Markets have a way of teaching us the same lessons over and over again until we finally learn them, and can then stop paying the price of tuition. On Oct. 10, crypto’s flash crash delivered a pop quiz with real consequences. Prices went lower, forced de-leveraging hit decentralized exchanges (DEXes) hard, and plenty of smaller tokens collapsed in minutes before snapping back in the largest crash event in the sector’s history.
More importantly for the future, the past couple of weeks offer investors a few critical lessons, so let’s take a look.
1. The sky really was falling for a moment
Perhaps the most surprising lesson about the flash crash is that it really was the end of the world in crypto, at least during a few harrowing moments and over the course of a handful of very difficult hours.
This was not a routine dip. There was at least $19 billion in forced liquidations of leveraged positions across the market, a record one-day event that was prompted by the U.S. announcement of 100% tariffs on certain China-linked imports that have since been walked back.
Prices in major coins slid hard, while many smaller tokens cratered far more. Bitcoin (CRYPTO: BTC) sank roughly 14% from its early October peak to the overnight low. Dogecoin briefly dropped about 50% intraday on Oct. 10 before recovering a chunk of the move. Ethereum (CRYPTO: ETH) fell more than Bitcoin and then bounced; Solana (CRYPTO: SOL) and Cardano saw much sharper swings typical of large-cap altcoins.
Today, the market is off the mat. The lesson is not that everything is or was fine. It’s that the worst periods in markets tend to be short, and also that using leverage is a shortcut to having really bad days during those (inevitable) down periods.
2. The wreckage has not yet washed ashore, and it might not
In the heat of the sell-off and in the immediate aftermath, many investors publicly mused and assumed that we would soon hear a spate of more bad news describing blown-up funds, insolvent crypto exchanges, crypto founders going to jail or being investigated, people losing all of their life savings, and crypto whales exiting for good after getting their portfolios liquidated.
Instead, the picture so far is more boring, which in this context is good.
The crypto sector’s core plumbing held up even as there were some peripheral pieces with serious problems; at least one chain got overwhelmed and crashed, and at least one market maker withdrew liquidity, among other issues. But no major operators failed in a way that required their business to shut down immediately. And while there have been many reports of some investors resolving to quit the sector for good, it’s a meme in crypto that such promises are almost never kept for long.
