BitMEX Report: October Crypto Crash Strains Liquidity, Hits Market Makers
The October 2025 crypto crash did more than erase billions—it disrupted market functioning. Market makers, essential for orderly trading, were left holding large crypto positions, producing the thinnest liquidity conditions since 2022, according to BitMEX’s latest report.
Bitcoin fell from $121,000 to $107,000 on October 10, while altcoins such as XRP, ETH, and DOGE plunged even further. The market’s volatility triggered $20 billion in leveraged futures liquidations across centralized and decentralized exchanges—the largest ever recorded.
Auto-Deleveraging Exposes Market Makers
Liquidations occur when leveraged trades move against holders, forcing exchanges to close positions automatically. On October 10, exchanges escalated the process by activating auto-deleveraging (ADL), which closes even profitable positions when insurance funds cannot cover losses.
Market makers, who typically run delta-neutral strategies—offsetting long spot holdings with short futures—were severely impacted. ADL forcibly closed their short futures, leaving them with unhedged long spot positions. This breach of neutrality forced many to pull back from liquidity provision, creating extremely thin order books.
“ADL forced market makers to hold naked spot positions in a falling market. Liquidity withdrawal produced the thinnest order books since 2022,” BitMEX noted in State of Crypto Perpetual Swaps 2025.
The forced unwinding contributed to further price declines, with BTC briefly dropping to $80,000 by November 21. While prices have since recovered above $90,000, liquidity remains fragile.
The End of “Risk-Free” Arbitrage
Delta-neutral funding rate arbitrage, once considered low-risk “free money,” has lost its appeal. The strategy profits from price gaps between spot and perpetual futures markets while avoiding directional exposure. Widespread adoption, however, caused funding rates to collapse.
“Automated hedging flows overwhelmed order books, collapsing funding rates. By mid-2025, risk-free crypto yields fell below 4%, underperforming U.S. Treasuries,” the report said.
Previously, similar trades yielded over 25%, showing how mass adoption has eroded easy profits.
Exchanges, DeFi, and Market Manipulation
The report also highlighted structural risks. Some exchanges froze or seized user profits under “abnormal trading behavior” clauses, exposing aggressive B-book practices. Low-float listings and pre-market manipulation remained vulnerabilities, exemplified by the MMT incident, where coordinated actors cornered spot supply to squeeze perpetual open interest.
DeFi platforms like Hyperliquid are growing, but decentralization does not eliminate manipulation. The Plasma ($XPL) incident demonstrated that on-chain transparency alone cannot fully protect users from exploitative liquidation strategies.
Finally, crypto derivatives have become a key venue for leveraged trading of traditional assets. Trading of U.S. stocks such as Nvidia and Tesla outside standard market hours surged, with crypto exchanges emerging as the primary platform for speculation, particularly ahead of earnings announcements.
