Crypto’s machinery looks modern, but its foundations are medieval – a casino built on debt and faith.
Shockwave: The Tariff That Triggered a Crash
It began with a few words late on a Friday afternoon – 10 October 2025 to be precise.
President Donald Trump announced that he was considering additional 100 percent tariffs on all Chinese imports. The markets jolted awake. Stock indexes fell sharply as investors imagined another round of trade-war turbulence. But while equities slipped, Bitcoin collapsed.
Within hours, the world’s biggest cryptocurrency plunged more than ten percent. On major derivative exchanges, the sell-off was even more violent: Bitcoin perpetual futures briefly crashed to around \$102,000, far below the spot price, as billions of dollars of leveraged positions were forcibly liquidated. By Monday morning, as Trump softened his tone – the so-called TACO (Tariff-Announcement-Climb-Over) moment – prices rebounded. Bitcoin recovered most of its losses, climbing back above \$114,000.
To a casual observer, it looked like a simple case of political whiplash: a tariff threat spooks investors, then reassurance calms them. But inside the crypto market, something more intricate had happened. The policy headline was merely the spark. The explosion came from perpetual futures – the high-octane contracts that now dominate crypto trading.
Inside the Machinery: How Perpetual Futures Work
Perpetual futures – known to traders as perps – look like ordinary futures but never expire. Instead, they use a self-balancing mechanism called a funding rate to stay tethered to the real Bitcoin price. Every few hours, traders on one side of the market pay a small fee to the other: if the contract trades above spot, longs pay shorts; if below, shorts pay longs.
That simple mechanism turns a futures contract into a rolling, 24/7 bet on direction. It also allows traders to pile on leverage – borrowing to amplify exposure ten, twenty, even a hundred times over.
The Cascade: When Leverage Turns Deadly
Thousands of traders held long positions, betting that Bitcoin would keep rising. They had posted margin – collateral that covers losses up to a point – but little more. When the tariff headline hit and Bitcoin’s price slipped, the losses on those longs mounted fast. As soon as a trader’s margin was nearly exhausted, the exchange’s liquidation engine automatically sold their position into the market to prevent further loss.
Those forced sales pushed the price down further, which triggered more liquidations, which caused more selling – a chain reaction known as a liquidation cascade.
In the space of a few hours, roughly \$19 billion in leveraged positions were wiped out – one of the largest mass liquidations in crypto history. Once those positions were flushed out, prices rebounded quickly. The drama wasn’t about China at all; it was about how crypto’s plumbing converts fear into acceleration.
It’s tempting to see perpetual futures as reckless gambling – and for many participants, that’s true. But the instrument itself isn’t inherently bad. Like most derivatives, it was designed for hedging: to reduce risk, not multiply it.
A Bitcoin miner, for example, earns coins every day but must pay electricity and wages in dollars. If the price of Bitcoin falls sharply, their income evaporates. To protect themselves, they can short a perpetual future equal to their expected output. If Bitcoin’s price declines, their coins are worth less – but their short position gains in value, offsetting the loss. They’ve effectively locked in today’s price.
Funds use perps the same way – to maintain long-term exposure while muting short-term volatility. Traders exploit small differences between the spot price and the perpetual price, collecting funding fees or arbitraging across exchanges. In these hands, perps are risk-management tools, no different in spirit from the futures used by airlines to lock in jet-fuel prices or farmers to secure a harvest price for wheat.
But for most retail participants, they’ve become a different beast entirely: a leveraged casino. The 24-hour trading, high leverage, and instant feedback combine to make perps addictive. Many platforms market them with the promise of “up to 100× gains.” In reality, even a 1 percent move against you at that leverage wipes out your entire stake.
Most traders don’t last long enough to learn that lesson. Exchange data show that 70–90 percent of retail accounts lose money over time. Each burst of volatility claims a new crop of liquidations. Then new players arrive, convinced they’ll be smarter.
The result is a self-reinforcing cycle: leverage creates volatility, and volatility invites more leverage.
Winners, Losers, and the House That Always Wins
If the traders are constantly blowing up, you might wonder how the exchanges survive the chaos. The answer is simple: they don’t need to pick sides. They earn money from activity, not from guessing correctly.
Every trade, win or lose, pays a small transaction fee. When positions are liquidated, an extra liquidation fee is charged, part of which feeds an insurance fund that covers losses if the market moves too fast for orderly closures. Those funds are large – Binance’s alone runs into the billions – and they’re topped up whenever traders are liquidated.
The exchanges also profit indirectly from funding fees. They don’t take the payment directly (it’s exchanged between traders), but higher funding encourages more turnover, and more turnover means more fees. Their model is like a casino’s: the house provides the table, ensures the rules are enforced, and takes a slice of every pot.
The Lesson: Structure, Not Sentiment
Perpetual futures don’t just mirror the spot market – they add energy to it. Each contract represents potential buying or selling that didn’t previously exist. When leveraged longs dominate, they act like extra demand: pushing prices higher until the pressure releases. When they unwind, the selling pressure overshoots in the opposite direction.
This “additive” feature means crypto prices can swing far more than the underlying news would justify. What begins as a macro headline – a tariff policy, an inflation print, a tweet – ripples through billions of dollars in leveraged positions, amplifying its impact.
In traditional finance, circuit breakers, position limits, and margin requirements dampen these shocks. In crypto, trading is global, continuous, and loosely regulated. The feedback loop is faster, the leverage higher, the dominoes closer together.
That’s why, when Trump’s tariff headline hit, Bitcoin didn’t merely adjust; it convulsed. And when he walked the statement back, the recovery was just as sharp. The volatility wasn’t political – it was structural.
Perpetual futures have become the beating heart of the crypto market. They make it deeper, more liquid, and more connected – but also more fragile. Used wisely, they’re like seatbelts: protection against shocks. Used recklessly, they turn the car into a rocket.
The Trump-tariff weekend showed both sides of that coin. One man’s policy musing set off a chain reaction through millions of leveraged bets. The market fell not because faith in Bitcoin collapsed, but because too much borrowed belief was built into the price.
To grasp the scale, consider this: the Bitcoin perpetual-futures market now trades roughly \$50–60 billion every day, compared with around \$10–15 billion in the actual spot market. In other words, for every coin genuinely changing hands, there are several layers of leveraged bets stacked on top of it. That leverage doesn’t just reflect speculation – it creates volatility. Each day’s trading in perpetuals typically exceeds Bitcoin’s entire circulating supply many times over.
In the end, the exchanges emerged untouched – earning fees on every transaction, every liquidation, every bounce. The traders, once again, were the fuel.
The house didn’t have to cheat to win. It simply had to keep the lights on while everyone else played the game.
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