Why Crypto Briefly but Dramatically Crashed After Trump Renewed Trade War
New York, October 2025 —
Cryptocurrencies experienced a sharp and sudden flash crash on Friday, wiping billions off the market and underscoring the sector’s persistent volatility.
The trigger: a renewed threat from President Donald Trump to impose tariffs on Chinese imports. This announcement rattled markets worldwide, prompting investors to abandon riskier assets like tech stocks and cryptocurrencies in favor of safer havens such as gold and government bonds.
Bitcoin, Ethereum, and even popular meme coins plummeted as investors rushed to liquidate their holdings. The dramatic sell-off resulted in a staggering $19 billion in liquidated positions, according to data from CoinGlass. More than 1.6 million traders lost their positions during this steep downturn, The Kobeissi Letter reported.
The Unfolding of the Crash
Following Trump’s tariff threat, the financial landscape rapidly shifted. Investors pivoted from high-risk bets to safer assets like U.S. Treasury bonds and precious metals, driving the Nasdaq Composite down 3.56% and sending the S&P 500 to its worst day since April.
Bitcoin’s value tumbled from approximately $122,500 to a low near $104,600 within hours on Friday afternoon. Ethereum, the second-largest cryptocurrency by market cap, slid nearly 21%.
“The aggressive crypto selloff was sparked by a risk-off stampede,” said Lukman Otunuga, senior market analyst at FXTM.
Smaller, highly speculative tokens bore the brunt of the plunge. Dogecoin dropped over 50%, while Trump’s own $TRUMP token fell about 63% at its lowest point, highlighting the heightened risk in these fringe assets.
The Role of Leverage
One of the most significant factors worsening the crash was the widespread use of leverage — traders borrowing funds to amplify their bets. While leverage can boost profits in rising markets, it dramatically increases exposure to losses when prices move against investors.
When prices fell sharply, crypto exchanges automatically liquidated leveraged positions to limit losses. These forced closures created a cascading effect, accelerating the market’s downward spiral.
“Friday’s move was a textbook example of how leverage can amplify short-term volatility in a 24/7 market,” explained Samir Kerbage, Chief Investment Officer at Hashdex. “As prices started falling, margin calls and forced liquidations cascaded across venues.”
Technical Glitches and Market Concerns
Adding to investor jitters, Binance reported a brief unpegging incident with one of its stablecoins — a digital asset designed to maintain parity with the US dollar. This technical hiccup compounded fears about crypto’s infrastructure stability amid the turmoil.
Binance stated, “Some platform modules briefly experienced technical glitches, and certain assets had de-pegging issues due to sharp market fluctuations.”
Social media also buzzed with speculation about anonymous accounts possibly profiting from shorting the market and rumors of insider trading — a persistent, yet notoriously hard-to-prove allegation within crypto circles.
Has the Market Recovered?
By Monday, Bitcoin had stabilized around $115,000, recovering from the lows but still short of the record peak above $126,000 reached on October 6.
“Structural forces — ETF adoption, institutional inflows, and regulatory clarity — continue to support long-term growth,” Kerbage noted.
Although stocks and crypto have rebounded somewhat, uncertainty remains high. Silver futures surged 7% on Monday, hitting an all-time high, as investors sought refuge amid the ongoing market unease.
This flash crash serves as a stark reminder of crypto’s volatility, the powerful influence of global political tensions, and the risks of leveraged trading in this 24/7 market.
