A year after the crypto flash crash, the leverage is still there

On October 10, 2025, bitcoin fell from around $122,000 to $105,000, and most of that drop took only minutes. CoinDesk reports that forced position closures from the selloff came to roughly $19 billion across crypto markets. Mark Connors of Risk Dimensions says the levered products behind it have not gone away. This article looks at how a crash like that unfolds, why leverage made it so fast, and who still carries that risk today.

What happened last October

The crash arrived only days after bitcoin had set a record above $126,000. Many traders were positioned for more gains. According to CoinDesk, open interest was near historic highs going into the drop, and a large share of those bets were bullish, built on the idea that bitcoin's four-year cycle would carry it to new records.

Mark Connors of Risk Dimensions, who once ran a positioning product for hedge funds at Credit Suisse, told CoinDesk that he and others had been looking at $250,000 to $300,000, $400,000 levels based on earlier cycles. Instead, the top came fast and violently, and his side did not see it coming. In his view, the move was driven by derivatives, not by onchain activity. Leveraged paper bets, not actual buying and selling of coins, steered the price in the short term.

The mechanics: how leverage turns a drop into a cascade

Leverage lets a trader open a position larger than the money they deposit. The deposit is called margin. If the price moves against the position and the margin can no longer cover the loss, the exchange closes the trade automatically. That forced close is a liquidation.

Perpetual futures are the main tool for this in crypto. They are contracts that let traders bet on bitcoin's price without owning any bitcoin, and they have no expiry date. CoinDesk notes that they remain a major part of crypto trading, and that exchanges have strong financial reasons to keep offering leveraged products.

Here is why a crowded market falls so quickly. When many traders are long with leverage, a modest drop pushes the weakest positions into liquidation. Those forced closes are sell orders. They push the price lower, which forces the next layer of positions to close, and so on. Each wave feeds the next. That is how a decline can do most of its damage in minutes, faster than most people can react.

What has changed, and what has not

Connors argued that better data on order books and positioning now gives traders a clearer picture of market structure. He said that, a year on, traders have become more attentive to it, and that the market bent without breaking.

But the core ingredient is still in place. Connors warned that another October 10 style event remains possible. "The levered products have not gone away." CoinDesk also reported that the rise of institutional products such as funds has barely reduced the pull of derivatives on short-term bitcoin prices.

The crash also put a popular belief in doubt. Connors said the four-year halving cycle has changed and gives less signal than before, and that he now thinks economic and political forces matter more.

Where the risk is

For a trader using leverage today, the same mechanics apply. These are the concrete ways money can be lost in a fast move:

• Liquidation wipes out the margin. A highly leveraged position can be closed after a small price move, and the deposit behind it is lost.
• Crowded trades fall together. When open interest is high and most bets point one way, a reversal can trigger a chain of forced selling.
• Stops may fill far from the planned price. In a drop that takes minutes, there may be few buyers near your exit level, so the fill can be much worse.
• Funding costs add up. Holding a perpetual futures position open costs money while sentiment is one-sided, which eats into any gain or deepens a loss.

Coins left on an exchange carry a separate risk. Hyperion Decimus co-founder Chris Sullivan suggested that long-term holders move bitcoin off exchanges into self-custody rather than leave it on a trading platform.

What to watch

Sullivan told CoinDesk that the first step is avoiding leverage. Beyond that, he pointed to three gauges: open interest, funding rates and overall sentiment. Open interest counts how many derivatives contracts are still outstanding. Funding rates show what it costs to keep a perpetual futures position open. Together, they can flag a market where most bets are stacked on the same side.

Sullivan also advised patience when those gauges reach extremes, whether the crowd is betting on rises or falls. None of these signals can say when a crash will happen. They can only show how much fuel is stacked up if the price turns.

Sources

• CoinDesk, 10 Oct 2026

Drafted with an AI model using only the sources listed, and released automatically after software checks on figures and originality. Nobody edited it by hand. For learning only; it does not tell you what to buy or sell.