Key Highlights

● About $400 million in leveraged crypto positions were liquidated on Thursday.

● Bitcoin traded around $81,200 to $81,300, down roughly $3,100 to $3,400.

● Ether dropped to about $2,381 as the crypto slide deepened.

● Treasuries rallied and the 10-year yield closed back below a key threshold.

Traders who had borrowed to bet on higher crypto prices were caught out on Thursday, October 22. About $400 million in leveraged crypto positions were liquidated, according to liquidation-tracking data, as bitcoin fell toward $81,000 in its biggest drop since June.

Bitcoin traded around $81,200 to $81,300 late in the day, down roughly $3,100 to $3,400. It briefly slipped below $81,000. Ether dropped to about $2,381.

How liquidations work

Many crypto traders use leverage, borrowing money from an exchange to increase the size of their bets. A trader might put up a small amount of collateral to control a much larger position in bitcoin futures or perpetual swaps.

That works well when prices rise. But if prices fall far enough, the collateral no longer covers potential losses, and the exchange automatically closes the position. That is a liquidation.

Liquidations can feed on themselves. Each forced sale adds selling pressure, pushing prices lower and triggering more liquidations among other leveraged traders. That cascade is one reason crypto price moves can be so sharp.

What set off the slide

The crypto drop was attributed to oil prices above $111 and fading risk appetite. Brent crude rose to $113.17, its highest since May 4, after Houthi attacks in Saudi Arabia and a media report that US and Israeli forces have plans to renew strikes on Iran after the November 3 midterms.

Stocks were also under heavy pressure. The Nasdaq Composite fell 694 points to 26,008.86, its steepest drop since June 5, after Meta Platforms (NASDAQ:META) laid out heavy artificial-intelligence spending plans and Lam Research (NASDAQ:LRCX) warned of supply constraints. The S&P 500 dropped 93.74 points to 7,663.43, its worst day since July.

Hedge funds were also cutting exposure. "The dominant market dynamic in recent weeks has been the unwinding of AI-related positions by hedge funds," one bank strategist said. A similar de-risking dynamic can quickly spill into crypto, where many of the same investors are active.

The wider crypto market

Crypto-linked stocks retreated after their gains on Wednesday. Coinbase (NASDAQ:COIN) and Strategy (NASDAQ:MSTR) fell, and Circle traded lower early. Before the open, BitMine Immersion and SharpLink, both companies that hold crypto treasuries, were also lower.

Exchange-traded funds tracking crypto slid too. BlackRock (NYSE:BLK)'s iShares Bitcoin Trust and iShares Ethereum Trust both declined.

One standout was TRON Inc. (NASDAQ:TRON), which rose against the weak tape; no company-specific announcement was reported.

Safe havens

Unlike in some past selloffs, gold offered no shelter. It slid to its lowest level in more than two months. Treasuries did rally, though, with the 10-year yield closing back below a closely watched threshold for the first time since September 22, and the yen and Swiss franc gained.

Will Leverage Keep Unwinding in Crypto?

Traders will watch whether bitcoin can hold around $81,000 and whether leverage keeps unwinding. Data from liquidation-tracking services will show if liquidations ease. The Federal Reserve, led by Chair Kevin Warsh, announces its decision on October 28, and September PCE inflation arrives on October 29. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report on October 28 and Amazon (NASDAQ:AMZN) on October 29, results that could set the tone for risk assets, including crypto. Oil and Middle East headlines remain a wildcard.