Epic collapse! BTC narrowly defends the $100,000 mark, why is the altcoin market suffering such a bloodbath?

Author: Chloe, ChainCatcher

In the early hours of October 11, the crypto market experienced a bloodbath, possibly triggered by U.S. President Trump's sudden tariff policy. The night before, Trump posted on Truth Social accusing China of "sending letters to multiple countries, planning to implement export controls on all elements related to rare earths," and announced after U.S. stock market hours that a new 100% tariff on Chinese imports would take effect from November 1.

This news directly impacted Wall Street. On October 10, U.S. stocks initially rose before falling, with the Dow Jones Industrial Average briefly rising by 283 points before plummeting by 887 points; the Nasdaq index dropped by over 3.56% at one point; the volatility index (VIX) surpassed 20 for the first time since April, indicating a surge in market pressure.

The panic in the stock market quickly spread to the crypto market. Bitcoin briefly plunged to 102K this morning, returning to around 111K before the deadline, bringing the price back to the level of October 1; Ethereum dropped to 3,392 USD at one point, before recovering to 3,745 USD before the deadline. The overall market capitalization of the crypto market fell by nearly 10%, with altcoins suffering particularly severe losses, as the altcoin season index CMC dropped to 35.

According to Coinglass data, over the past 24 hours, the total liquidation across the network reached 19.141 billion USD, setting a new historical record, with a total of 1,621,284 people liquidated, including 16.686 billion USD in long positions and 2.455 billion USD in short positions. The largest single liquidation occurred in the ETH-USDT contract trading pair on the Hyperliquid platform, valued at 203 million USD.

In terms of cryptocurrencies: Bitcoin saw liquidations of 5.317 billion USD, Ethereum 4.378 billion USD, SOL 1.995 billion USD, HYPE 0.888 billion USD, and XRP 0.699 billion USD.

After the overnight crash in the crypto market, the current funding rates on major CEX and DEX platforms indicate that the market has clearly turned bearish.

Behind the Altcoin Crash: A Funding Dilemma for Market Makers?

Crypto KOL @octopusycc analyzed that the altcoin crash is entirely a problem of market makers, who are unable to hedge adequately.

The core issue lies in the limited funds of market makers. Market makers allocate funds to different projects in tiers, providing the most funding to Tier 0 projects and decreasing support down to Tier 4 projects. After Jump's collapse, the market structure became unbalanced, with many projects that were previously serviced by Jump flowing to other market makers, but these market makers simply do not have enough funds to meet the demands of all projects.

When Trump announced the tariff policy, triggering a market sell-off, market makers could only prioritize protecting large projects like Tier 0 and Tier 1, even reallocating funds originally designated for smaller projects to rescue larger ones. This reallocation of resources is the main reason why small altcoin projects completely lost support.

In addition to the macro trigger and the funding dilemma for market makers, several industry insiders have also analyzed that the direct technical reason for this epic crash was a chain liquidation triggered by the decoupling of USDe on the Binance platform.

Primitive Ventures co-founder Dovey posted on X, speculating that this crash was caused by a large institution (possibly a traditional trading company using cross-margin) experiencing liquidation on the Binance platform. Dovey pointed out, "While further analysis is needed, initially, the price of USDe on Binance dropped to 0.6, while prices on other trading platforms remained relatively stable."

Moreover, there has been a significant divergence in volatility between tokens listed on Binance and those not listed. "This means that USDe decoupled on Binance by as much as 40%, and the problem may be concentrated on Binance rather than the entire market."

Crypto KOL Hanbalongwang stated, "(This market crash may be) due to the 12% subsidy on USDe, where many market users engaged in USDe circular loans. Affected by Trump's trade war, USDe was attacked with a premium, leading to the liquidation of USDe circular loans and further decline in USDe."

He further pointed out the fatal chain reaction: "Additionally, some whales and market makers used USDe as margin for contracts, and due to the decoupling and discount of USDe, leverage was inexplicably doubled, ultimately even a 1x long position could be liquidated. (This further triggered a chain reaction,) causing small altcoin contract prices to drop rapidly, USDe to plummet quickly or even double, resulting in significant losses for market makers."

Crypto KOL BitHappy believes, "This time, the on-chain liquidation performed better than on exchanges, especially in the lending sector. This is mainly due to the design of protocols like Ethena and AAVE, which encourage circular loans to increase TVL, fixing the value of lending assets to collateral assets at a 1:1 ratio." He illustrated, "For example, the circular loans of USDT and USDe on Aave previously had no liquidation risk due to the use of fixed oracles, combined with the subsidy activities at that time, which raised TVL by billions in just a few days. This mechanism also led to almost all stablecoins being fixed at a 1:1 ratio in the lending protocol oracles. Therefore, most users engaging in stablecoin circular loans on-chain remained largely unscathed."

However, the situation on Binance is entirely different. "The most severe liquidation losses for USDe occurred on Binance. On one hand, Binance launched a 12% interest activity for USDe, attracting a large number of whales to participate in circular loans (resulting in almost total loss). On the other hand, USDe could also be used as margin for contracts."

Binance has also officially announced that USDE, BNSOL, and WBETH have recently experienced price decoupling issues, leading to forced liquidation of some users' assets. The Binance team stated that they are currently conducting a comprehensive review of the affected users' situations and related compensation measures while strengthening risk management controls to prevent similar incidents from occurring again.

Market Outlook: Will TACO Trading Reoccur?

Finally, looking at the macro economy, Trump's sudden remarks are not unprecedented. Earlier in April, increasing tariffs on China to 145% also led to a market crash, but eventually, the U.S. government's stance became rigid, and the implementation of tariffs on China was indefinitely postponed, leading to a steady market recovery.

Many investors jokingly refer to this market trend "manipulated" by Trump as TACO trading, which involves shorting the market immediately after Trump announces tariff policies (as market sentiment reacts quickly), and then going long again after several trading days (as Trump softens his stance and cancels the policies).

If investors can seize the opportunity to buy the dip, it might be a good chance, but currently, there are signs of deterioration in the China-U.S. situation, coupled with the risk factor of a U.S. government shutdown: the White House Office of Management and Budget (OMB) stated on October 10 that it has begun to cut federal employees.

White House officials indicated that this round of federal layoffs would involve at least thousands of people, and there is no sign of any resolution to the federal government shutdown. They advise investors to wait for the situation to stabilize before making moves, to avoid blindly buying the dip in a highly uncertain environment and risking another spike in prices.