Author: Chloe, ChainCatcher

The cryptocurrency market experienced a bloodbath in the early morning, primarily due to U.S. President Trump's sudden tariff policy. Trump posted on Truth Social, accusing China of "sending letters to multiple countries, planning to implement export controls on all elements related to rare earths," criticizing it as a "hostile" act equivalent to "holding the world hostage" with rare earth resources.

Immediately following this, Trump announced that the planned meeting with China during the Asia-Pacific Economic Cooperation (APEC) summit in South Korea, scheduled for two weeks later, was no longer necessary, effectively canceling the Trump-Xi meeting. More significantly, Trump announced after U.S. stock market hours that starting November 1, a new 100% tariff would be imposed on Chinese imports, and on the same day, export controls would be implemented on "all critical software."

This wave of news directly impacted Wall Street. On the 10th, U.S. stocks initially rose before falling, with the Dow Jones Industrial Average briefly rising by 283 points before plummeting by 887 points; the Nasdaq index dropped by over 3.56% at one point; the volatility index (VIX) surpassed 20 for the first time since April, indicating a sharp increase in market pressure.

The panic in the stock market quickly spread to the cryptocurrency market. Bitcoin briefly dipped to 102K this morning, returning to around 111K before the deadline, bringing the price back to the level of October 1; Ethereum fell to 3,392 USD at one point, before reporting at 3,745 USD before the deadline. The overall cryptocurrency market capitalization dropped nearly 10%, with altcoins suffering particularly severe losses, as the altcoin season index CMC fell to 35.

According to Coinglass data, in the past 24 hours, the entire network saw liquidations totaling 19.141 billion USD, setting a new historical record, with a total of 1,621,284 people liquidated globally, including 16.686 billion USD in long positions and 2.455 billion USD in short positions. The largest single liquidation occurred in the ETH-USDT contract trading pair on the Hyperliquid platform, valued at 203 million USD.

In terms of cryptocurrencies: Bitcoin saw liquidations of 5.317 billion USD, Ethereum 4.378 billion USD, SOL 1.995 billion USD, HYPE 0.888 billion USD, and XRP 0.699 billion USD.

After the cryptocurrency market's plunge in the early morning, the current funding rates on mainstream CEX and DEX indicate that the market has clearly turned bearish.

Behind the Altcoin Crash: A Market Maker's Funding Dilemma?

Crypto KOL @octopusycc analyzed that the altcoin crash is entirely a market maker issue, a typical case of their inability to hedge adequately.

The core problem lies in the limited funds of market makers. Market makers allocate funds across different projects, providing the most funding to Tier 0 projects, with decreasing amounts for Tier 1 to Tier 4 projects. After Jump's collapse, the market structure became unbalanced, with many projects that were originally serviced by Jump flowing to other market makers, but these market makers simply did not have enough funds to meet all project demands.

When Trump announced the tariff policy, triggering a market sell-off, market makers, facing tight funds, could only prioritize protecting large projects like Tier 0 and Tier 1, even reallocating funds originally designated for smaller projects to rescue larger ones. The result of this resource reallocation is the primary reason small altcoin projects completely lost support.

In addition to the macro trigger and market maker funding dilemma, several industry insiders have also analyzed that the direct technical cause of this epic crash was the decoupling of USDe on the Binance platform, leading to a chain liquidation.

Dovey, co-founder of Primitive Ventures, posted on X, speculating that this crash was caused by a large institution (possibly a traditional trading company using cross-margin) experiencing liquidation on the Binance platform. Dovey pointed out, "While further analysis is needed, initially, the price of USDe on Binance dropped to 0.6, while prices on other trading platforms remained relatively stable."

Moreover, there has been a significant divergence in volatility between tokens listed on Binance and those not listed. This means that USDe decoupled on Binance by as much as 40%, and the issue may be concentrated on Binance rather than the entire market.

Crypto KOL Hanbalongwang stated, "This market crash may be due to the 12% subsidy on USDe, leading many market users to engage in USDe circular loans. Under the influence of Trump's trade war, USDe was attacked with a premium, resulting in the liquidation of USDe circular loans and further declines in USDe."

He further pointed out the fatal chain reaction: "Additionally, some whales and market makers used USDe as margin for contracts. Due to the decoupling and discount of USDe, leverage inexplicably doubled, ultimately leading to even 1x long positions being liquidated. (This further triggered a chain reaction,) with small altcoin contract prices rapidly falling, USDe quickly dropping or even halving, resulting in significant losses for market makers."

Crypto KOL BitHappy believes, "The on-chain liquidation performance was better than that of exchanges, especially in the lending sector. This is mainly due to the design of protocols like Ethena and AAVE, which encourage circular loans to increase TVL and fix the value of lending assets to collateral assets at a 1:1 ratio." He illustrated, "For example, the circular loans of USDT and USDe on Aave previously had no liquidation risk due to the use of fixed oracles, combined with subsidy activities at the time, which raised TVL by billions in just a few days. This mechanism also led to almost all stablecoins being fixed at a 1:1 ratio in the oracles of lending protocols. Therefore, most users engaging in stablecoin circular loans on-chain remained relatively unscathed."

However, the situation on Binance is entirely different. "The most severe liquidation losses for USDe occurred on Binance. On one hand, Binance launched a 12% interest activity for USDe, attracting a large number of whales to participate in circular loans (resulting in almost total losses). On the other hand, USDe could also be used as margin for contracts."

Binance has also officially released a statement confirming that USDe, BNSOL, and WBETH have recently experienced price decoupling issues, leading to forced liquidations of some users' assets. The Binance team stated that they are currently conducting a comprehensive review of the affected users and related compensation measures while strengthening risk management controls to prevent similar incidents from happening again.

Market Outlook: Will TACO Trading Recur?

Finally, looking at the macroeconomic perspective, Trump's sudden remarks are not unprecedented. Earlier in April, he raised tariffs on China to 145%, which also led to a market crash, but ultimately the U.S. government's stance remained rigid, and the implementation of tariffs on China was indefinitely postponed, leading to a steady market recovery.

Many investors jokingly refer to this market trend "manipulated" by Trump as TACO trading, which involves shorting the market at the moment Trump announces tariff policies (as market sentiment reacts quickly), and then going long again after several trading days (as Trump softens his stance and cancels policies).

If investors can seize the opportunity to buy the dip, it might be a good chance; however, the current situation between China and the U.S. shows signs of deterioration, coupled with the risk factor of a U.S. government shutdown: the White House Office of Management and Budget (OMB) stated on the 10th that it has begun to cut federal employees.

White House officials indicated that this round of federal layoffs would involve at least thousands of people, and there is no sign of any light at the end of the tunnel regarding the federal government shutdown. They advise investors to wait for the situation to stabilize before making moves, to avoid blindly buying the dip amid high uncertainty and to prevent encountering pin risk again.

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