Relax, Bitcoin is going to be ok, even if BTC lost 13% in 8 hours: The proof is in the data
News Summary
Bitcoin (BTC) plunged 13.7%, shedding $16,700 to $105,000 in less than eight hours, triggering $5 billion in futures liquidations. Despite the steep loss, the article argues such volatility is not unusual for Bitcoin, citing 48 other days with deeper corrections, excluding the “COVID crash.” This flash crash highlighted persistent volatility even after the launch of US spot Bitcoin ETFs, with leverage and liquidity stress amplifying losses. Decentralized exchanges like Hyperliquid reported significant forced closures of bullish positions, while users on platforms like Binance experienced portfolio margin calculation issues, underscoring the risks of using leverage in relatively illiquid markets. Bitcoin derivatives markets indicate market makers remain cautious due to thin liquidity, insolvency rumors, and a US national holiday leading to partial market closures. The discrepancy between spot and perpetual futures prices, typically an arbitrage opportunity, failed to normalize quickly, suggesting atypical market conditions that may take several days to fully assess damage and determine if $105,000 holds as support.
Background
In January 2024, the US Securities and Exchange Commission (SEC) approved the first spot Bitcoin Exchange-Traded Funds (ETFs), a move widely seen as a significant step towards mainstream adoption for cryptocurrencies. Since then, Bitcoin has experienced several notable price swings, including significant corrections in March and August 2024, indicating that even in the ETF era, the market structure continues to evolve and remain susceptible to rapid price adjustments. The article references historical events such as the “COVID crash” on March 12, 2020, which saw Bitcoin plunge 41.1% intraday, and the 16.1% intraday correction on November 9, 2022, spurred by the FTX collapse. These past episodes underscore the inherent risks of the cryptocurrency market and the cascading liquidation effects that high-leverage trading can trigger. The current market correction in October 2025 occurred during a US national holiday, potentially impacting market liquidity and market maker activity.
In-Depth AI Insights
Why does the Bitcoin market continue to exhibit high volatility, even after the launch of spot ETFs, and what are the underlying drivers? - While spot ETFs have brought institutional capital and some market maturity, they haven't fundamentally altered Bitcoin's nature as a relatively illiquid asset. ETFs primarily offer new investment avenues rather than completely reshaping its underlying market structure. - Leveraged trading remains prevalent in the cryptocurrency market, especially in derivatives like perpetual contracts, amplifying price swings and leading to cascading liquidations. The advent of ETFs may have attracted more retail and institutional participants who, without adequate risk management, use leverage, increasing market fragility. - Macroeconomic factors, such as the US dollar's movements, global liquidity changes, and geopolitical events, continue to significantly impact the crypto market. In 2025, the Trump administration's economic policies could introduce volatility in inflation or interest rate expectations, affecting the attractiveness of risk assets. What are the implications of this large-scale liquidation event for the long-term health and regulatory outlook of the cryptocurrency market? - This liquidation event once again highlights the systemic risks of high-leverage trading, especially in illiquid market conditions. This could prompt regulators to demand higher standards for risk management and transparency in crypto derivatives markets, particularly for decentralized exchanges (DEXs). - Investor trust may suffer a short-term blow, especially with portfolio margin system failures and trading platform glitches. This could slow the influx of new institutional capital and prompt existing investors to reassess their risk exposure and platform choices. - In the long run, such events may accelerate market consolidation, fostering more robust platforms and responsible risk management practices. However, if regulation fails to keep pace, high leverage and liquidity risks will remain persistent challenges for the industry. The cautious stance of market makers and the decoupling of spot and futures prices during this event—what deeper structural issues does this indicate? - Market makers' withdrawal during a critical period suggests insufficient market depth to absorb sudden, large selling pressure. The failure of normal arbitrage mechanisms implies significant trust or risk aversion issues, potentially linked to insolvency rumors or concerns about potential counterparty risks. - The persistent decoupling of spot and futures prices undermines market efficiency, increasing trading costs and uncertainty. This could lead to further liquidity drains, as market makers reduce their risk exposure during periods of high uncertainty, creating a negative feedback loop. - This phenomenon could also suggest a significant divergence in future price expectations among market participants, or that large institutions are awaiting clearer signals before re-entering the market. This will prolong the bottoming and recovery period, meaning sustained high volatility for investors until market confidence and liquidity normalize.