Crypto deleveraging deepens after dollar spike and rate shock

Monday, 20th October 2025.

by inAfrika Newsroom

Crypto deleveraging accelerated after a brief dollar spike and shifting rate signals rattled risk assets, officials and market data showed. The crypto deleveraging wave followed last week’s $19 billion in forced unwinds during a fast sell-off that hit leveraged traders across major venues. Moreover, the dollar firmed ahead of delayed U.S. inflation data, keeping funding conditions tight.

The dollar index edged higher into the new week while yields stayed volatile, traders said. Consequently, funding costs for margin positions rose as lenders tightened collateral haircuts on riskier tokens. Meanwhile, desks reported wider basis between spot and perpetuals as market makers reduced inventory. Analysts said the mix reinforced the crypto deleveraging loop that began on October 10.

Derivatives platforms processed billions in liquidations as prices gapped through key levels. Research notes said one on-chain venue remained stable while several centralized exchanges suffered delays, adding to stress. In addition, market trackers documented large, pre-move short positions that benefited from the cascade, though intent remains disputed. However, authorities have not alleged wrongdoing.

Macro signals complicated the picture. Commentaries highlighted a debate over a so-called “debasement trade,” yet broader indicators pointed to a resilient U.S. asset backdrop. Therefore, crypto’s drawdown looks more like a leverage and liquidity event than a macro capitulation, analysts said. Still, positioning remains cautious until data clarity returns.

Volatility spilled into stablecoins and altcoins, with temporary price dislocations at some venues. Exchange statements cited system load and API issues during the worst of the selling. Moreover, after-action reports flagged gaps in oracles and risk engines that amplified moves. Risk teams said they are recalibrating liquidation thresholds and cross-margin parameters to reduce pro-cyclical shocks.

Why it matters: When crypto deleveraging bites, liquidity thins and hedges get expensive. That raises execution risk for treasuries, miners and funds using derivatives for protection. In addition, pro-cyclical liquidations can transmit stress to stablecoins and DeFi collateral. Consequently, clearer circuit breakers, robust oracles and transparent margin models are now top of mind for institutional flows.

For the week ahead, traders will watch U.S. inflation prints and any guidance on policy path, given the recent data delays. If the dollar softens and rates ease, risk appetite could stabilize. However, funding markets remain skittish, and open interest is still rebuilding. Desks expect choppy price action with occasional squeezes as books normalize.