Recovery Following the $500 Billion Collapse in the Crypto Market

Cryptocurrency markets experienced a sudden collapse on Friday, resulting in the erasure of over $500 billion in value. This situation triggered forced liquidations, collapsed wrapped tokens, and nearly $20 billion in liquidations. Bitwise portfolio manager Jonathan Mann stated that this incident could be the worst liquidation event in cryptocurrency history.

During the collapse, Bitcoin (BTC) lost 13% of its value within an hour, while some tokens dropped by more than 40%. However, a recovery was observed in the markets afterward. The CoinDesk 20 (CD20) index saw a 7.7% increase in the last 24 hours, yet it still remained down 7.4% compared to before the collapse. Issues with the Binance exchange infrastructure caused significant deviations from the fundamental prices of wrapped assets like wBETH and BNSOL. wBETH dropped to as low as $430, while ETH was at $3,800.

Binance promised compensation to affected users and transitioned to a more stable pricing model for wrapped assets. Stuart Connolly, Chief Investor at Deus X Capital, stated, “Market structure issues, large futures exchanges liquidating users (regardless of their margins), uptime issues, and price discrepancies between certain stablecoins and liquid staking assets with their underlying collateral are factors that have contributed to the current situation.” Connolly added, “The market needed restructuring; if President Trump's stance softens, we may see cryptocurrency assets rise in the fourth quarter.”

The current U.S. government shutdown is causing data shortages in the markets. Among risk-averse investors, gold continues to rise. This has helped the value of gold-backed tokens like PAXG and XAUT reach levels around $4,090. Today, U.S. markets will remain closed, and macroeconomic data is limited. Traders will observe how liquidity reacts after the weekend.