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Why crypto briefly but dramatically crashed when Trump renewed his trade war

<i>Jakub Porzycki/NurPhoto/Shutterstock via CNN Newsource</i><br/>Representation of Bitcoin and other cryptocurrencies are seen in this illustration photo taken in Krakow

By CNN Newsource

Published October 13, 2025 2:42 pm

By John Towfighi, CNN

New York (CNN) — Cryptocurrencies plunged in value on Friday in a short but significant flash crash, leaving investors with billions of dollars in losses and highlighting the volatility associated with the industry.

Traders were jolted after President Donald Trump threatened new tariffs on imports from China, sparking a sell-off in risky assets like tech stocks and crypto and a flight to safe havens like gold and silver, which are both trading at record highs.

From bitcoin to meme coins, cryptocurrencies sank as investors sold their holdings and highly-leveraged positions were closed amid the sharp, unexpected downturn.

The mini crash resulted in a record $19 billion in liquidated positions, according to data analysis from CoinGlass.

Although crypto prices have since rebounded, about 1.6 million traders had their positions liquidated on Friday, according to The Kobeissi Letter.

What happened?

After Trump’s tariff threat Friday, nervous investors dumped their riskier bets and fled to the perceived safety of government-issued Treasury bonds and gold. The tech-heavy Nasdaq Composite dropped 3.56% while bitcoin fell 15% at its lowest point. The S&P 500 posted its worst day since April.

Bitcoin fell from roughly $122,500 to a low of roughly $104,600 on Friday afternoon. Ethereum, the world’s second largest cryptocurrency by market value, fell 20%.

“The aggressive crypto selloff was sparked by a risk-off stampede,” said Lukman Otunuga, senior market analyst at FXTM.

Highly speculative coins were hit much harder: Dogecoin dropped more than 50%, according to Coinmarketcap data. President Donald Trump’s $TRUMP coin fell roughly 63% at its lowest point.

What’s leverage?

The drop was exacerbated by a large number of traders who were highly levered, borrowing money to increase to size of their bets. It’s a highly risk play that has becoming a regular feature of crypto trading.

When it goes well, the payout from a leveraged bet is sweet. But when traders are caught on the wrong side of a steep price move, it can leave them exposed to enormous losses.

Highly leveraged bets can be automatically closed by exchanges when it becomes apparent the losses will outpace investors’ ability to pay it back. The forced closure of positions contributed to the size and scale of the shock to the market.

“Friday’s move was a textbook example of how leverage can amplify short-term volatility in a 24/7 market,” said Samir Kerbage, CIO at Hashdex, a crypto asset management firm. “As prices started falling, margin calls and forced liquidations cascaded across venues.”

What else happened?

Investors also grew concerned about potential technical shortcomings in the crypto market after a stablecoin trading on Binance, a crypto exchange, briefly become unpegged from its one-to-one relationship with the US dollar.

“Some platform modules briefly experienced technical glitches, and certain assets had de-pegging issues due to sharp market fluctuations,” Binance said in a statement.

Social media users also raised concerns about anonymous accounts holding crypto wallets that may have benefited from shorting the crypto market — and whether insider trading could have been involved. Although speculation about insider trading has been rampant in certain segments of the crypto market, it’s an allegation that can be exceedingly difficult to prove.

Has crypto recovered?

Bitcoin hovered around $115,000 on Monday, stabilizing after its drop below $105,000 on Friday but so far failing to recoup all of its losses. Bitcoin had hit a record high above $126,000 on October 6.

“Structural forces — ETF adoption, institutional inflows and regulatory clarity — continue to support long-term growth,” Kerbage at Hashdex said.

While crypto has slightly rebounded and stocks bounced back on Monday, uncertainty is still underpinning the market. Silver futures — a haven amid uncertainty — soared 7% on Monday and hit an all-time high.