Analysts Say Crypto’s Flash Crash Was “a Needed Reset” After Months of Leverage

The cryptocurrency market’s $19 billion flash crash over the weekend has left traders reeling — and analysts warning that the chaos has exposed just how fragile even a “mature” crypto market remains beneath the surface.

“A Brutal Reminder” for a Complacent Market

Nic Puckrin, crypto analyst and co-founder of The Coin Bureau, didn’t mince words when describing what unfolded.

“The bloodbath we saw in markets over the weekend is a brutal reminder that, as the crypto market grows and matures, the risks are amplified,” Puckrin said.

He argued that institutional participation and the rise of spot crypto ETFs have created a false sense of security, lulling many investors into forgetting that crypto still trades 24/7 in a highly volatile, thinly liquid environment.

“The arrival of spot crypto ETFs and institutional interest has lulled investors into a false sense of security, but it remains the only market that trades after hours,” he explained. “In this environment, thin liquidity, overleverage, and the involvement of big players make for a toxic cocktail.”

Also read: Best Crypto to Buy Now as Flash Crash Shakes the Market

According to Puckrin, the most shocking revelation wasn’t just the price collapse — it was how even profitable traders were wiped out.

“The biggest shock over the weekend was that traders were forced out of even profitable positions due to auto-deleveraging (ADL) on exchanges,” he said. “It’s a blunt instrument that deserves scrutiny as exchanges review this mass liquidation event.”

That ADL mechanism — designed to protect exchanges when liquidity dries up — became a silent killer for unsuspecting traders. 

The result: a market-wide purge that even the most risk-conscious participants couldn’t escape.

Ethereum’s Rebound and a Hard Lesson in Leverage

While the sell-off sent shockwaves through every corner of the market, Puckrin noted that many leading tokens are already showing impressive resilience — particularly Ethereum, which quickly climbed back above $4,000.

ETH price chart (Source: CoinMarketCap)

“Ironically, now that the dust has settled, many blue-chip tokens have seen a strong rebound,” he said. “This is certainly an argument against excessive leverage in a market with fluctuating liquidity in such an uncertain geopolitical climate.”

Still, he cautioned that Bitcoin now faces “another uphill battle” as it attempts to reclaim momentum toward a new all-time high.

“The good news is that this has cleaned out the excessive leverage and reset the risk in the market, for now,” Puckrin added. “However, Bitcoin now faces another uphill battle to break past key resistance levels that will allow it to reach a meaningful new all-time high this year.”

“Trump’s Tariffs Triggered a Risk-Off Wave”

Meanwhile, Stuart Connolly, Chief Investment Officer at Deus X Capital, drew a direct line between the market chaos and President Donald Trump’s renewed tariff rhetoric, which he said triggered a global “risk-off” sentiment.

Also read: Crypto Collapse or Cleanse? Leverage Flush Could Set Stage for Next Rally

“President Trump’s tariff rhetoric has triggered what we believe is a meaningful ‘risk off’ within markets, and the crypto market has taken the brunt of that,” Connolly said.

He pointed to widespread market structure issues — from derivative exchanges liquidating users regardless of margin, to uptime failures and price distortions in stablecoins and staking assets — that deepened the sell-off.

“Large derivative exchanges liquidating users (irrespective of their margin), uptime issues, and some stablecoin and liquid staking assets experiencing meaningful price dislocations from their underlying collateral have all contributed to where we are today,” he explained.

Connolly also highlighted how the once-hyped “Perp Dex” narrative — referring to decentralized perpetual futures exchanges — has taken “a few meaningful steps back” as traders reassess the risks of on-chain leverage.

Despite the wreckage, he believes the purge may ultimately prove healthy for the market.

“The market needed a reset,” Connolly said. “And if President Trump’s position softens, as it looks like it might, we will see crypto assets higher during Q4 as a result.”

A Painful Purge, but a Cleaner Market

The consensus among analysts is that the weekend’s crash was a painful but necessary reset — a brutal cleansing of the speculative excesses that had quietly built up over months of leverage-fueled optimism.

For traders still standing, the message is clear: this is not a traditional market. Crypto trades around the clock, reacts violently to global politics, and punishes complacency.

But for long-term investors, the washout may have reset the playing field — removing weak hands and leaving room for a more sustainable rally into the year’s final quarter.