The biggest crypto wipeout was led not by bitcoin, but much smaller tokens. Here’s what happened

The cryptocurrency industry recently experienced one of its worst days ever. While holders of Bitcoin and Ether appear to have left some of the carnage behind, traders of many lesser-known tokens are still feeling a lot of pain.

More than 1.6 million traders saw $19.37 billion worth of leveraged positions wiped out over the course of 24 hours starting Friday, October 10. This is the largest liquidation event ever tracked by cryptocurrency-focused data analytics firm CoinGlass. The survey marks a dark spot for the digital asset market in a strong year for cryptocurrencies that saw Bitcoin and Ether reach record levels. More than a week after the event, its effects were more evident in small coins.

Bitcoin and ether are trading roughly 11% to 12% below their October 10 highs, with the former token trading above the critical $100,000 resistance level and the latter hovering within striking distance of its $4,000 key price, according to a CNBC analysis of CoinMetrics data. Lesser-known coins like XRP, Solana, dogecoin, and BNB are trading at a 15%-24% discount from their pre-crisis highs.

The relative resilience of bitcoin and ether is largely due to the fact that the two largest cryptocurrencies by market cap are older and more established than alternative digital assets, Frank Chaparro, head of content and special projects at GSR, told CNBC.

“It’s just larger, more established assets, backed by ETFs and other structured products,” Chaparro said. “Tokens with long tails are less mature, less liquid, and naturally more susceptible to volatility.”

Chaparro also noted that bitcoin and ether suffered smaller losses compared to alternative crypto assets in this month’s massive liquidation event.

Solana, dogcoin, XRP, and BNB are often used for leveraged trading on centralized or decentralized exchanges. Mid- and small-cap digital assets fell between 60% and 80% at the height of the liquidation event, while bitcoin and ether lost only 11% and 13%, according to cryptocurrency-focused market maker Wintermute.

“There has always been a lot of leverage in crypto,” Tom Lee, head of research for Fundstrat Global Advisors, said last week on CNBC. “The volatility and leverage is what attracted people to this space, especially when you get outside of Bitcoin and Ethereum, [which] “It’s not generally kept on the sidelines.”

Leverage refers to the money that traders borrow to open positions that are larger than the initial invested capital, or margin, that they put up up front. The position is liquidated, or forcibly closed, when the collateral that the trader used to secure this position is no longer sufficient to cover his losses.

The crypto survey came after US President Donald Trump pledged earlier on October 10 to impose it Huge tariffs on Chinasending ripples through the financial markets. Although the fallout from major geopolitical announcements is par for the course in the digital asset market, traders suffered more in this case due to the unwinding of many leveraged positions.

“You effectively have what has been described as a doom loop where the initial drop in prices leads to some liquidations,” Chaparro said. “And when you unwrap those positions in an order book that is thin… the spot prices of the assets that are unwound collapse.”

These price declines prompt cryptocurrency exchange margin systems to view traders’ collateral differently, resulting in more positions being unwound, according to Chaparro. “If you have one bitcoin as collateral when it’s worth 100,000, your collateral position is much different than when it trades at 70,000, so more accounts go under escrow, and the cycle repeats itself.”

“You’re adding gasoline to the fire in a way that doesn’t exist in other highly leveraged markets,” the executive said.

Decentralized offshore exchanges like Hyperliquid and Aster linked to Binance Labs have become popular with traders who want to bet on cryptocurrencies with greater leverage. the previous Offers maximum leverage 40 times for Bitcoin and 25 times for Ether, while Aster Offers up to 1,001x leveragedepending on the token.

Trading products with higher leverage attract investors because they offer higher returns. However, with the potential for higher rewards, there is a greater potential for losses, according to Zach Pandl, head of research at cryptocurrency-focused asset manager Grayscale.

“More leverage means more risk in every financial market,” Bandel told CNBC.

Furthermore, Chaparro said that the cryptocurrency infrastructure for leveraged trading has not evolved to suit market specificities.

“We have a 24/7 market that is effectively built on a nine-to-five exchange infrastructure,” Chaparro said. “And with cryptocurrency markets, you don’t have the same traditional forces that can easily prevent or treat stress, like circuit breakers.”

He added: “The liquidation event is just a blip in the story of the function and utility of these underlying assets, but it is not a blip in terms of thinking about the fragile infrastructure of our offshore derivatives markets.”

Cryptography researcher Molly White books In her blog post, the October 10 liquidation event could be a harbinger of things to come in the cryptocurrency market and beyond.

“The crash reminded us of how quickly cryptocurrency markets can collapse when a sudden shock punctures the euphoria of traders who have been watching prices steadily rise, and seem to forget that there is anything else they can do,” cryptocurrency researcher Molly White said last Friday in the post. “As cryptocurrencies become more interconnected with mainstream finance, future disruptions will reach a much broader scale.”

Juan Leon, chief investment strategist at Bitwise, also noted the possibility that “we could see a major correction or bear market fueled at least in part by large liquidations due to these leverage effects.”

But unlike White, Lyons believes the entry of traditional financial institutions into the cryptocurrency market could help offset the effects of indigenous crypto players using massive amounts of leverage.

“There is a greater and greater amount of capital in the space that players control, as opposed to many small retailers,” Lyon said. “As more institutional capital comes into this space, it mitigates some of that risk, because larger institutions don’t take 50x leveraged positions… and they tend to hold longer.”