The start of the second Trump administration in January 2025 fueled optimism in crypto markets, pushing bitcoin to record highs, but each time the euphoria quickly gave way to volatility. The sharp corrections wiped out billions of leveraged positions and left 1.6 million traders liquidated on October 10 alone.
The reality: volatility and the deleveraging trap
The start of the second Trump administration in January sparked optimism that the crypto economy was headed for better times. In the run-up to the US elections in November 2024, Donald Trump pledged to eliminate the Biden administration’s anti-crypto policies and end the government’s “legal war” against crypto entrepreneurs.
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It’s no surprise that Bitcoin and a wave of altcoins surged immediately following Trump’s victory and the pro-crypto Republican Party’s consolidation of power in Congress. This optimism reached its peak on January 20, the day of Trump’s second inauguration, when sentiment indicators reached record highs. The Crypto Fear & Greed Index reached 84 in 48 hours, highlighting the euphoric mood. Bitcoin (BTC) rode the wave to a record high of $108,000, setting an all-time high that will hold until mid-May.
Yet the rally quickly gave way to the darker side of crypto’s DNA: volatility. The months that followed have reminded traders that parabolic gains are often followed by sharp corrections. Tens of thousands of investors who had piled into leveraged long positions were caught off guard as BTC staged its sharp reversals. On February 3, a sudden correction in Bitcoin and Ethereum triggered a cascading deleveraging event. More than $3.6 billion in liquidations swept the market in a single day, wiping out more than 700,000 leveraged positions. The carnage marked the largest single-day liquidation event in the first half of the year and the second largest in 2025.
Another event triggered by similar factors would result in the largest single-day liquidation ever, several months later. Before that, however, several other one-day liquidations exceeding $1 billion were triggered by factors including geopolitical events, including President Donald Trump’s April 2 announcement of reciprocal tariffs against many countries and threats against China. Market data showed that Trump’s “Liberation Day” announcement triggered a sell-off across markets amid fears the move could spark a costly trade war. By April 9, BTC had fallen below $75,000, its lowest point in 2025.
Long positions accounted for the bulk of leverage liquidated throughout the year, underscoring the continued tendency of traders to bet on Bitcoin rising. Yet the second-quarter rally revealed the vulnerability of short sellers, who sometimes bore the brunt of violent market swings. On July 10, the situation decisively reversed: nearly $1 billion in short bets were wiped out in a single day, eclipsing the less than $100 million lost on long bets.
Similar wipeouts followed in August and September, with short liquidations peaking in August. August 9, 22 and September 12. Although the dollar amounts were lower than July’s carnage, the repeated episodes reinforced a clear message: In a market as volatile as crypto, both sides of the trade are perpetually in danger, and even seasoned players can be caught off guard when sentiment changes.
Having weathered the relentless geopolitical turmoil that marked much of 2025, the crypto market entered the final quarter with renewed vigor. BTC surged on a wave of institutional accumulation, culminating with an all-time high of $126,000 on October 6. This milestone marked what many believed to be a definitive breakthrough into a new phase of price discovery.
October Peak and the historic waterfall
However, the euphoria proved fragile as just four days later the market’s overleveraged foundations collapsed, sending BTC into a violent tailspin that saw prices plummet below $115,000. This wasn’t just a correction; This is a systemic failure that triggered the largest cascade of single-day liquidations in digital asset history.
In the span of 24 hours, the industry witnessed the evaporation of $19 billion in leveraged positions. The carnage was largely one-sided: wiped “long” bets accounted for about 85% ($16 billion) of total losses. This deleveraging event exposed the low liquidity and extreme open interest that had quietly built up during the fourth quarter rally, serving as a dark reminder of the volatility inherent in the current crypto market infrastructure.
Learn more: Market manipulation or Trump tariff threat? Long positions suffer $16.8 billion loss in crypto market upheaval
Initially, the massive liquidations were attributed to Trump’s announcement of new tariffs against China, but several subsequent reports cited crypto market infrastructure and extremely open interest as reasons for the collapse. With as many as 1.6 million traders liquidated, the collapse also sparked allegations of market manipulation against centralized exchanges and market makers.
The catastrophic collapse on October 10 was followed by at least six separate episodes in which more than $1 billion in leveraged positions were incinerated in a single trading session. These recurring erasures constitute a violent indictment of the risks inherent in high leverage trading within the current crypto ecosystem.
In this high-velocity environment, the combination of tight order books and massive open interest has created a “tinderbox” effect, where minor geopolitical triggers fire massive, automated liquidation engines. For the modern trader, these events highlight a sad reality: in a market driven by lightning stunts, leverage is no longer just a tool for capital efficiency: it is a primary catalyst for systemic contagion.
FAQs 💡
- Why did crypto markets explode after Trump’s second inauguration? Bitcoin and altcoins have rallied on expectations of pro-crypto policies from the Trump administration.
- What triggered the biggest liquidations in early 2025? A February 3 correction in Bitcoin and Ethereum wiped out $3.6 billion and 700,000 positions.
- What is the impact of Trump’s tariff threats in April on cryptocurrency prices? His “Liberation Day” announcement sparked a global sell-off, pushing BTC below $75,000.
- What happened during the October 10 collapse? A systemic failure wiped out $19 billion in leveraged bets, with 1.6 million traders liquidated.
