The Largest Mass Liquidations in Crypto History - What Happened

It seems the crypto swings have calmed down for the moment, so I can write everything I think about last night’s events. There will be two posts. This one is about what happened in general; the second will be about what happened to me.

What triggered the drop:
Starting Thursday evening, reports appeared that Trump wouldn’t be awarded the Nobel Peace Prize. Jokes started spreading online that if that’s the case, his hands are untied and he can do whatever he wants - invade Venezuela, impose special tariffs on Scandinavians, keep picking fights with the whole world. Whether because of that joke or just by coincidence, crypto led by Bitcoin was drifting lower. Also on Thursday, China announced plans to introduce export controls on rare earth metals.

Then, on Friday evening, when most major markets were either closed or about to close, and most traders were away from their screens, Trump posted a rather harsh reaction on his social network - essentially: an additional 100% in tariffs on top of what’s already paid on everything, plus export controls on any and all critical software.

I’m not getting into the politics of it, but why make that post specifically on a Friday evening when a large number of people couldn’t react - I don’t get it.

Why the altcoin crash was so massive:
The reaction on Trump: heavy selling in Bitcoin; someone even slammed a huge volume into the order book, and the price briefly fell to 102k. Mature altcoins dropped even harder intraday, but not critically - they also recovered well relatively quickly. Mid-cap alts, however, were absolutely hammered, and futures positions, even with minimal leverage, were liquidated across the board.

The rough mechanism went like this:
A trader’s futures position hit the forced liquidation level. But because of the suddenness of the move, there were no bids at decent prices, so the close happened even lower. That, in turn, triggered margin calls for other traders, whose margin call levels were lower still. And so it cascaded down to absurd price prints. For example, on Kaspa futures the price briefly touched 0.009. No leveraged position could survive that kind of drop. The paradox is that those with the smallest leverage ended up suffering the most, because their liquidation levels were the lowest - and they were liquidated at the very bottom.

For me and for any reasonable person the conclusion is straightforward: never touch futures unless you clearly understand what you’re doing. You must be ready for any scenario, including this one. At most, use them for very short-term trades. Multi-day, multi-week, or multi-month positions carry a high risk of wiping out your capital. For newcomers who jumped into futures just because “you can make more money there” - stay away. I’m sure most didn’t even consider the risk of going to zero. Today, every crypto chat is full of laments and screenshots with mind-boggling losses.

In my view, crypto exchange futures in their current form have severely discredited themselves. But rest assured, give it six months and only a handful will remember what happened and what can happen.

Originally posted in Telegram channel.