Crypto's 2025 Turmoil: When Leverage Met Reality

In 2025, the crypto world saw a lot of action in derivatives trading. By the end of the year, forced liquidations had hit a staggering $150 billion. At first glance, this number seems like a sign of constant trouble. But in reality, it was more about the everyday workings of the market. Exchanges were closing positions left and right when traders didn't have enough margin to keep them open. This wasn't always a sign of a crash. Most of the time, it was just part of how the market functions. The crypto derivatives market was huge in 2025. The total turnover was about $85. 7 trillion for the year. That's roughly $264. 5 billion a day. So, the liquidation tally wasn't as scary as it seemed. It was just a small part of a much bigger picture. The market was dominated by perpetual swaps and basis trades. Price discovery was tightly linked to margin engines and liquidation algorithms. By October 7, the notional open interest across major venues had reached about $235. 9 billion. Bitcoin had traded as high as roughly $126, 000 earlier in the year. The spread between spot and futures prices supported a thick layer of basis trades and carry structures. These relied on stable funding and orderly market behavior. The stress in the market wasn't evenly spread. It was driven by a combination of record open interest, crowded positioning, and the growing share of leverage in mid-cap and long-tail markets. The structure worked until a macro shock hit. When margin thresholds were tightly clustered, and risk was pointing in the same direction, things started to fall apart.The breakpoint for the crypto derivatives market didn't come from within the industry. Instead, it was driven by the policies of the world's largest countries. On October 10, President Donald Trump announced 100% tariffs on imports from China. This pushed global risk assets into a sharp risk-off move. In crypto, it collided with a market that was long, levered, and sitting on record derivatives exposure. The first move was straightforward: spot prices fell as traders marked down risk. However, in a market where perpetual futures and leveraged swaps dictate the marginal tick, that spot move was enough to push a large block of long positions across their maintenance margin lines. Exchanges began liquidating under-margined accounts into order books that were already thinning as liquidity providers pulled back. The result was a loop. Liquidations pushed prices lower, which widened the gap between index prices and the levels at which ADL events were executed. Market makers that might have stepped in at narrower spreads now faced uncertain hedge execution and the prospect of involuntary reductions. Due to this, many cut back on quoting size or moved wider, further reducing visible liquidity and leaving liquidation engines to work with thinner books. The episode highlighted a critical point for a market where derivatives define the tape: safeguards that contain risk in ordinary conditions can amplify it when too much leverage is stacked in the same direction and in the same venues. The crash was not simply “too much speculation. ” It was the interaction of product design, margin logic, and infrastructure limits under stress.