13th October 2025 > > The crypto crash.

tl;dr

The crypto crash, and what really happened. There is one surprising bit of good news.

Market Snap

Market Wrap

That was a painful day on Friday. Read on for what really happened.

Curious Cryptos’ meme corner

h/t The Milk Road

https://mrcrypto.milkroad.com/subscribe?ref=o5CmCFhBAK

Occasional Series – France

The re-appointed Prime Minister of France, Sebastien Lecornu, is unlikely to last as long in his re-instated job as his first attempt which was of a Liz Truss style length. How do we know that? On accepting this admittedly poisoned chalice he said:

“We have to end this political crisis … that is bad for the image of France.”

Image? That is all that matters to him?

Yep, that is one Tik-Tok Prime Minister right there.

Curious Cryptos’ Commentary – The crypto crash

Trump’s unexpected announcement of additional 100% tariffs (on top of the current 30%) sent all risk markets into a tailspin, with cryptos hit especially hard. BTC dropped precipitously from $123k to just below $105k with most of the damage happening in less than a one-hour time frame. That’s a 15% drop. ETH went from $4.4k to $3.6k for an 18% loss. Many alts fared worse, with greater losses the further down the quality curve you go, as would be expected. ENA (more on this in a bit) dropped 25% whilst notable memecoins (FARTCOIN being one) dropped over 40%. That’s a lot of blood in the street.

These numbers do not fare well when compared to stocks. The S&P 500 lost less than 3% and will be trading higher again very soon no doubt.

We expect cryptos to outperform or underperform relative to other asset classes given its higher beta, higher volatility, and lower liquidity. But those numbers above are telling a different story. So, what is that story?

The most obvious culprit will be all those leveraged children who will simply not learn that you should NEVER use leverage to invest in cryptos. A whopping $19bn of liquidations were seen in less than 24-hours, with $6bn during the most painful hour of that sell-off.

Such sharp, sudden movements become self-fulfilling, exacerbating the down trend. Once the markets have hit the point of maximum pain, there is always a sharp rebound leaving those who got taken out wondering how it is they lost again. You can clearly see the short and sharp (partial) recovery:

But there were two other problems that cropped up, which are instructive, one of which has encouraged the world’s largest centralised cryptocurrency exchange (Binance) to change some of its methodology. I believe that the change is misguided and is storing up huge potential problems during future market dislocations. That is not a good thing. Let me explain.

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The first problem was that the price of wrapped coins de-pegged from the underlying. For example, wBETH (ETH staked on the beacon blockchain then wrapped for use in DeFi on the BNB blockchain) has an easily calculated price relationship with ETH (it compounds the staking rewards). But at one point the bids for wBETH were at $430 whilst ETH was at $3,800:

As you can see, the rebound was faster and more furious that the BTC rebound, but the bigger issue is why there was such a brutal de-pegging.

The answer is a simple one – though wBETH is described as a liquid staking token (LST) it isn’t liquid at all. This is a common problem for LSTs, an issue we explored some time ago when looking at TON LSTs. This doesn’t mean they don’t have value – the concept of LSTs is one of the shining examples of the innovation that cryptos are bringing to the TradFi markets. That price action above is because of over-leveraged positions using wBETH to borrow other cryptos being liquidated only to find that the order book is very thin. Essentially, there were some investors who did not understand the product they were buying, and they used it inappropriately, not thinking about liquidity.

Binance responded quickly by announcing that for wrapped coins on the BNB chain it will move to an algorithmic pricing for those assets.

That word “algorithmic” strikes fear deep into my heart. It should to you too. The Terra/LUNA fiasco was created by an algorithmic ecosystem that could not withstand a severe stress test. Every algorithmic system has the exact same problem.

Superficially, the change in methodology at Binance should help to address the problem seen this time round with wBETH. But the issue is this – perhaps the de-pegging was caused by a fundamental flaw in the code, or a hack of the protocol. In this scenario, Binance will be putting up its own money to buy worthless coins. wBETH has a market cap of just $15bn, but that alone could cause problems for Binance. If a catastrophic event happened across several such LSTs simultaneously, it isn’t hard to imagine a scenario where Binance as a company fails.

Whatever you may think of convicted criminal and man-child Changpeng Zhao (and the CCC has been rightly highly critical of him in the past) the last thing we want to happen is for Binance to disappear overnight.

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The second problem was the de-peg of USDe (USD stablecoin on the Ethena blockchain) down to 65c versus USDT.

The Ethena ecosystem has always been a great worry to me, for it is algorithmically determined. I am sure you all remember the golden rule – all algorithmic stablecoins are destined to crash and burn one day, during a period of market stress with which they cannot cope.

The Terra/LUNA fiasco was a prime example of this. Ethena has a different algo set-up but it’s one that has failed in the past, notably with the implosion of Long-Term Capital Management in the 1990s triggered by the Asian crisis. Staffed with some of the finest academic minds in the world of derivatives, including board members Myron Scholes and Robert C. Merton who are legendary in some circles, but perhaps not yours, LTCM failed to consider liquidity during times of market stress.

LTCM used several strategies, mostly based on the cash and carry trade that theoretically arbitrages the spot and future markets. It involved high leverage and required solid order books on both sides of the trade to avoid being liquidated. In times of market stress (i.e. the Asian crisis) the liquidity in bonds is simply not there, and so LTCM failed, requiring a $3.6bn bailout organised by the Fed. Original investors got taken out almost entirely, whilst the buyers of the distressed assets made out like bandits with the sharp rebound that followed the point of maximum pain.

USDe uses the same cash and carry trade. At some point (Friday is a warning of this) it will fulfil its destiny to crash and burn, causing further market dislocations.

Never, ever get involved at any level with anything to do with the ENA ecosystem.

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There is one upside to this tale of woe. BTC never looked like it was going to threaten to breach $100k on the downside. This adds to my growing conviction that we will never see a five-figure BTC price again.