Crypto market confidence crisis: From $126K peak to liquidity collapse

In four days, BTC fell from a historic high of $126,000 into a massive crash on 10/10. This is not just a price drop, but a collapse of trust in the entire ecosystem.

It looks prosperous, but in reality, it is very weak.

After the election, expectations that Trump would support cryptocurrency should have boosted the market, but the reality gave a big slap in the face. Since the beginning of this year, the proportion of cryptocurrency market value to the S&P 500 has even shown negative growth — under what seems to be a favorable macro environment, the market has instead depreciated. What does this indicate? The fundamentals are not as solid as they seem.

Chain Reaction of Leverage Bubble

The 10/10 flash crash exposed the vulnerability of DeFi “trust me and it will work” yield funds. Stream Finance, which managed $200 million in assets, directly went bankrupt, with external fund managers losing $93 million in derivatives operations. The question is:

• When the automatic reduction mechanism is triggered, the short hedge is forcibly liquidated.
• Spot long positions instantly cleared.
• The “cyclical stablecoin mining” strategy of the chain (continuing to leverage with high-risk yield certificates) collectively exploded.

Currently, billions of dollars in leveraged funds are hidden in various yield strategies, and no one knows whether the market liquidity can withstand the next wave of liquidations.

Who is swimming naked?

The automatic position reduction mechanism of exchanges is on the verge of collapse, with multiple platforms nearly going bankrupt on 10/10. If the market falls again, combined with the “10/10 liquidation period insolvency” lawsuits against exchanges, the issue is no longer “will there be problems,” but rather “can the entire industry hold up.”

Core Issue: In this crypto casino, some have already lost their swim trunks. Are we really ready for the next wave of impact?