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Explaining 'Liquidation Cascades': How $19 Billion in Cryptocurrency Vanished in One Day

This article explains how "liquidation cascades" led to a $19 billion wipeout in cryptocurrency markets in a single day. It details that most speculation occurs in perpetual futures, leveraged derivative contracts. When prices move against a trader's position, triggering a margin call and automatic sale, it can start a chain reaction. Each forced sale pushes the price down further, liquidating the next over-leveraged position like dominoes, especially when open interest is concentrated at similar price levels. The piece highlights the October 10, 2025 event, where a major geopolitical announcement triggered a massive sell-off. Over 24 hours, leveraged positions worth over $19 billion were liquidated, affecting 1.6 million traders, with long positions making up the vast majority. Total open interest on major exchanges plummeted by 43%. The phenomenon repeated in 2026, with several other "cascade" events causing billions more in liquidations. The article concludes that these cascades are not rare accidents but the market's standard mechanism for shedding excess leverage. The same conditions—high leverage, crowded positions, and clustered stop-loss levels—repeatedly set the stage for these events, with fuel accumulating again after each crash.

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