The History of Major Crypto Crashes, Part 2 — From COVID to the Trump Shock

Introduction

After enduring the brutal “crypto winter” of 2018, the digital asset market entered 2019 in recovery mode. Institutional interest was rising, complex products such as decentralized finance (DeFi) instruments were emerging, and the NFT boom was underway. Against that backdrop, the crashes that followed were not isolated accidents but a rapid-fire series of stress tests for a fast-evolving asset class.

The major collapses that have erupted since 2019 sprang from very different catalysts—pandemics, geopolitical shocks, algorithmic failure, fraud, and centralized intermediaries breaking under pressure—but together they distilled the painful, inevitable maturation the industry had to undergo. Each episode exposed a distinctive vulnerability, unleashing waves of forced deleveraging, fundamental shifts in market structure, and muscular regulatory responses that now shape the sector’s future.

This report takes a close look at five decisive collapses since 2019. Each one put a core hypothesis about the crypto market on the stand.

• March 2020: COVID-19 and global market panic
• May 2021: “Buddha-beam,” geopolitical jitters and sentiment shocks
• May 2022: The Terra–Luna death spiral
• November 2022: The downfall of FTX and a fundamental test of custodial trust
• October 2025: “Trump-beam,” geopolitical risk and leverage gone wild

Through these five case studies we trace crypto’s dynamism, its embedded risk, and how the ecosystem learns and evolves through crisis.

Chapter 1: The COVID Crash (March 2020)

1.1 Macro backdrop: The pandemic begins

In early 2020 COVID-19 spread worldwide, draping financial markets in unprecedented fear. On March 11 the World Health Organization (WHO) formally declared a pandemic, and global markets instantly plunged into panic. Investors dumped everything—equities, bonds, commodities—in order to hoard the safety of U.S. dollars.

The rout hammered traditional markets. On March 9 (“Black Monday”) and March 12 (“Black Thursday”) the Dow Jones Industrial Average and the S&P 500 suffered repeat collapses, the worst since the 2008 financial crisis. Even the U.S. Treasury market seized, forcing the Federal Reserve to intervene to keep the world’s risk-free benchmark functioning.

1.2 Collapse: Crypto’s “Black Thursday”

The carnage spilled straight into crypto. Between March 8 and 12, 2020, bitcoin plunged more than 30%, sliding from about $8,900 to below $6,300.

The episode shattered the prevailing narrative that bitcoin was a safe haven or uncorrelated asset. The IMF later noted that the correlation between bitcoin and S&P 500 returns, barely 0.01 from 2017–2019, rocketed to 0.36 through 2020–2021. In a full-blown global liquidity crunch, bitcoin behaved like a high-beta tech stock, not “digital gold.” Investors treated it as a source of liquidity to meet margin calls rather than a shelter.

1.3 Aftermath: Planting the seeds of the next bull market

In response, central banks led by the Federal Reserve unleashed stimulus of historic scale. On March 15 the Fed slashed rates by 100 basis points to zero and unveiled $700 billion in quantitative easing—an unmistakable “whatever it takes” signal.

The flood of liquidity flipped market direction. Zero rates and fiscal stimulus pushed capital into equities and crypto alike, fueling a swift rebound. Bitcoin’s May 2020 halving reinforced the fixed-supply narrative and amplified the momentum.

Paradoxically, the March 2020 crash became the launch pad for the 2020–2021 bull run. By November 2020 bitcoin had broken its prior all-time high near $19,000 and entered a parabolic advance. An event that nearly destroyed the market instead laid the groundwork for its largest rally to date.

Chapter 2: “Buddha-beam” (May 2021) — Narrative and Network Stress

2.1 Market backdrop: Bubbles, leverage, and euphoria

By early May 2021 the crypto market was euphoric. Bitcoin had eclipsed $64,000 in April to set an all-time high, leverage was abundant, and retail participation was surging. Celebrity commentary—most notably from Elon Musk—stoked the speculative fever. Meme coins such as Dogecoin, turbocharged by Musk’s promotion, became symbols of how frothy the market had grown.

2.2 Elon Musk and Beijing’s crackdown

Two heavy blows landed almost simultaneously. On May 12, 2021 Elon Musk tweeted that Tesla would suspend accepting bitcoin for vehicle purchases because of mining’s environmental footprint, a whiplash reversal from his earlier support. At the same time the Chinese government launched a sweeping crackdown on domestic mining. This was no mere warning: regions such as Sichuan, long the center of low-cost hydro-powered mining, received orders to shut operations.

The twin shocks were catastrophic. On May 19 bitcoin plunged more than 30% in a single day. Over the course of May it fell 36%—the worst monthly performance in a decade—while many altcoins collapsed 50–60% or more.

2.3 Analysis: Leverage cascades and a network reset

The price crash triggered massive liquidations in derivatives markets. Billions of dollars in long positions were force-closed, amplifying sell pressure in a vicious spiral.

Meanwhile China’s mining ban caused bitcoin’s network hashrate to crater. Before the ban China accounted for as much as 75% of global hashrate; by July 2021 its share had effectively dropped to zero, and total network hashrate fell more than 50% from the peak.

2.4 Outcome: A more decentralized network

The near-term price damage was severe, yet the network shock ultimately produced a positive structural outcome. Displaced miners relocated rigs to the United States, Kazakhstan, Russia, and beyond.

The “Great Mining Migration” catapulted the United States to 35.5% of global hashrate by August 2021, making it the world’s top mining hub. Hashrate not only recovered but later set new highs, proving bitcoin’s anti-fragility.

In retrospect the May 2021 crash, triggered by a centralized state actor, paradoxically made the network more decentralized and resilient. It reinforced bitcoin’s core value proposition as a censorship-resistant system: a painful episode that strengthened the protocol’s long-term security.

Chapter 3: Death Spiral (May 2022) — The Terra–Luna Collapse

3.1 No more easy money

By 2022 the world was grappling with runaway inflation. U.S. CPI hit 9.1% in June 2022, a 40-year high. The Federal Reserve responded with aggressive tightening: at its May 3–4 meeting, just before Terra imploded, the FOMC raised rates by 50 bp and kicked off quantitative tightening. Liquidity was being sucked from markets, creating a hostile backdrop for high-risk assets such as crypto.

3.2 The promise and peril of algorithmic stablecoins

Terra’s design revolved around an algorithmic mechanism. UST sought to hold its $1 peg not with fiat reserves but through an arbitrage relationship with its sister token, LUNA: users could always burn 1 UST to mint $1 of LUNA or redeem LUNA for UST.

Growth exploded thanks to Anchor Protocol, which lured deposits with an unsustainably high yield near 20%, fabricating enormous demand for UST. Experts repeatedly questioned the model, yet founder Do Kwon routinely dismissed the concerns.

3.3 Collapse: Step-by-step

The system unraveled within days.

• May 7–8: Large withdrawals from Anchor and heavy UST selling on Curve pushed UST below peg to $0.98 for the first time.
• May 9: The mint-and-burn mechanism kicked in to defend the peg. Holders fled UST for LUNA and dumped the newly minted supply, sending LUNA into freefall. The Luna Foundation Guard (LFG) tried to deploy its bitcoin reserves but failed.
• May 10–12: The death spiral accelerated. As LUNA’s price collapsed, ever more LUNA had to be issued to redeem 1 UST, crushing price further. LUNA, once a top-10 asset, lost 99.999% of its value, while UST sank to $0.10.

Nearly $40 billion in market value evaporated in under a week.

3.4 Outcome: Contagion and a regulatory reckoning for stablecoins

Panic rippled across the market. As LFG sold bitcoin to defend UST, bitcoin slid below $30,000, and even Tether (USDT) briefly slipped off its peg amid contagion fears.

More consequentially, the collapse ignited a credit crisis across crypto lenders. Celsius, Voyager, and Three Arrows Capital—each heavily exposed to Terra/Luna—were driven into bankruptcy.

Regulators zeroed in on stablecoins. U.S. Treasury Secretary Janet Yellen cited the blowup in calls for urgent legislation, and the IMF’s managing director likened the structure to a “pyramid scheme.” Lawmakers accelerated proposals such as the GENIUS and STABLE Acts in the U.S. and the EU’s Markets in Crypto-Assets (MiCA) framework, all of which push for fully reserved, audited issuers.

Strikingly, Terra’s failure also seeded the FTX crisis six months later. Three Arrows Capital imploded, saddling Alameda Research—FTX’s sister trading firm—with huge losses. To fill the hole, Alameda allegedly misused FTX customer funds, setting the stage for FTX’s collapse. An algorithmic system’s failure cascaded into fraud at centralized institutions, illustrating how risks ricochet through the ecosystem.

Chapter 4: The Fall of FTX (November 2022)

4.1 The bear market drags on

By November 2022 crypto was still mired in the slump triggered by Terra. Macroeconomic conditions were hostile: the Fed kept hiking aggressively, delivering a fourth consecutive 75 bp increase at the November 1–2 FOMC, pushing rates to 3.75–4.00%. Inflation remained elevated, with CPI up 7.1% year over year that month. Liquidity buffers to absorb further shocks were thin.

4.2 FTX, Alameda, and FTT

FTX was perceived as one of the industry’s most sophisticated, well-regulated exchanges, and founder Sam Bankman-Fried was hailed as a prodigy.

Behind the scenes lay fraud. FTX had a secret, illicit arrangement with Alameda Research, also founded by Bankman-Fried. FTX loaned billions in customer deposits to cover Alameda’s trading losses. Alameda’s balance sheet was stuffed with FTT—an illiquid token FTX issued and handed to Alameda as collateral—creating a toxic loop in which FTX minted FTT, Alameda pledged it, and customer assets were quietly siphoned out.

4.3 Nine days to collapse

One of the world’s largest exchanges imploded in just nine days.

• November 2: CoinDesk reported that Alameda’s balance sheet was dangerously reliant on FTT.
• November 6: Binance CEO Changpeng “CZ” Zhao announced plans to liquidate Binance’s FTT holdings—then worth over $500 million—citing “recent revelations.”
• November 7–8: CZ’s move sparked a run on FTX. As FTT plunged, Alameda’s collateral evaporated, exposing a massive hole. FTX froze withdrawals.
• November 9–11: Binance briefly signed a nonbinding letter of intent to acquire FTX but pulled out after a cursory review. On November 11 FTX, Alameda, and more than 100 affiliates filed for Chapter 11 bankruptcy protection in the United States.

4.4 Outcome: A trust crisis and the rise of proof-of-reserves

FTX’s collapse dealt a crippling blow to industry trust. Unlike Terra, which was an experimental protocol, this was a supposedly safe centralized institution misappropriating client funds.

Market damage was brutal. Bitcoin fell below $16,000 for the first time in two years, and assets closely tied to FTX and Alameda, such as Solana (SOL), suffered outsized losses.

The industry’s immediate response was a rush toward proof-of-reserves (PoR). Led by Binance, major exchanges began publishing cryptographic attestations—backed by third-party audits—that customer assets were held 1:1. It was a direct reaction to FTX’s opacity.

Regulators moved quickly as well. Global watchdogs pushed stricter requirements for centralized exchanges: segregated customer assets, conflict-of-interest controls, and mandatory PoR. Sam Bankman-Fried was later convicted on all fraud counts and sentenced to 25 years in prison, marking a watershed for crypto law enforcement.

The crisis marked a turning point. One path leans toward centralized finance (CeFi) adopting bank-like compliance; the other re-emphasizes decentralized finance (DeFi), where code enforces transparency. Because FTX’s failure was rooted in human trust and traditional controls, it ironically became the strongest advertisement for trust-minimized systems.

Chapter 5: “Trump-beam” (October 2025) — Geopolitics Meets Leverage

5.1 Background: Geopolitical tension and an overheated rally

By 2025 crypto was riding a bull market powered by President Donald Trump’s pro-crypto agenda. His pledge to add digital assets to America’s strategic reserves electrified sentiment, and bitcoin hit fresh all-time highs in early October amid rampant optimism.

Beneath the surface, U.S.–China trade tensions were flaring. Beijing responded to export controls on advanced chips by restricting shipments of rare earths critical to semiconductors and EVs, pushing geopolitical risk to a boil.

5.2 Trump’s 100% tariff bombshell

On October 10, 2025 (local time) President Trump stunned markets by announcing 100% tariffs on all Chinese imports, effective November 1, as retaliation for the rare-earth restrictions—a declaration of full-blown trade war.

Already buffeted by inflation and rate uncertainty, global markets reeled. The Nasdaq dropped 3.6%, its worst day since April, and marquee tech names such as Amazon and Nvidia tumbled alongside it.

5.3 Collapse: The largest leverage wipeout on record

Crypto reacted far more violently than traditional markets. Panic selling erupted immediately after the announcement.

• Price shock: Bitcoin crashed more than 20%, plunging from roughly $122,000 to below $102,000. Ether slid nearly 15% through the $3,400 mark. Major altcoins such as XRP lost over 22%, and some smaller tokens cratered 70–80%.
• Market cap evaporation: Total crypto market capitalization shrank from about $4.3 trillion to $3.85 trillion within hours—over $450 billion wiped out.
• Historic liquidations: According to Coinglass, more than $19 billion in derivatives positions were forcibly liquidated within 24 hours, eight times the record set during FTX’s collapse. Over 1.6 million traders saw positions wiped out.

5.4 Outcome: Structural fragility laid bare

The crash exposed deep structural weaknesses beyond the external shock.

• Centralized exchange outages: Binance, Coinbase, Kraken, and other leading venues buckled under surging volume, suffering downtime, order delays, and withdrawal glitches. Order books in some altcoins froze, triggering flash crashes to near zero.
• Leverage architecture implosion: Crypto’s losses dwarfed the Nasdaq’s 3.6% drop because the leverage was endogenous. Traders had maxed out “circular lending”—borrowing against stablecoins such as USDe to buy more assets, then looping collateral. When prices fell and the pledged stablecoins depegged, automated liquidations cascaded, accelerating the collapse.
• Liquidity drained: Even major market makers pulled back liquidity to defend their own positions, accelerating declines in smaller coins.

“Trump-beam” demonstrated how an external geopolitical shock can fuse with internal leverage and interconnected risk to produce an unparalleled wipeout. It was another stress test of centralized platforms’ technical and structural resilience—and a warning that market plumbing remains fragile.

Chapter 6: Lessons in the Ashes and a New Paradigm

6.1 Putting the crises together: A comparative lens

The 2020–2025 meltdowns reveal the growing pains of a maturing market. Comparing them clarifies how the sources of risk evolved—becoming progressively more endogenous and intertwined as the industry expanded.

Each crisis triggered decisive regulatory action.

Terra–Luna ignited global debates around stablecoins. In the United States the GENIUS and STABLE Acts advanced; in Europe MiCA moved forward. All aim to impose clear reserve requirements and audits on issuers.

FTX’s bankruptcy spotlighted oversight gaps at centralized exchanges. Segregated customer assets, conflict-of-interest controls, and proof-of-reserves obligations now dominate policy agendas, with countries such as South Korea enacting comprehensive “Virtual Asset User Protection” laws.

These episodes also deepened the conversation about bitcoin’s identity. It failed the “safe haven” test during the March 2020 liquidity crunch, yet its recovery and performance in an inflationary environment strengthened the long-term store-of-value narrative.

At the same time, bitcoin traded like a risk asset with high correlation to tech stocks whenever macro conditions and participant profiles aligned that way. The asset’s role is not fixed; it shifts dynamically with external forces.

Conclusion: Toward a More Mature Digital Asset Ecosystem

The last few years of turmoil underscored hard truths: correlation risk, the fragility of investor psychology, the hubris of flawed algorithms, and the absolute need for transparency and verifiable trust.

Emerging from the chaos, today’s industry looks fundamentally different. First, regulatory clarity is increasing. New rules are both a challenge and a framework that invites institutional capital. Second, standards for centralized intermediaries have risen. Proof-of-reserves transparency is becoming the norm, not an optional courtesy. Third, the bitcoin network is more robust and decentralized; the Great Mining Migration ultimately improved its health. Finally, investors are wiser—an entire cohort has learned the hard way about unsustainable yields and opaque custodians.

The approval of U.S. spot bitcoin ETFs marked a milestone in integrating crypto with mainstream finance. New risks will inevitably emerge, and the next crisis may have different roots. But the lessons from 2020 through 2025 are the compass for navigating what comes next. Through painful trials the crypto ecosystem is evolving into a more mature and resilient system.