guide · cascading liquidations · checked August 21, 2026

Why the market can lose ten percent in an hour with nobody having decided to sell

closes you out →the leveraged traderthe lender

on one side whoever bought with leverage, on the other the platform that lends: when the price falls, the platform does the selling, and you don’t get a say.

Whoever trades with leverage puts up part of the money and borrows the rest from the platform. If the price falls past a certain threshold, the platform closes the position and sells into the market to get its loan back, without asking whoever opened it.

in short

When the price falls far enough, anyone who bought with borrowed money gets closed out. The platform sells their position into the market, right away. That sale pushes the price lower and trips somebody else’s close-out, and it carries on until there is nothing left to close.

What does trading with leverage mean?

Moving more money than you have, by borrowing the difference from the platform. With a thousand dollars and ten times leverage you control a position of ten thousand. If the price rises ten percent you make a thousand dollars, which doubles your capital.

The trouble is that leverage works in reverse too, and it gets there faster. If the price falls ten percent, those thousand dollars are gone. You never even get that far. The platform closes the position as soon as the margin stops covering the loss, usually somewhere around five to seven percent, depending on the leverage.

That is what a liquidation is. The platform does the selling, to get its loan back, and you have no say in it. It doesn’t wait for a better price and it doesn’t ask. It sells into the market, and that’s that.

2× leverage20× leveragethe threshold

what price drop closes you out at each level of leverage: with a thousand dollars of capital, at twenty times three points are enough.

With a thousand dollars of capital: at 2 times leverage you control a position of two thousand and the liquidation comes at a fall of around 40 percent; at 5 times, five thousand and around 16 percent; at 10 times, ten thousand and around 7 percent; at 20 times, twenty thousand and around 3 percent.

Why does one liquidation cause another?

Because the forced sale lands on the same market that caused it. When the platform sells somebody’s position, that order pushes the price a little lower, and a little lower is where somebody else’s threshold sits.

They get closed out too, their position hits the market and the price drops again. None of those sellers decided to sell. The orders came from a contract, the moment a number touched a threshold.

That’s why crashes here are so fast. Nobody changed their mind about bitcoin overnight. Leveraged positions simply cluster at nearby levels. When the first one goes, the rest come down in a line, like dominoes. It keeps going until there is nothing left to close, whatever news arrives in the meantime.

they close you outforced salethe price fallsanother one closedthey run out

the domino feeds itself and stops where the positions run out, whatever the price level.

A position is closed out; the forced sale pushes the price lower; the lower price trips another position’s threshold, and that one is closed out in turn. The cycle carries on as long as there are positions left to close.

How big is it, when it really happens?

If you want a textbook case, look at December 2024, when it happened four times in one month. On December 6 over $1 billion of positions were closed in twenty-four hours. On the 9th it was $1.52 billion, on the 10th $1.7 billion, the worst day, and on the 19th another billion. More than $5 billion in a few days.

Of those positions, 89 percent were betting on a rise. The largest was worth $36.78 million on Ethereum: one trader, nearly thirty-seven million gone in an instant. These numbers come from the derivatives data providers. We can’t reproduce them, so we report them as published.

What we can measure is the price, and this is where it gets interesting. On our daily closes bitcoin was worth $96,946 on December 5, $97,276 on the 9th, $96,593 on the 10th and $101,125 on the 11th, higher than where it started. Five billion of positions closed out, and that week bitcoin gained 4.3 percent.

$96,9465 Dec$96,59310 Dec$101,12511 Dec

bitcoin’s closes on the days of the december 2024 cascades. source: cointalks archive, daily closes.

On the daily closes Bitcoin was worth $96,946 on 5 December 2024, $97,276 on the 9th, $96,593 on the 10th and $101,125 on the 11th: 4.3 percent across the stretch in which more than $5 billion of positions were closed out.

Who does it hurt, and who does it not?

Anyone with leverage, and nobody else. If you bought and you’re holding, nobody closes you out. You watch the value drop for a few hours and then climb back, and at the end of the week you have the same coins you had before.

Anyone with a leveraged position lost for a different reason: the price passed through their level. In December 2024 anyone long at ten times leverage was closed out, and seven days later bitcoin closed higher than when they opened. They were right about the direction and lost everything anyway.

So when a crash comes out of nowhere, check the liquidation figure before you go looking for the news. If it’s high, the derivatives market is cleaning itself out, and that selling pressure runs out on its own. If it’s low and the price falls anyway, people are selling because they decided to, and then it’s a different conversation.

How do you stay out of trouble?

The first rule is the simplest: no leverage. If you really want to use it, keep it under three times and count on losing everything you put in, because that is what happens when the price passes through the wrong level in a thin market.

The second is about size. If a position keeps you glued to the chart it is too big, whatever leverage you’re using. Cascades last hours and nobody sees them coming. The only defense is to have planned for them before you opened the position.

The third is a habit. When the market loses ten percent in an hour, check how many positions were closed out before you assume the worst. Most of the time nothing serious happened. There were just too many people on the same side with somebody else’s money.

the leveragebetter none; if you must, under three and with the sum already donethe sizeif it forces you to watch the chart, it is too bigthe readingthe liquidation figure first, the explanation after

The three rules: don’t use leverage, or keep it under three times and count on losing the whole amount you committed; size the position so you don’t have to watch it; when a crash comes out of nowhere, check the forced-liquidation figure before looking for an explanation.

last checkedAugust 21, 2026

understanding defi · step 3 of 3

You have finished the “understanding defi” path: money without intermediaries, and its risks.

the other paths3 in all

the words in this piece · 2

liquidation: the forced sale of the collateral when the debt gets too big against the security behind it.
long: the position that gains when the price rises.

guide · cascading liquidations · checked August 21, 2026all the guides