TLDR
- $670B was wiped off the crypto market due to forced liquidations on CEXs.
- Trump’s tariff announcement led to a 1.6 million trader liquidation spike.
- Binance and Bybit handled 71% of total liquidations amid the market collapse.
- Altcoins like Mantra (OM) lost over 90% of their value during the crash.
The cryptocurrency market saw its largest single-day crash last week, wiping out $670 billion in value. Triggered by U.S. President Donald Trump’s 100% tariff on Chinese imports, the market plunged sharply, with over 1.6 million traders liquidated globally. Centralized exchanges (CEXs) saw heightened volatility as cross-margin liquidations accelerated the downturn, especially for altcoins like Mantra (OM). This collapse has brought renewed focus on the risks of leveraged trading and market transparency.
CEX Auto Liquidations Amplify Market Drop
The recent market collapse was primarily driven by forced liquidations on centralized exchanges (CEXs). These exchanges, where many traders use leverage to amplify their positions, were hit particularly hard during the crash. When prices fell sharply, automated liquidation systems were triggered, rapidly selling off assets and exacerbating the market decline. This led to a cascade effect, particularly for altcoins.
According to data from Coinglass, total liquidations amounted to $19.13 billion, though the true figure could be higher due to reporting delays by major exchanges like Binance. Centralized platforms, including Binance and Bybit, accounted for 71% of the total liquidations, which further amplified the market’s volatility.
Geopolitical Tensions Contribute to Market Instability
The tariff announcement from President Trump escalated an already volatile situation. The move, which imposed a 100% tariff on Chinese imports, created widespread uncertainty in global markets. In addition, China’s export controls on rare earth minerals further heightened risk aversion among investors. As these geopolitical tensions unfolded, the global financial climate became more unstable, contributing to a broader sell-off in cryptocurrencies.
The overall market sentiment became more bearish, with Bitcoin briefly dipping to $105,000 before recovering slightly. Altcoins like Ethereum (ETH) and XRP saw significant drops, with some losing more than 15% of their value. The combination of these geopolitical developments and the forced liquidations created a perfect storm for the crypto market.
CEX Outages Add to Market Chaos
As trading volumes surged amid the crisis, several major exchanges experienced outages. Both Binance and Bybit faced technical difficulties, further complicating the situation for traders. The outages made it difficult for many to exit positions or manage their risk, adding to the overall chaos.
These outages also made it harder to assess the true scale of liquidations in real-time. Traders were unable to respond quickly to the changing market conditions, worsening the already volatile environment. As the crash continued, some traders were left with no way to mitigate their losses, adding to the widespread financial devastation.
The Role of Leveraged Positions and the Risk of Volatility
The recent crash highlighted the systemic risks posed by leveraged trading on CEXs. In a leveraged position, a trader borrows funds to amplify potential gains. However, this also increases the risk of significant losses if the market moves against them. When the value of assets falls, as it did during this crash, these positions are automatically liquidated, often causing further price drops.
Arthur Hayes, co-founder of BitMEX, pointed out that cross-margined trading positions were particularly vulnerable in this environment. As traders suffered losses in one position, it wiped out their collateral, triggering cascading liquidations. Altcoins, especially smaller projects like Mantra (OM), suffered the most, with some losing more than 90% of their value during the liquidation process.
Despite these challenges, some analysts see potential opportunities in the current turmoil. Hayes has suggested that similar market conditions earlier this year presented good buying opportunities for those with the capital and risk tolerance to act. However, many experts remain cautious, warning that leveraged positions could lead to prolonged volatility in the market, especially as decentralized finance (DeFi) protocols face similar liquidation risks.
