Every so often, the markets deliver a harsh shock to all participants, and on October 10, it was the cryptocurrency industry's turn to feel the chill. Late in the day, President Donald Trump issued a threat to increase tariffs on China, which triggered a wave of panic selling in crypto. For a brief but intense period, prices plummeted as if the floor had dropped out, erasing hundreds of billions of dollars from the sector's total value.
While sudden crashes like this are deeply unsettling for investors, they also serve to highlight underlying weaknesses in financial systems, poor risk management, and shaky narratives. Such events provide long-term investors with a clear action plan. Here’s what you should understand and how you can respond.
Image source: Getty Images.
What just happened
The trigger for this rapid sell-off was not directly related to crypto itself, since the industry is mostly disconnected from the trade flows with China that the new tariffs would impact. As the weekend progressed, Trump and his team softened their stance, which helped calm the markets. However, the initial damage had already taken its toll.
The drop in prices was both swift and severe. Bitcoin ( BTC -2.83%) tumbled over 12% from its previous week’s high before partially recovering. Ethereum ( ETH -3.70%) experienced an even steeper decline at its lowest point.
Meme coins and alternative cryptocurrencies were hit especially hard. Dogecoin ( DOGE -6.08%) briefly lost about half its value before bouncing back. Lesser-known tokens suffered even greater losses. According to CoinDesk, non-BTC and non-ETH assets saw an average drop of 33%, with many plunging by 80% or more, and a few losing nearly all their value in a matter of minutes.
This crash was unprecedented in scale. But what made the situation spiral so dramatically? The answer starts with leverage.
The market was set up for a major collapse due to a recent surge in leveraged trading of perpetual futures on several new decentralized exchanges (DEXes), as well as aggressive leverage on established centralized exchanges (CEXes). So far, about $19 billion in forced liquidations of leveraged positions have been reported across both DEX and CEX platforms, marking the largest such event ever recorded. The process began when the initial price shock from the tariff news triggered a cascade of margin calls, forcing exchanges to liquidate a vast number of leveraged positions almost simultaneously.
Liquidity issues soon followed. Reports suggest that as exchanges were unwinding these leveraged trades, the collateral backing their loans was rapidly losing value. This prompted some market makers to withdraw from trading altcoins as volatility soared, resulting in thin order books and wild price swings.
This lack of liquidity likely explains why prices dropped so sharply and quickly. With few buyers and little available liquidity, even modest selling pressure led to dramatic price declines—and there was a lot of selling. Additionally, there are indications that some crypto exchanges’ pricing oracles, which provide official price data, malfunctioned or froze during the chaos, further increasing anxiety across both centralized and decentralized platforms.
There has also been widespread speculation that someone with insider knowledge of Trump’s tariff announcement took a massive short position on Bitcoin ahead of time, reportedly profiting around $200 million from the crash. While these claims remain unverified, they are reminiscent of previous suspiciously well-timed trades before similar crypto market drops linked to tariff news.
Still, it’s worth noting that Bitcoin was actually the most resilient asset during this episode, and its price movements were not the main cause of the broader market collapse.
What long-term investors should do next
The key takeaways from this flash crash are straightforward and will remain relevant over time.
First, avoid using leverage when investing in crypto. Leverage can turn both normal and extraordinary volatility into devastating losses. Even established cryptocurrencies like Solana, XRP, Chainlink, and Dogecoin can experience sharp drops within minutes when liquidity dries up. Many traders—even those using relatively low leverage, such as less than 2X—were wiped out alongside those who were highly leveraged.
Second, concentrate most of your holdings in major cryptocurrencies like Bitcoin, Ethereum, Solana, XRP, and Chainlink. Bitcoin proved resilient, and the larger blockchains rebounded quickly as the tariff concerns eased. Their strong investment cases, which are not solely dependent on market sentiment, also provide stability.
Lastly, maintain a long-term perspective. The flash crash exposed vulnerabilities, but it did not alter the fundamental multi-year outlook for the leading cryptocurrencies, which is driven by adoption, infrastructure development, and regulatory clarity. If you base your investment strategy on these factors, you’ll be better equipped to weather downturns and capitalize on future growth.
