The crypto crash in early October did more than destroy wealth. It hit market makers so hard that they were left holding bags of crypto, leading to the toughest trading conditions since 2022, according to a new report from BitMEX.
The Crash: Bitcoin Dropped 13%, Altcoins Hit Harder
On Oct. 10, Bitcoin fell from $121,000 to $107,000 within hours, a drop of over 11%. Altcoins like XRP, ETH, and DOGE suffered even deeper losses. According to CoinDesk data, centralized and decentralized exchanges liquidated a record $20 billion in leveraged futures positions during the volatility.
Liquidation itself is routine — exchanges close positions when margin falls below requirements. But this time, exchanges activated the final line of defense: Auto-Deleveraging (ADL). ADL normally kicks in when insurance funds can't cover losses, forcibly closing profitable positions to socialize risks. On Oct. 10, ADL did not spare market makers.
Market Makers' Delta-Neutral Hedge Broken
Market makers typically run delta-neutral strategies: holding long spot positions (actual crypto) paired with equal short perpetual futures to cancel out directional risk. This allows them to focus on liquidity provision. When ADL triggered on Oct. 10, it forcefully closed the short futures legs of these hedges. Suddenly, market makers were left with naked long spot positions in a free-falling market.
“ADL mechanisms forcibly closed MM short hedges, leaving firms holding naked spot bags in a free-falling market. This breach of the 'neutrality' promise caused MMs to pull liquidity globally in Q4, resulting in the thinnest order books seen since 2022,” BitMEX said in its report titled "State of Crypto Perpetual Swaps 2025."
Liquidity Dries Up: Thin Books, Sharp Moves
Liquidity measures a market's ability to handle large orders without wild price swings. With market makers pulling liquidity, order book depth collapsed, making even small trades cause outsized price moves. BitMEX described the conditions as the worst trading environment since the FTX collapse in 2022.
The knock-on effect was that market makers had to sell their uncovered spot positions, pushing prices even lower. On some exchanges, Bitcoin fell to $80,000 by Nov. 21 — a further 25% drop from the crash low.
The market now faces a structural liquidity gap, not merely volatility. Market makers are hesitant to re-establish hedges under ADL risk, eroding price discovery and trading efficiency. BitMEX's report hints that without changes to derivatives risk management, similar events could recur.