December 3, 2025

The Leverage Purge: How $8.55B in Liquidations Reset the Market

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$8.55 billion liquidated in 57 days. Over two-thirds - $6.08 billion - came from longs. The market was crowded on one side, and when the price turned, the unwind was violent.

October 10 was the breaking point. $2.28 billion was wiped out in a single day as cascading liquidations triggered more liquidations. Overleveraged bulls who had chased the rally to $125,000 got margin called on the way /down. Price fell from $117,125 to $88,575 - a 24.4% drawdown that erased months of gains in weeks.

The prevailing interpretation: the bull market is over.

The derivatives data tells a different story. This was a leverage flush, not a sentiment shift. And the market that emerges is structurally healthier than the one that entered October.

The Positioning Problem

The long/short liquidation ratio reveals what happened. At 71% long versus 29% short, the market was decisively offside heading into the correction. Traders had levered up, expecting continuation. They got a flush instead.

The cascade mechanism is self-reinforcing. When the price drops, leveraged longs breach the maintenance margin. Exchange liquidation engines execute market sell orders. Those sells push prices lower, triggering more margin breaches, creating more forced selling. The loop feeds itself until leverage is exhausted or price finds buyers.

The October 10 spike wasn't organic distribution - it was mechanical. Margin calls are hitting stop losses, hitting margin calls. Price overshoots fundamentals during these events, creating dislocation between where the market trades and where it should trade.

The Liquidation Timeline

The cascade unfolded in waves rather than a single event. Three distinct phases emerge from the data.

Phase 1: The Initial Break (October 6-12). Price cracked from its $125,000 peak, and liquidations spiked immediately. Long liquidations dominated at 85%+ on peak days as traders who had levered up near the top got stopped out in rapid succession. Damage: ~$3.8B.

Phase 2: The Grind (October 13 - November 10). Liquidations moderated but remained elevated at $100-300M daily. More balanced long/short liquidations as initial positioning cleared. Damage: ~$2.9B.

Phase 3: The Aftershock (November 11-26). Secondary spike as price broke below $90,000. By late November, daily liquidations normalized below $50M. Damage: ~$1.9B. The flush was complete.

At peak, daily liquidations reached 2.1% of total open interest - 1 in 50 dollars of positioning liquidated in a single day. When intensity normalized below 0.3%, the cascade was effectively over.

The Derivatives Reset

With the cascade finished, three metrics confirm normalization.

Open interest dropped from $10.05B to $6.99B - a 30.5% reduction. The deleveraging was broad-based across Binance (-$1.25B), Bybit (-$1.24B), and OKX (-$0.61B).

Funding rates collapsed from elevated levels to near zero. Before the correction, funding ran persistently positive - longs paying shorts, signaling crowded positioning. After the flush, neutral funding indicates balanced markets.

The 30-day annualized basis fell from 6.63% to 4.47% - below the 5% breakeven threshold for carry trades. When the basis drops below the cost of capital, arbitrageurs unwind. Current basis sits at the 21st percentile of the past 91 days.

The structure is less fragile. Lower OI means smaller cascade risk. Neutral funding means no crowded trade to unwind. Compressed basis means arbitrage flows have cleared.

The Stablecoin Counter-Signal

While $8.55B in leveraged positions got wiped, stablecoin supply grew from $264.2B to $269.5B - a $5.3B addition. Capital didn't flee the ecosystem. It rotated to safety.

Stablecoins function as crypto's waiting room. The last four weeks showed +$1.32B in net inflows - accelerating after the initial shock. Dry powder sits at a record $269.5B. When confidence returns, this capital has to go somewhere.

The Complete Analysis

The full report includes:

Liquidation Timeline: Phase-by-phase breakdown with daily granularity and intensity metrics
Cascade Mechanics: How the feedback loop creates non-linear acceleration
Derivatives Reset: OI by exchange, funding normalization, and basis term structure
Basis Trade Explained: Why the 5% threshold matters and the connection to ETF flows
Stablecoin Flows: Mint/burn dynamics, chain distribution, and the dry powder thesis
Forward Signals: Bullish and bearish triggers with specific levels to monitor

[Download the complete report: "The Leverage Purge: Why the Market Is Healthier After $8.55B in Pain"]

Three Signals to Watch

<$50M Daily Liquidations - Normalized volume indicating cascade completion. Spikes above $200M signal renewed stress.

~0% Funding Rate - Neutral positioning with no crowded trade. Persistently positive rates signal fragility rebuilding; deeply negative rates indicate squeeze risk.

$269.5B Stablecoin Supply - Record dry powder. Watch for supply declining while price rises - capital rotating back into risk.

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Links & Resources

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Michael Marshall

Mike Marshall is Head of Research at Amberdata. He leads pioneering research initiatives at the forefront of blockchain and cryptocurrency analytics. Mike is a seasoned quantitative analyst with a 15-year track record in developing AI-driven trading algorithms and pioneering proprietary cryptocurrency strategies. His...