October Crash 2025: How Liquidation Mechanisms Influence Stress Testing in the Crypto Market

Geopolitical Shock and Cascading Liquidation: Analyzing the Events

October 10–11, 2025, the cryptocurrency market experienced the largest liquidation wave in history. Over a single day, positions with leverage totaling over $19 billion were closed, and approximately 1.6 million accounts were forcibly liquidated. This served as a kind of revolution testing risk management systems, revealing critical flaws in the architecture of margin trading.

The trigger was a geopolitical factor: the announcement of a 100% tariff on Chinese imports sparked a panic sell-off across global markets. Investors hurried to exit risky positions, anticipating economic uncertainty. Against this backdrop, higher-than-usual trading volumes with leverage turned into a powder keg.

The Role of Excessive Leverage in Amplifying the Sell-Off

The liquidation mechanism works as follows: when a trader’s collateral value falls below the allowed threshold, a margin call is issued. If the trader does not respond, the platform automatically closes the position. During the October crash, this process took on the character of an avalanche.

Statistics highlight the scale of the problem:

• The first 60 minutes of the crash resulted in the destruction of $7 billion in long positions
• A positive feedback loop: liquidations → falling prices → more liquidations → even lower prices
• Bitcoin, at the peak of the decline, fell below previous support levels, and Ethereum experienced a 15–20% drop during the hot period

Current data shows: Bitcoin is trading at $87.19K (+0.16% over 24 hours), Ethereum at $2.86K (-2.28%), indicating a prolonged wave of market uncertainty.

The Unified Account System: Origins of the Catastrophe

One of the main targets of criticism was the collateral valuation mechanism in unified margin systems. Using internal spot prices to determine collateral value created a dangerous effect: falling market prices instantly reduced the collateral’s potential, triggering new waves of liquidations.

Although this approach was designed to simplify, it proved counterproductive during extreme volatility. The platform later acknowledged the issue and offered compensation to affected users, but the damage was already done. Traders’ confidence in risk management systems was significantly shaken.

Speculations Around Major Players: Insider Information or Coincidence?

Blockchain analysts uncovered an interesting fact: a few days before the crash, a large trader (who gained notoriety in the community) held significant short positions on Bitcoin and Ethereum. When the crash began, their profit reached nearly $200 million.

This raised questions about the likelihood of insider information or coordinated action. Although no concrete evidence was presented, the incident drew attention to the possibilities of market manipulation in the crypto space, where transparency remains an issue.

Historical Parallels: How 2025 Differs from Past Crises

The October 2025 crash is often compared to previous shocks:

COVID-19 Crisis (March 2020): Bitcoin dropped 50% in one day due to global panic sell-off. However, that crash was less structured and lacked a geopolitical context.

Collapse of a Major Centralized Platform (November 2022): Led to billions of dollars in losses borrowed from the platform, but the scale was smaller.

October 2025 stands out due to three factors:

• A geopolitical trigger with a clear cause-and-effect chain
• An unprecedented number of accounts liquidated in a short period
• Systemic flaws across numerous trading platforms, revealed simultaneously

Lessons for Traders and Platforms: How to Prevent a Repeat

The crash became a testing ground for real risk management mechanisms. Several conclusions emerged since February:

For individual traders:

• Excessive leverage is not a profit tool but a guarantee of destruction during significant volatility
• Diversification and disciplined stop-loss strategies should be axioms, not options
• Macroeconomic signals (geopolitical tensions, central banks) may have a greater impact than crypto-specific data

For platforms:

• Risk management systems must be designed for extreme conditions, not normal markets
• Transparency in pricing mechanisms and collateral valuation is critical to maintaining trust
• Regular stress tests with scenarios of 20–30% price drops should be conducted monthly
• Development of mechanisms to slow down liquidations to prevent cascading failures

Recovery and Long-Term Trends

Despite the severity of the crash, the crypto market traditionally demonstrates resilience. Bitcoin and Ethereum show signs of stabilization, although the long-term trend remains a matter of debate — is this a correction in a bullish market or a sign of a reversal?

In the coming months, the market is likely to focus on:

• Regulatory developments: Governments may impose stricter standards on platforms, especially regarding leverage limits
• Technological innovations: Development of more sophisticated risk management algorithms that consider geopolitical factors
• User education: Large-scale informational campaigns about margin trading risks should become standard

The October crash served as an exam for the industry. Those who learn its lessons will be better prepared for future shocks in the volatile cryptocurrency market.