens were most affected by the recent crash?
A: Tokens with available leverage options, like Uniswap and Render, suffered flash crashes around 80-90%.
Q: Can tokens without leverage drop significantly?
A: They tend to be more stable; during the recent crash, tokens like Nexo and Origin Trail dropped less than 15%.
Q: Is a sustained bear market likely after this crash?
A: Not necessarily. History shows that big headline-driven crashes often signal a market bottom, though risks remain.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Crypto investments are volatile and carry risk of loss.
By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile
