Just four days after Bitcoin hit an all-time high, the crypto market experienced an unprecedented “10/10 flash crash.” Not only did major cryptocurrencies plummet, but numerous altcoins were wiped out, and exchanges faced liquidation crises. Simultaneously, high-leverage yield funds like Stream Finance imploded one after another, exposing the fragile nature of the “trust me” bubble. Optimism on social platforms swiftly turned to panic, dealing a severe blow to market confidence.
This article traces the sequence of events, seeking to answer a critical question: Why did crypto sentiment turn so pessimistic so suddenly? Amidst the intertwined bursting of the bubble and crisis of trust, we may be standing at a new cyclical inflection point.
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Monday, October 6, 2025: Bitcoin surged to a new all-time high, breaking through the $126,000 threshold for the first time. Whether in the trenches of Crypto Twitter or the newsrooms of CNBC, holders were immersed in an omnipresent “fog of hope.”
Despite minimal shifts in fundamentals over the following month, the crypto market plunged into crisis just four days later on October 10th—an event now recognized as the largest liquidation in crypto history: the “10/10 Flash Crash.”
In this catastrophic plunge, major cryptocurrencies plummeted by double digits, numerous altcoins were wiped out, and multiple exchanges teetered on the brink of bankruptcy (nearly all major perpetual futures platforms triggered automatic liquidation mechanisms due to inability to pay short positions).
Despite Trump’s presidential election being viewed as bullish for crypto—from establishing strategic Bitcoin reserves to appointing seemingly crypto-friendly regulators—crypto asset prices remained persistently depressed.
Apart from a brief rally following Trump’s November election victory, the ratio of total crypto market capitalization (TOTAL) to the S&P 500 index has remained largely flat for nearly a year. In fact, since Trump’s official inauguration on January 20th, this ratio has experienced a startling negative growth.
As markets continue digesting the fallout from the October 10th liquidation, a growing number of issues are surfacing.
Just this Monday, Stream Finance declared bankruptcy. This “trust me” crypto yield fund, managing $200 million, relied on leverage to offer depositors above-market returns. Its “external fund manager” lost approximately $93 million in assets during operations.
Though details remain undisclosed, Stream is likely the first “delta-neutral” strategy fund to publicly implode due to the 10/10 auto-liquidation mechanism. Despite longstanding structural concerns, this collapse caught many lenders off guard—they had prioritized higher yields over safety without clear risk signals.
Following Stream’s collapse, panic rapidly spread throughout the DeFi ecosystem, prompting investors to collectively withdraw from similar high-risk, high-return strategies.
While the full chain reaction from Stream’s failure remains contained for now, this incident exposes the risks inherent in the increasingly popular “cyclical stablecoin mining” strategy within DeFi—leveraging existing high-risk deposit certificates to pursue even greater returns.
Stream’s disclosed losses also reveal the potential catastrophic impact on delta-neutral funds during the October 10th forced liquidation: short hedges were systemically canceled, while spot long positions were instantly wiped out.
Though headlines have shifted, it remains certain that October 10th’s losses were catastrophic.
Whether through DeFi’s public operations or CeFi’s covert maneuvers, billions in leverage exist within crypto yield funds. Whether markets possess sufficient liquidity to withstand future liquidation waves remains unknown.
It remains unclear who is “swimming naked,” but one thing is certain: some players in the crypto casino have already lost their swimsuits. Should the market decline again—especially following lawsuits alleging centralized exchanges were insolvent during the 10/10 liquidation—the question shifts from “Will something go wrong?” to “Can the entire industry withstand it?”
