On Sept. 22, the cryptocurrency market was rattled by the abrupt liquidation of roughly $1.5 billion in leveraged long positions in top cryptos like Bitcoin (BTC 0.10%) and Ethereum (ETH +0.19%). That marked the biggest crypto liquidation event in more than six months.
That sell-off wasn't triggered by a single event, but it still rattled the bulls who had some big gains in the crypto market during the past year. Let's review the possible causes for that sudden sell-off -- and see if investors should be worried about even steeper declines.
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The possible causes for the crypto liquidation
That big liquidation was likely caused by an excess of leveraged long positions. As cryptocurrency prices rose during the past year, many investors used margin loans instead of cash to accumulate more coins. But as those crypto prices pulled back, many of those margin traders liquidated their positions so they didn't end up paying margin interest on their underwater positions. Those cascading sales drove even more margin traders to hastily liquidate their holdings.
Lower interest rates generally drive investors back toward cryptocurrencies and other riskier assets. That's why the Federal Reserve's three rate cuts in 2024 drove the market's top cryptos higher. But the Fed only executed its first rate cut of 2025 (a reduction of 25 basis points) on Sept. 17.
When that finally happened, some investors who had expected the Fed's rate cut to be a top catalyst for the crypto market this year likely cashed out. That profit-taking was amplified by the cascading liquidations of leveraged positions, which in turn triggered more stop-losses as the top tokens breached some key support levels. For example, Bitcoin's price breached its key support level of $115,000 -- and it's still below that closely watched price as of this writing.
CRYPTO: BTC
Key Data Points
That decline could also have been amplified by low liquidity levels between Sunday night and Monday morning in the U.S. market. When there isn't enough liquidity, the price swings can be wider because there aren't enough buyers or sellers to smooth out the trades. Moreover, many of the top cryptocurrencies are held by "whales" -- big anonymous investors who hold large positions and can easily move the market prices with a few large trades. Therefore, that liquidation might have been triggered by a handful of investors.
Should investors worry?
A $1.5 billion liquidation in a single day sounds scary, but that's just 0.04% of the combined market cap of $3.8 trillion for all of the world's cryptocurrencies. Coinglass estimates roughly $500 million in Ethereum coins were liquidated, but that's a mere 0.1% of its market cap of $487 billion.
The crypto market usually recovers quickly from these sharp sell-offs. According to Coinglass, the last major crypto liquidation happened on March 27. But after that sell-off (and the latest liquidation), Bitcoin and Ethereum have rallied about 30% and 110%, respectively. In other words, this latest liquidation event shouldn't mean too much for long-term investors. It doesn't really affect Bitcoin's scarcity, Ethereum's exposure to the growing market for decentralized apps (dApps), or the underlying catalysts. Instead, it merely tells us that some short-term investors are cashing out and triggering some near-term price swings.
Looking ahead, there are still plenty of catalysts for cryptocurrencies on the horizon. The Fed is penciling in two more rate cuts by the end of 2025, followed by at least one rate cut in 2026. More companies and countries are accumulating Bitcoin and other cryptocurrencies as reserve assets, and the growth of decentralized finance (DeFi) platforms should lock in more developers and users. If you expect those tailwinds to kick in over the next few years, there's no reason to fret over a few rounds of panic selling.
