The crypto market is facing its most challenging market liquidity conditions since 2022, following the collapse that occurred on October 10. According to BitMEX’s annual report, “State of Crypto Perpetual Swaps 2025,” the 20 billion dollar liquidation cascade caused a massive mismatch in the strategies used by market makers. This event forced Bitcoin to drop from $121,000 to $107,000 in just a few hours, generating a domino effect of forced sales throughout the industry.
Likewise, the report details how the auto-deleveraging (ADL) mechanism of exchanges liquidated profitable positions from market makers to cover systemic losses. On the other hand, this action left firms with unhedged spot holdings in the middle of a free-falling market without any protection.
BitMEX explained that the breach of the neutrality promise forced providers to withdraw liquidity globally during the fourth quarter of 2025. The result has been the formation of extremely thin order books that are highly vulnerable to volatility.
Therefore, the deterioration in market liquidity conditions makes it difficult for investors to execute large orders without causing drastic price swings. The leading cryptocurrency, Bitcoin, even touched lows of $80,000 on some platforms towards the end of November due to this phenomenon.
In this way, funding rate arbitrage, once considered “easy money,” has seen its yields collapse below 4%. The saturation of participants mimicking strategies like Ethena’s has definitively eliminated previous significant profit margins in the market.
Has the era of risk-free yields in futures arbitrage come to an end?
In addition, the report uncovers the dark side of exchanges operating as “high-stakes casinos” for users. It also highlights that many platforms froze user winnings citing abnormal trading behavior clauses without justification. On the other hand, “B-book” operations, where the exchange bets against its own customers, became more aggressive during the crisis. This lack of transparency has driven the growth of decentralized derivative platforms such as Hyperliquid during the last few months.
Nevertheless, decentralization has not completely succeeded in eradicating market manipulation within the DeFi sector. It is also important to note that incidents like Plasma demonstrated that weak oracles remain a critical point for network security.
Likewise, the report highlights that crypto derivatives have found a new niche as infrastructure for trading traditional financial assets outside banking hours. Interest in trading Nvidia or Tesla shares on crypto platforms exploded ahead of corporate earnings reports this year.
Will the market be able to recover its operational depth before the end of the quarter?
Therefore, the recovery of market liquidity conditions will depend on the confidence of large professional market makers. The industry faces a “trust crisis” due to the abusive practices of some centralized trading venues recently. Hence, analysts suggest that only exchanges with robust insurance funds will be able to attract the necessary institutional capital again to stabilize books. Observers’ eyes are on the evolution of funding rates during the first quarter of 2026.
Finally, the October 2025 crash left a deep mark on the operational structure of the current crypto ecosystem. However, the transformation of derivatives into tools for global stock trading suggests an unexpected maturation of the underlying technology by year-end. On-chain transparency is expected to become the minimum standard required by sophisticated traders soon. The future of trading will depend on the strength of liquidation mechanisms against black swan events.
