Billions of dollars evaporated, what caused the crash?

Within thirty minutes, $30–50 billion in market value vanished and not just through panic selling, but also through a mechanical process of mass liquidations in leveraged positions. This kind of domino effect is known as a liquidation cascade. 

That is what happened on Friday night. Open leveraged positions were rapidly closed: total open interest (the number of outstanding leveraged contracts in the market) dropped from around $100 billion to roughly $70 billion. In one go, a huge share of speculative positions was wiped out.

How a chain reaction of selling starts 

In markets where traders use leverage, they borrow money to take on positions larger than their own capital. That’s attractive because a small price move can yield outsized profits. However, it works both ways: when prices drop, losses mount just as quickly. 

For example: Suppose you invest €1,000 with 5x leverage. Your position is now worth €5,000. If the price rises by 10%, your position gains €500, which leads to a 50% profit on your own capital. But if the price drops by 10%, you lose that same €500 and half of your capital is gone. 

When the value of the collateral drops too far, a margin of call follows a warning from the exchange that your position no longer has sufficient coverage. If the trader does not deposit more funds quickly, the exchange automatically closes the position to prevent further losses. 

Those forced sales add extra downward pressure on prices. That, in turn, can push other leveraged traders into the same situation, leading to more liquidations. The result is a liquidation cascade, a chain reaction of forced selling that feeds itself and drags the market down in a short time. 

Why this sell-off was different 

Liquidation cascades are nothing new in crypto. But this time, another mechanism came into play: Auto-Deleveraging (ADL). 

Normally, a sell-off ends once all leveraged positions have been liquidated. But when market liquidity dries up and buyers vanish, exchanges themselves can be at risk. To protect their balance sheets, they activate ADL. 

Under ADL, the exchange automatically reduces profitable positions on the winning side of the market. It may feel unfair to traders who were right, but it prevents the platform from taking losses or collapsing. ADL acts as an emergency brake: painful for some, but essential for systemic stability. 

Prices recovered quickly, but the market remains unbalanced. The liquidation wave wiped out billions in leveraged positions, draining liquidity and trading volume. Many traders withdrew after heavy losses, leaving the market vulnerable to new shocks. Prices bounce back fast, confidence does not. 

Why crypto is especially sensitive 

Unlike stock or commodity markets, crypto has no trading halts or circuit breakers to pause extreme price swings. 

At the same time, the use of leverage is widespread. When prices drop sharply, margin calls and automatic liquidations can follow each other in rapid succession. This dynamic amplifies volatility by turning a single shock, like Trump’s tariff threat, into a full-blown cascade of sell-offs within minutes. 

For investors, little has changed 

On Sunday, Trump stated there was “no cause for concern” and that the United States “wants the best for China.” A day later, U.S. Treasury Secretary Scott Bessent emphasized that relations between the two countries remained good and that the 100% import tariffs were not inevitable. These reassurances eased tensions somewhat and opened the door to a possible market recovery. 

Where markets go next is hard to predict, especially given the volatility of U.S. policy. But it is clear that the White House is closely watching the stock market, which is worth keeping in mind. 

Despite Friday’s shock, the bigger picture remains intact. With much of the excess leverage flushed out and a macro environment still favorable to risk assets, the market seems positioned for another growth phase. From an investment perspective, little has changed: volatility is part of crypto, but the focus remains on the long-term vision.