When $20 Billion Vanished in Hours
Friday wasn’t just bad for crypto—it was historic. Over $20 billion got liquidated as Bitcoin dropped 13% in a single hour and some altcoins briefly hit near-zero. Bitwise portfolio manager Jonathan Man calls it the worst liquidation event crypto’s ever seen, and the damage went way beyond headline losses.
Here’s what happened when the market’s plumbing failed, why some traders walked away fine while others got wrecked, and what it means for positioning going forward.
How $65B in Open Interest Disappeared
Man estimates roughly $65 billion in open interest vanished—resetting crypto futures markets to July levels overnight. We’re talking perpetual futures (perps), those cash-settled contracts that track spot prices through funding payments instead of delivery dates.
When things get messy, profits and losses settle against a shared margin pool. Friday got really messy.
Bitcoin’s 13% hourly drop was brutal, but long-tail tokens? Absolute carnage. ATOM reportedly fell to “virtually zero” on some exchanges before bouncing back. That’s not a typo—that’s what happens when liquidity disappears and order books go thin.
Why Liquidations Cascaded and Where They Stopped
When uncertainty spikes, market makers widen spreads or step back entirely. Suddenly there’s no one on the other side of distressed trades, and organic liquidations can’t clear at bankruptcy prices.
That’s when exchanges pull the emergency brake.
Auto-Deleveraging Kicked In
Some venues forcibly closed profitable positions because there wasn’t enough cash on the losing side to pay winners. It’s the nuclear option, but it keeps the system from collapsing entirely.
Hyperliquid’s Vault Had a Field Day
Man points out that Hyperliquid’s HLP liquidity vault “had an extremely profitable day”—buying assets at fire-sale prices and selling into the subsequent spikes. That’s the trade: absorb panic, profit from the rebound.
What Broke vs. What Held
Centralised exchanges saw the worst dislocations. Thin order books meant long-tail tokens broke harder than Bitcoin and Ethereum, and Man notes ETH-USD spreads hit $300+ between Binance and Hyperliquid at certain points.
DeFi? Surprisingly calm. Two reasons:
Blue-chip collateral bias: Major lending protocols like Aave and Morpho primarily accept BTC and ETH, which held up better than obscure altcoins.
USDe price hardcoding: Platforms hardcoded Ethena’s USDe stablecoin to $1, preventing cascade risk—even though it traded around $0.65 on centralised venues during peak illiquidity. If you posted USDe as margin on a CEX, you got liquidated. On DeFi, you were protected.
The Hidden Risk No One Talks About
Directional bets weren’t the only danger. Man highlights what really keeps market-neutral fund managers up at night: operational risk.
Can your algorithms keep running? Will exchanges stay online? Are price marks accurate? Can you move margin and execute hedges in time?
He checked in with several managers who reported they were fine, but suspects “some c-tier trading teams got carried out.” Translation: the pros survived, but weaker operations probably blew up.
What Happens Next
Prices recovered from their lows by Saturday, and the forced deleveraging created opportunities for traders with cash ready. With open interest down sharply, Man says markets entered the weekend on firmer footing than Friday morning.
The takeaway? Leverage kills—especially when liquidity vanishes. Friday proved that even billion-dollar markets can turn into air pockets when everyone’s heading for the exit at once.
If you’re trading perps, know your venue’s safety mechanisms. If you’re holding USDe, understand where it’s priced. And if you’re running serious size, operational infrastructure matters as much as your strategy.
FAQ
Q1: What caused the $20 billion crypto liquidation event?
A: A rapid 13% Bitcoin drop combined with vanishing liquidity triggered cascading forced liquidations across exchanges. Thin order books in long-tail tokens amplified losses, while emergency deleveraging mechanisms kicked in to prevent total system failure.
Q2: What are perpetual futures and why did they matter here?
A: Perpetual futures (perps) are cash-settled contracts that track spot prices through funding payments, with no expiry date. When markets crash, profits and losses settle against shared margin pools—meaning exchanges sometimes need to forcibly close positions to keep books balanced.
Q3: Why did DeFi platforms handle liquidations better than centralised exchanges?
A: DeFi lending protocols mostly accept blue-chip collateral like BTC and ETH, which held value better. Additionally, platforms like Aave hardcoded USDe’s price to $1, preventing cascade liquidations—while CEXs saw USDe trade at $0.65, triggering margin calls.
Q4: What is auto-deleveraging and when does it happen?
A: Auto-deleveraging (ADL) is an emergency tool exchanges use when there isn’t enough losing-side capital to pay winners. It forcibly closes part of profitable positions to keep the system solvent during extreme volatility.
Q5: How did Hyperliquid’s liquidity vault profit during the crash?
A: Hyperliquid’s HLP vault absorbed distressed selling at deeply discounted prices, then sold back into the market as prices rebounded—essentially providing liquidity when order books were empty and capturing the spread.
DISCLAIMER
Effective Date: 15th July 2025
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