Cryptocurrency's Cliff-like Crash: The Threefold Crisis Behind 470,000 Margin Calls

November 4th witnessed a "day of terror" in the cryptocurrency market. Bitcoin plummeted over 7% in a single day, briefly breaking below the $99,000 mark to hit its lowest level since June; Ethereum suffered an even steeper decline, crashing 14% to fall below $3,100, a nearly 40% retracement from its August peak. Data from CoinGlass shows that over 470,000 investors worldwide were forced into margin calls within 24 hours, with the total liquidation amount approaching $2 billion—more than 90% of which were long positions. Comment sections were flooded with heart-wrenching accounts of "principal wiped out." This cliff-like crash was by no means accidental, but an inevitable result of the resonance of three major negative factors: macroeconomic pressures, inherent market flaws, and security risks.

The sudden tightening of the macroeconomic environment served as the trigger for the collapse. The latest remarks from Federal Reserve officials shattered market expectations of a December interest rate cut, and the hawkish monetary policy outlook pressured the valuations of risky assets. As a representative of high-risk assets, cryptocurrencies bore the brunt of capital outflows. Meanwhile, the U.S. federal government shutdown has lasted over 30 days, halting the release of economic data. Investors' concerns about the U.S. economic outlook have intensified, prompting a shift toward safe-haven assets such as the U.S. dollar. Global geopolitical disturbances have added further uncertainty—escalated U.S.-EU sanctions against Russia have driven up oil prices, and the resurgence of inflation risks has further squeezed the living space for risky assets, making the cryptocurrency market a natural haven for capital flight.

The structural fragility within the market amplified the magnitude of the decline. The proliferation of high-leverage trading laid the groundwork for a "domino effect." The open interest in Bitcoin perpetual contracts had previously climbed to an all-time high of $70 billion, meaning even minor price fluctuations would trigger cascading liquidations. After Bitcoin broke below the key support level of $100,000, forced selling orders from long liquidations continued to push prices lower, triggering more liquidations and forming a "waterfall effect." More critically, there was an instantaneous evaporation of liquidity—during the crash, order books on major exchanges were almost emptied within a ±4% price range, as market makers withdrew large-scale orders and arbitrage capital failed to enter in a timely manner. This temporarily disabled the price discovery mechanism, further exacerbating the downward trend. On-chain data shows that long-term holders have also begun to waver: approximately 400,000 Bitcoins have been sold since October, and coupled with a sharp drop in institutional capital inflows, the market's ability to absorb sell-offs has been severely insufficient.

Security incidents and regulatory pressures have completely shattered market confidence. In early November, Balancer, a decentralized finance (DeFi) protocol in the Ethereum ecosystem, suffered a hack resulting in over $100 million in losses—the latest in a series of recent security breaches. Prior to this, the stablecoin USDe had depegged by 38% due to a collapsed leverage cycle, and single-day liquidation fees on decentralized lending platforms exceeded $20 million. Persistently exposed industry risks have left investors feeling insecure. Regulatory tightening has added to the woes: the U.S. SEC has stepped up scrutiny of exchanges, Turkey has banned cryptocurrency payments, and Nasdaq now requires shareholder approval for companies transitioning to crypto-related businesses. Signals of stricter global regulation continue to strengthen, further suppressing market activity. More alarmingly, there are signs that some traders used information advantages to position for short positions in advance, objectively exacerbating market volatility.

This crash has once again confirmed that the cryptocurrency market remains trapped in a cycle of "high volatility and high risk." Despite the resilience brought by new mechanisms such as spot ETFs, the so-called "value support" is fragile without improvements in the macroeconomic environment and regulatory frameworks. For ordinary investors, the painful lesson of 470,000 margin calls serves as a warning: leverage trading is like a sword hanging overhead, and greedy chasing of highs will ultimately come at a cost.

Market panic continues to spread, but extreme market conditions are often a process of risk release. The current Fear & Greed Index has fallen into the extreme fear zone, and the funding rate for perpetual contracts has turned negative—perhaps indicating that short-term selling pressure is nearing an end. However, in the long run, the cryptocurrency market can only truly mature by establishing a sound regulatory system, reducing leverage levels, and enhancing industry security. Until then, any "bottom-hunting" or speculative behavior may become a victim of the next wave of liquidations.