#writetoearnupgrade Bitcoin can drop from 95k to 88k in minutes because of a liquidity cascade, not because of “random” movement.
What is a Liquidity Cascade?
When many traders use high leverage and liquidity is thin, a small shock turns into a chain reaction of forced selling:
Too much leverage: Many longs on x20–x100 margin.
Thin order book: Few real buy orders below price.
A trigger: One big sell order or sudden fear headline.
The 4‑step chain reaction
Whale dump breaks support
A large sell pushes price under an important support level.
Stop‑loss wave
Retail long positions have stop losses just below that support.
When price hits them, they turn into market sell orders, pushing price lower.
Liquidations start
Now price reaches the liquidation levels of high‑leverage longs.
The exchange auto‑closes these positions by selling into the market.
Each liquidation = more market sells → price drops faster → more liquidations.
Air pocket then hard bounce
Price freefalls through a zone with almost no bids until it hits a deep buy wall from a patient whale or spot buyer.
The book refills, shorts take profit, and price often “V‑shapes” back up.
On the chart this shows up as a huge vertical red candle (sometimes followed by a long wick).
How to survive (and sometimes benefit)
Use lower leverage or none so that a single cascade doesn’t wipe you out.
Do not cluster stops exactly at obvious levels (e.g., yesterday’s low, round numbers), or use smaller size with wider stops.
Consider deep limit buys 20–30% below price only with cash (no leverage) and only money you can afford to leave in the market. In a flash crash, price may tap these orders for a second before rebounding.
Avoid panic selling into the cascade; very often you are selling near temporary extremes.
Flash crashes are brutal for over‑leveraged traders, but they transfer coins to patient spot buyers who waited with cash and good risk management.
