The underlying logic behind the avalanche in the crypto market amid the resonance of multiple risks

On October 17, 2025, the cryptocurrency market witnessed a "terrifying moment" : major cryptocurrencies such as Bitcoin and Ethereum plunged sharply. Within 24 hours, over 300,000 people across the entire network were liquidated, with the liquidated amount approaching 1.2 billion US dollars. The USDe stablecoin, which serves as a "stabilizer" for the market, suddenly lost its anchor, triggering a concentrated liquidation of 19 billion US dollars of long positions. Coupled with the credit risks of banks in the US region and the tense trade situation, a liquidity crisis quickly swept across the entire market. This sharp decline is by no means accidental; rather, it is the inevitable outcome of the combined effect of macro risk transmission, market structure imbalance and the collapse of the trust system.

The resonance of macro risks served as the trigger for this sharp decline. In mid-October, US President Trump suddenly announced plans to impose an additional 100% tariff on Chinese imports. His tough statement instantly stirred up the nerves of the global market. The World Trade Organization has urgently lowered its forecast for global trade in goods growth in 2026 to 0.5%, the lowest level since 2009, thus igniting a wave of selling off risky assets. What is even more alarming is that the current interactivity between crypto assets and traditional finance has reached a historical peak. The 30-day correlation between Bitcoin and the S&P 500 index has risen to 0.78, and the fluctuations in the S&P 500 index can account for 40% of the price changes of cryptocurrencies.

The simultaneously escalating regional bank credit crisis in the United States exacerbated market panic. Shares of regional banks such as Zions Bancorp and Western Alliance plunged by more than 10% due to problems with commercial real estate loans, and the market was worried that credit risks would spread to the financial system. This concern, in combination with trade tensions, has created a "double whammy" effect, prompting investors to withdraw from the high-risk crypto market and turn to safe-haven assets such as gold. After the Federal Reserve cut interest rates by 25 basis points and emphasized that "the space for easing is limited", it shattered the market's illusion of loose liquidity and further magnified the pressure of capital flight.

The bursting of the market's high-leverage bubble was the core driver behind the escalation of the crisis. In the bull market at the beginning of 2025, leveraged funds became the main driving force for the rise. The "unified account" mechanism of the exchange lowered the threshold for leveraging, and the average leverage ratio of retail investors soared to 10 times, with the overall market leverage ratio reaching a two-year high of 38%. The 12% high subsidy policy launched by USDe has given rise to a circular arbitrage game of "lending - pledging - re-lending", through which a large number of investors have magnified their risk exposure. When macro negative factors cause prices to fall, the "death spiral" of high-leverage positions is immediately initiated: when prices break through key support levels, forced liquidation is triggered, and forced selling further depresses prices, which in turn leads to more positions being liquidated, forming a self-reinforcing selling cycle.

The de-anchoring of USDe became the last straw that broke the market. As a "bridge" connecting traditional finance and the crypto world, USDe was supposed to maintain a 1:1 anchor through "crypto assets + perpetual contract hedging", but in extreme market conditions, this mechanism completely failed. A large institution on the Binance platform was liquidated for using USDe as cross-margin, and a large amount of selling led to its price plummeting to around $0.6. What is even more fatal is that market panic has turned the funding rate of perpetual contracts into negative values, transforming the agreement from a "charging party" to a "paying party", continuously eroding the value of collateral and completely undermining market confidence.

This sharp drop has exposed the deep-seated ills of the crypto market. The lack of transparent and verifiable reserves of stablecoins, the disorderly expansion of high-leverage trading, and the intensified transmission of traditional financial risks together constitute the root causes of market vulnerability. When a project promises a "stable return" of over 10% and its mechanism is complex and hard to understand, it essentially turns into a high-risk gamble. The popularization of program trading has led to a price decline rate far exceeding that of the manual trading era, and some investors have been forcibly liquidated at a position far above the theoretical margin call price.

The sharp fluctuations in the crypto market once again serve as a warning that as its interactivity with traditional finance intensifies, it can no longer operate independently of the macroeconomic cycle. For investors, it is necessary to abandon the illusion of short-term arbitrage and be vigilant against the risks of high leverage and complex financial instruments. For regulatory authorities, establishing a regulatory framework for stablecoins, standardizing leveraged trading, and preventing cross-market risk transmission have become urgent issues to be addressed. Only by breaking the cycle of "false prosperity - panic crash" can the crypto market truly mature.