Unchained Podcast: Bits + Bips: Crypto Had Its Reset. Will It Go to New Highs Now? (Ep. 924)

Date: October 14, 2025
Host: Steve Ehrlich (Bits + Bips co-hosting for Laura Shin)
Guests:

• Ram Alawalia (Maester of Wealth, CEO of Lumida)
• Carlos Guzman (Research Analyst, GSR)
• YQ (Rollup Commanders, Adult Lair – based in Singapore)

Overview

This urgent, post-crisis Bits + Bips special brings together leading crypto market makers and analysts to dissect the “perfect storm” that devastated crypto markets over the preceding weekend. With major forced liquidations, alleged market manipulation, and system breakdowns across derivatives and spot exchanges, the panel assesses what triggered the chaos, how the ecosystem responded, and what lessons traders, investors, and builders must take now that the dust is (mostly) settled. The episode is a vivid postmortem of one of the most dramatic weekends in recent crypto history.

Key Discussion Points & Insights

1. The Event: What Triggered the Crypto Crash? (03:22–07:00)

• Trump’s Tariff Tweet: On Friday morning, Trump threatened 100% tariffs on China—shocking equity and crypto markets alike.
  • "That caused a sell off in equities...The volatility fear gauge index jumped 30%. And then digital assets also took a tumble."
    — Ram Alawalia (03:22)
• Forced Liquidations Spiral: Algorithmic liquidations (notably on perps) hit altcoins hardest, some dropping up to 80% in 24hrs.
• Oracles & “Perfect Storm”: Faulty or poorly designed price oracles (especially referencing only the Binance spot book) created exploitable windows for manipulation, linking to broader issues of liquidity and trust in derivatives.

2. Anatomy of a Market Breakdown (06:52–14:00)

• YQ’s Forensic Timeline:
  • Liquidity drained from markets rapidly after the tariff news, causing initial and then cascading liquidations, especially on smaller altcoins.
  • “Two rounds” of liquidations: First, broad altcoin collapse; second, specific assets (USDE, WBETH, BNSO) depegged, sparking further forced sells due to collateral shortfalls.
  • “Is it conspiracy or opportunism?”—Exploitable structural weaknesses/announcements allowed actors to “front-run” collateral price drops.
• Oracle Manipulation:
  • "Binance was using its own spot order book to measure the collateral value...So you can get a mismatch...It's a market microstructure hack."
    — Ram Alawalia (13:13)

3. Market Makers' Reaction & Systemic Vulnerabilities (14:19–22:00)

• GSR’s Perspective:
  • "Friday was just a perfect storm of all these risks..."
    — Carlos Guzman (16:10)
  • Perps and delta-neutral strategies suffered due to asymmetrical liquidation rules, automated deleveraging (ADL), and vanishing liquidity.
  • Market makers withdrew or widened spreads, exacerbating the decline; spot lacked enough depth, leading to “phantom liquidity.”
• Lessons for Traders:
  • Crypto-specific nuances (perps can break their hedge, spot liquidity can be manipulated, ADL can liquidate both longs and shorts) require traders to reevaluate “safe” strategies.
  • "Previously people feel like perp is super useful...but during the crash, due to the ADL their short position was forced to close...any hedge no longer working."
    — YQ (24:53)

4. Systemic Parallels and Learning from TradFi (22:59–36:27)

• Flash Crash Parallels:
  • Reference to the 2011 US equity “flash crash,” highlighting that even mature markets have faced similar breakdowns due to liquidity illusions and automated market making.
• Traditional Finance (TradFi) Safeguards:
  • Five layers of protection in regulated derivatives: variation margin, initial margin seizure, equity buffer, default funds, and “recovery and resolution.”
  • "Tradfi has solved this problem...To make that come together, you need some framework to govern these exchanges."
    — Ram Alawalia (33:34)

5. What Can Be Done? Improvements & Regulatory Questions (28:58–44:40)

• Manufacturing/Improving Liquidity:
  • Exchanges need stricter asset listing vetting, improved transparency for ADL (auto deleveraging), and robust oracles decoupled from a single venue.
  • YQ: "CX or DX should really carefully select…if they don’t have enough liquidity themselves, they are super easy to be manipulated." (29:50)
• The Leverage Problem:
  • Leverage escalation during bull markets sets up for disaster; in selloffs, even “safe” 2x leveraged traders suffered massive forced liquidations.
  • "That ends up liquidating everyone down to the people who didn't even take that much leverage..."
    — Carlos Guzman (38:05)
• Self-Regulation & Centralization of Crisis Management:
  • Industry must pursue self-regulation (like FINRA emerged for US equities) to avoid harsher intervention if/when retail gets hurt en masse.

Notable Quotes & Memorable Moments

"This is a classic tale of crypto speed-running banking and markets history."
— Ram Alawalia (03:56)

"There are a lot of coincidence...I feel like probably also can be a coordinate attack."
— YQ (07:30)

"Sometimes liquidity is reduced automatically before market makers can even react and reintroduce liquidity in the market, which I think once again adds into the whole perfect storm dynamic."
— Carlos Guzman (21:10)

"You can easily manipulate the spot price, further liquidation...if we don’t have enough liquidity around this kind of crash, there's so many places can be manipulated."
— YQ (24:53)

"There's limited depth of order book the farther away you go from the prevailing market price...If you want to get into position, you're paying 30% more or 30% less. If you want to get out, there's no liquidity."
— Ram Alawalia (18:38)

"Tradfi has solved this problem. That's the headline statement."
— Ram Alawalia (33:34)

Winners and Losers: The Aftermath (47:17–51:10)

• Hyper Liquid's “Win": Though its vault earned tens of millions amid the chaos, most customers were liquidated, calling into question whether this “stress test pass” is a victory.
  • "I think they're a winner…I mean Hyper Liquid...they made money...through this high volume…but their users were carried out and liquidated at the exact worst time."
    — Ram Alawalia (48:10)
• Lessons for Defi and Altcoins:
  • Defi perps with hardcoded circuit breakers fared unexpectedly well, while small/illiquid altcoins, project teams, and their backers suffered near-obliteration.

Market Outlook: Recovery or Warning Signs? (51:10–60:00)

• Recovery Signs: As fears of tariffs fade, both US equities and crypto have rebounded. Bitcoin and ETH recovered most of their losses, although long-tail altcoins lag far behind.
  • "I fully expect we'll see more of a return to normality…tariffs don’t really have a direct impact on crypto...crypto has a lot of tailwinds."
    — Carlos Guzman (51:10)
• Skepticism About Immediate Bull Back: Ongoing supply overhead from large sellers (“whales”), with a psychological hangover from the rapid selloff.
  • "Risk, reward looks pretty good. The risk is just beneath where I am. Reward is higher...But I think it's a tactic."
    — Ram Alawalia (54:35)

Looking Forward: Lessons & Open Questions (57:05–65:31)

Panelists' Forward-Looking Thoughts

• Ram Alawalia:

  • Bullish in the short term now that leverage has been “reset”, past sellers have cash and will likely re-enter, and macro backdrop is strong; but warns to reassess at the next sign of danger.
  • (57:34–60:00)

• Carlos Guzman:

  • Watching for actual market behavior change—will traders resume risky leverage and perps, or did the lesson stick? Wonders if exchanges will implement more robust insurance funds and crisis safeguards.
  • (60:05–62:14)

• YQ:

  • Sees a lasting wound for small-cap altcoins, funds, and builders—the ecosystem’s “blood”—while blue-chip tokens benefit from Wall Street inflows and recover much more quickly.
  • Cautions it'll be years before the long tail recovers, if ever.
  • (62:18–64:12)

Additional Takeaways

• Exchange Listing Procedures: Growing likelihood that exchanges re-evaluate listing/maintenance standards for small tokens with insufficient liquidity or abuse-prone structures.
• Regulatory Urgency: The crash is a vivid warning: real market structure legislation is overdue, not just for stability, but for protecting long-tail builders and the wider public.
• Defi Irony: Some DeFi perps were saved by hardcoded price freezes—centralizing risk in a decentralized platform, raising philosophical questions.

Closing Thoughts:
The rapid “market reset” may, paradoxically, leave crypto healthier but also more polarized; institutional “majors” are better positioned for recovery than the experimental or illiquid long tail. Fundamental issues—transparency, oracles, ADL, insurance, leverage management—remain unsolved. Regulation and industry self-regulation will be major themes in the coming months.

Notable Segment Timestamps:

• 03:22 – Trump’s tariff tweet and initial market shock
• 07:00 – YQ’s breakdown of the two waves of liquidations
• 13:13 – Market microstructure “hack” and Oracle vulnerabilities
• 16:10 – GSR on the “perfect storm” for market makers
• 21:10 – Lessons on liquidity vanishing in crisis
• 33:34 – TradFi’s 5-layers of derivatives protection
• 47:17 – Winners & Losers: Hyper Liquid discussion
• 54:35 – Ram on current risk/reward and Bitcoin technical outlook
• 57:34–65:31 – Panel’s future expectations