Crypto Market Makers: The Real Culprits Behind the $19B Meltdown 🚨

by

The October 10-11 crypto crash was not merely a tempest in a teacup, but a veritable tempest in a teacup, if you’ll pardon the metaphor, which I won’t. 🧠

A $19 billion liquidation, the financial equivalent of a rogue elephant in a china shop, wiped out leveraged positions across Bitcoin, Ethereum, and altcoins, leaving traders and exchanges reeling like a dachshund caught in a tornado. 🧠

The headline trigger was Trump’s 100% tariffs on Chinese imports. But let us not forget, in the realm of crypto, even the most mundane events can be dressed up as apocalyptic omens. 🧠

Market Makers: Lifelines That Disappeared

Market makers are meant to keep trading smooth. They provide liquidity, tighten spreads, and help prices stay orderly. In traditional finance, this usually works. Crypto is different. Markets never sleep, liquidity is scattered across hundreds of exchanges, and price swings can be extreme. A magnificent folly, really. 🧠

YQ’s breakdown reveals a tale of woe: between 20:40 and 21:20 UTC, market depth on tracked tokens plummeted from $1.2 million to a mere $27,000-a 98% collapse, as if the market had been hit by a particularly aggressive bear. 📉

Bitcoin dropped to $108K, and some altcoins lost 80% of their value. A spectacle worthy of a Shakespearean tragedy, if the tragedy were written by a drunk dramatist. 🧠

“Market makers had 20-40 minutes of warning before complete withdrawal,” YQ notes. They pulled out in a coordinated way, returning only when the market offered a profitable re-entry. A masterclass in self-interest, if you’ll indulge the metaphor. 🤡

ADL: When the Market Turns on Traders

With order books empty, exchanges relied on Auto-Deleveraging (ADL) to handle positions that couldn’t be closed normally. Binance, Bybit, and Hyperliquid triggered ADL for tens of thousands of accounts. The most profitable traders were hit first. A cruel joke, if jokes were permitted in this arena. 🧠

Hedge positions disappeared in minutes, open interest across the market fell by roughly 50%, and what looked like a stable portfolio became exposed in a heartbeat. A financial equivalent of a house of cards, if the cards were made of ice. 🧠

Why Market Makers Walked Away

YQ points to a clear structural problem. Market makers faced four incentives to pull out: high risk versus small spread profits, early knowledge of a long-biased market, no legal requirement to stay, and bigger profits from arbitrage. A veritable recipe for chaos, if you ask me. 🧠

The result was a vicious cycle: shock, withdrawal which led to depleted insurance funds, and more liquidations. A tragicomedy of errors, if errors were allowed to perform. 🧠

This Might Interest You: Hyperliquid Founder Calls Out Binance and CEXs for Hiding Liquidation Data Amid Market Crashes

Lessons for the Market

“Voluntary liquidity provision fails precisely when involuntary provision is most needed,” YQ writes. The $19 billion wipeout, according to him, exposed a system where those meant to stabilize the market can profit more from chaos than from order. A paradox as old as time, and just as tiresome. 🧠

Community reactions reflected the frustration. @JackyGekko asked, “Why should market makers provide liquidity even when the market is so skewed to the long side…what kind of incentive can cover their losses?” A question as profound as it is unanswerable. 🧠

Better incentives to keep liquidity stay during market turbulence.

– YQ (@yq_acc) October 14, 2025

The answer is clear: until exchanges create proper safeguards, circuit breakers, and incentives, the next big crash will teach the same lesson. A lesson in futility, perhaps, or the enduring charm of the crypto market. 🧠

This analysis is based on YQ’s insights. Stay tuned to Coinpedia for more in-depth breakdowns and expert perspectives.

Read More

2025-10-14 15:23