by On October 10, 2025, the crypto market was thrown into chaos after a sudden announcement from the White House. The U.S. government revealed a 100% tariff on Chinese imports, sending shockwaves through global markets.
Within minutes, Bitcoin (BTC) plunged more than 10%, erasing billions in value and sparking panic among traders. What started as a typical macroeconomic shock quickly turned into a severe liquidity crisis, leaving even seasoned investors stunned.
According to data firm Kaiko, liquidity on major exchanges “collapsed to the point of appearing empty.” Order books thinned dramatically, and sell orders sliced through available bids within seconds, pushing Bitcoin down to around $106,000–$107,000 before bargain buyers stepped in to stabilize the price.
The Liquidity Collapse
Kaiko’s market data showed that bid-side liquidity across BTC-USDT pairs on large exchanges like Binance dropped to multi-month lows.
Spreads widened sharply, best bids disappeared, and visible gaps appeared in the order books — something rarely seen in Bitcoin trading. Normally, Bitcoin is known for deep liquidity, but in this event, liquidity vanished almost instantly, exposing how fragile the market can be under pressure.
This sudden breakdown left analysts questioning why the crash became so violent. While everyone agreed that the U.S. tariff announcement triggered the initial drop, the speed and scale of the plunge pointed to deeper issues within crypto’s liquidity structure.
Did Market Makers Worsen the Crash?
In the aftermath, fingers pointed toward major market-making firms — including Wintermute, Jump Trading, and Cumberland — which play a key role in maintaining crypto liquidity. Critics accused them of retreating from the market at the worst possible time, amplifying the chaos.
Evgeny Gaevoy, CEO of Wintermute, dismissed these accusations as baseless. In a podcast following the crash, he called the conspiracy theories “ridiculous,” noting that data showing Wintermute deposits to Binance were misinterpreted — the firm had made equivalent withdrawals later that day.
According to Gaevoy, Wintermute’s systems were operating normally. The company, like others, simply reduced exposure when volatility spiked to protect its balance sheet — a standard risk-management practice, not manipulation.
Why Liquidity Providers Stepped Back
Some experts believe that what happened was not a deliberate withdrawal, but a rational reaction to extreme market conditions.
YQ Jia, founder of blockchain scalability startup AltLayer, described the event as a “synchronized withdrawal of liquidity.” In his analysis, several key incentives pushed market makers to step back:
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Asymmetric risk and reward – When markets move violently, potential losses greatly outweigh the small profits made from bid-ask spreads.
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Information advantage – Since data showed about 87% of positions were long, market makers anticipated forced liquidations and avoided taking the opposite side.
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No legal obligation – Unlike traditional stock market makers, crypto firms are not required by regulation to stay active during volatility.
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Arbitrage opportunities – Price gaps of over $300 appeared between exchanges, making cross-platform arbitrage safer and more profitable than maintaining bids in freefalling markets.
In short, liquidity providers did not cause the collapse — they simply protected themselves when risk became unmanageable.
Liquidations: The Real Cause
While many blamed market makers for vanishing, others argued that forced liquidations were the main driver of the crash.
Data from CoinGlass showed that more than $16.6 billion in long positions were liquidated within a 24-hour period — out of a total of $19.1 billion in liquidations.
This suggests the event was less a liquidity problem and more a liquidation spiral. As automated liquidation engines began dumping collateral, there were simply not enough buy orders to absorb the selling pressure. Prices crashed, triggering even more liquidations — a self-reinforcing downward spiral.
Defenders of market makers point out that they are not designed to act as shock absorbers. Their systems continuously quote prices on both sides, but they don’t hold large inventories. When liquidation bots overwhelmed the order books, their bids were quickly filled, giving the false impression that they had “disappeared.”
A Stress Test, Not a System Failure
Once volatility calmed, liquidity began to recover within hours. Market makers later described the incident as a successful stress test rather than a structural failure.
Their risk systems worked as designed — activating kill-switches to pause trading when volatility breached safety limits. This protected both firms and counterparties from catastrophic losses.
However, analysts at Kaiko argue that the episode exposed a critical weakness in the crypto ecosystem. The market is dominated by a handful of algorithmic trading firms, which operate without the obligations or oversight that exist in traditional finance.
In regulated stock exchanges, designated market makers are required to maintain liquidity even during stress. In crypto, they can exit at will — creating a dangerous situation where liquidity can vanish exactly when it’s needed most.
Lessons for the Crypto Industry
The October 2025 flash crash served as a harsh reminder that crypto liquidity is voluntary.
Market makers didn’t deliberately crash Bitcoin, but by collectively stepping back, they created what Kaiko called a “voluntary liquidity gap.” In practical terms, that gap felt identical to a systemic breakdown.
As Kaiko noted, “Market makers didn’t light the fire — but when the flames spread, they opened the windows and let the draft in.”
This event highlights a key challenge for the future of digital finance: building resilient market structures that can withstand macro shocks without collapsing into chaos. Until stronger safeguards or regulated liquidity requirements are introduced, crypto markets will remain vulnerable to similar episodes.
FAQs
1. What caused the Bitcoin crash in October 2025?
The crash was triggered by a White House announcement of a 100% tariff on Chinese imports. This global shock caused massive panic selling and a chain of forced liquidations.
2. Did market makers cause the Bitcoin crash?
No direct evidence suggests manipulation. Market makers like Wintermute and others reduced their exposure during extreme volatility, which unintentionally deepened the liquidity shortage.
3. How much was lost in the crypto market during the crash?
Over $20 billion worth of long positions were liquidated across major exchanges within 24 hours, marking one of the largest liquidation events in Bitcoin history.
