Bitcoin (CRYPTO:BTC) has long been the cornerstone of the cryptocurrency market, but last week’s market plunge has put its dominance under scrutiny. On Friday, the crypto market shed approximately $200 billion in value, with BTC dropping over 15% from its peak that day above $122,000 to its trough around $104,000.
This dramatic decline followed President Trump’s announcement of potential 100% tariffs on Chinese imports after Beijing imposed further restrictions on rare earth minerals, sparking fears of a renewed trade war.
A post on X by The Kobeissi Letter captured the scale: “It’s official: Crypto just saw its LARGEST liquidation event in history with 1.6 MILLION traders liquidated. Over $19 BILLION worth of leveraged crypto positions were liquidated in 24 hours, 9 TIMES the previous record.” It notes it marked a single-day swing in Bitcoin’s market cap of a $380 billion.
The event highlights Bitcoin’s vulnerability to macroeconomic shocks and raises the question: is the “Crypto King” still a buy?
Trump’s Truth Social Post Ignites a Crypto Firestorm
According to the post, the $19 billion liquidation event wiped out 1.6 million traders in 24 hours, dwarfing the previous $2.1 billion record from February. This “massive correction” reflects how a sharp price drop adjusted overextended markets. The tariff news, coupled with new U.S. export controls on software, reignited trade war fears, prompting investors to exit risky assets like crypto. Bitcoin was not alone: Ethereum (CRYPTO:ETH) fell below $3,500 and altcoins saw double-digit losses.
The “incredible liquidation event” amplified the downturn. Liquidations occur when leveraged positions — trades made with borrowed funds — fall below collateral thresholds, forcing exchanges to close them automatically. Most investors are familiar with the experience when stock brokers issue the dreaded margin call.
The X post noted $16.7 billion of the $19 billion came from long positions (88%), a 6.7:1 ratio over shorts, driven by excessive leverage on platforms like Hyperliquid (CRYPTO:HYPE). However, a whale’s timely $192 million profit from shorts — executed 30 minutes after the tariff news — someone had insider knowledge or exceptional (though unlikely) near-perfect timing, fueling market manipulation concerns.
Leverage: A Double-Edged Sword
Leverage allows investors to amplify returns by borrowing funds, but it also magnifies losses, as seen in this crash. In crypto, traders often use 10x, 50x, or even 100x leverage, controlling large positions with minimal capital. It was this overexposure, fueled by leverage, that led to the $19 billion liquidation.
As noted before, margin trading in stocks can boost gains, but risks margin calls if prices suddenly drop, forcing stock sales at a loss.
The risks are stark: a 10% price drop on a 10x leveraged BTC position wipes out 100% of the initial investment. Volatility, already high in crypto, makes leverage treacherous, while stock markets, though less volatile, still saw leveraged hedge funds adjust positions during the tariff scare. While there are no regulatory limits in the U.S. restrict retail crypto leverage, few exchanges offer it. Kraken is one that does, but limits it to 5X, and even then you need to be certified as a high-net worth individual ($10 million or more). But offshore exchanges offer much higher ratios, increasing exposure. Without stop-loss orders or risk management, leverage can turn a manageable dip into a total loss.
Key Takeaway
Despite the crash, Bitcoin’s long-term potential remains high. Its fixed 21 million coin supply and growing institutional adoption through exchange-traded funds and corporate treasuries support its “digital gold” narrative.
The liquidation event suffered last week was likely more a technical correction, driven by Bitcoin’s meteoric rise since April. The crypto’s fundamental basis for long-term growth remains unaffected, and an eventual trade deal offers upside potential. Analysts at JPMorgan Chase still forecasts BTC reaching $165,000 by the end of 2025, driven by ETF inflows.
However, leverage remains a critical risk. While it can amplify gains in any recovery, this $19 billion liquidation underscores its danger. For BTC investors, a spot buy-and-hold strategy or dollar-cost averaging (DCA) offers safer exposure to its projected growth trajectory, avoiding the volatility trap margin trading introduces.
Crypto’s resilience — and Bitcoin’s leadership in particular — make it a compelling long-term investment, but leveraging to chase those gains could undo that potential.
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