Over 90% of trading volume in major pairs, such as BTC/USDT, comes from perpetual futures, making them the primary driver of market movements rather than spot trading.
The October 10 crash exposed the fragility and high leverage of the crypto market, with prices primarily driven by cascading liquidations rather than genuine demand.
Understanding perpetual futures, funding rates, and leverage mechanics is now crucial for success in the modern cryptocurrency market.
On Friday, October 10, the crypto market witnessed one of the most violent liquidations in its history. Within half an hour, over $19 billion in leveraged positions vanished as cascading liquidations swept across exchanges.
Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) plunged by double digits, while several major altcoins collapsed by 80% or even 90%, erasing years of gains in minutes.
As volatility exploded, even the most prominent trading venues, such as Binance, began to falter, reporting system strain and execution delays.
By the time the dust settled, confusion replaced disbelief. Screens were red, balances were gone, and no one seemed to understand what had just happened.
How could such a collapse happen in a market that was supposedly more mature, liquid, and resilient than ever?
For years, investors have believed that crypto markets move primarily on spot volume and that prices are shaped by genuine buyers and sellers exchanging real assets. But the events of October 10 revealed something different.
In this issue of CCN Reports, I use the “Black Friday” crash as a case study to examine what truly drives crypto market behavior and how structural forces beneath the surface shaped one of the largest liquidations in history.
The Emergence of Perpetual Futures
Perpetual futures (or “perps”) were first proposed in the early 1990s by economist Robert Shiller, who theorized a financial instrument that could provide continuous exposure to asset value changes without an expiration date.
However, it was not until 2016 that this concept gained widespread practical application in crypto trading with the launch of BitMEX’s first perpetual futures contract, revolutionizing the industry with a no-expiry futures derivative.
Traditional futures require settlement on a specific date, but perps can be held indefinitely, providing traders with continuous exposure without the need to roll over contracts. To make this open-ended design possible, perpetuals employ a funding rate mechanism, which involves periodic payments between long and short positions, anchoring the contract price to the underlying spot price.
On most major exchanges, funding occurs every eight hours, and the contract is continually adjusted to reflect the real market price. If the perpetual price rises above the spot market, traders holding long positions pay a funding fee to short holders, incentivizing shorts and nudging the price back down. Conversely, if the perpetual price trades below the spot, short positions pay the fee to longs, encouraging buying.
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Beyond funding, the ability to trade with high leverage became one of the main reasons perps gained traction. Crypto exchanges began offering 10x, 50x, and even 100x leverage, levels far beyond what traders can access in traditional equity or commodity markets.
For example, a trader using 10x leverage can control a $100,000 Bitcoin perp position with only $10,000 of margin capital.
Although this trading method can multiply profits, it also magnifies losses. A price move of just 1% against a 100x position can trigger liquidation and erase all margin capital.
Despite the danger, trading activity surged because for most traders, the upside of amplified returns outweighed the risk.
Additionally, the structure offered a level of flexibility that traditional markets could never match. No expiry, continuous price alignment through funding, and high leverage, combined with 24/7 market access and constant volatility, created an environment built for speculation.
Traders could enter and exit positions at any moment, react instantly to news, and profit from every price swing.
Perpetual Futures Are Now Driving the Crypto Market
That popularity, however, doesn’t explain why markets reacted so violently when positions unwound on Friday. The deeper issue lies in how crypto’s trading structure evolved, from spot-based price discovery to one ruled by perpetual futures.
On Binance, the BTC/USDT pair has been dominated by perpetual contracts since their introduction in September 2019. Only the launch month recorded lower futures volume than spot.
However, from October 2019 through October 13, 2025, the average ratio between the two stabilized at approximately 6:1, indicating that roughly 83.5% of Bitcoin trading volume originated from perpetual futures, while 16.5% came from spot (Figure 1).
Figure 1: Monthly spot and perpetual futures volume for the BTC/USDT pair on Binance | Credit: TradingView, Toghrul Aliyev (itsToghrul)
The imbalance is not unique to Binance. Across the industry, trading has followed the same direction as liquidity has gravitated toward futures.
On Bybit, the BTC/USDT pair maintained an average share of 92.5% in perpetuals during the past four years (Figure 2).
Figure 2: Monthly spot and perpetual futures volume for the BTC/USDT pair on Bybit | Credit: TradingView, Toghrul Aliyev (itsToghrul)
Even smaller venues display the same structural tilt. On Bitget, for example, the FARTCOIN/USDT market recorded 74.6% of its turnover in perpetual contracts (Figure 3).
Figure 3: Monthly spot and perpetual futures volume for the FARTCOIN/USDT pair on Bitget | Credit: TradingView, Toghrul Aliyev (itsToghrul)
Each dataset tells the same story: crypto trading is not distributed evenly between derivatives and spot, nor is it dominated by the latter, as many would have thought. It is overwhelmingly concentrated in perpetual futures.
The academic evidence also confirms what the data already suggest. Research from Cornell University’s Emerging Markets Institute estimates that since 2020, cumulative perpetual trading volumes have surpassed $60 trillion, with daily turnover exceeding $100 billion, roughly three times higher than spot activity.
Such a scale naturally shifts price formation toward derivatives. When most capital, liquidity, and leverage reside in futures markets, prices will follow the venue where the majority of trading occurs.
Easley, O’Hara, Yang, and Zhang (2024) found that price movements of Bitcoin and Ethereum begin in futures order books and reach spot markets within minutes.
Funding rates, order imbalances, and open interest act as early signals of direction. Spot prices react only after derivatives establish the move. Cosenza and Stalder (2024) observed the same behavior using high-frequency data from Binance, OKX, and CME.
Further research by Kapar and Olmo (2019) confirmed this lead using two models: Hasbrouck’s information-share model and Gonzalo–Granger’s common-factor approach. In plain terms, these models measure which market contributes more to forming the “true” price when multiple markets trade the same asset.
Their results showed that Bitcoin futures contributed 60–70% of total price discovery, consistently leading spot prices in both calm and volatile periods. Doan (2022) reported similar findings, showing that institutional activity in Bitcoin futures accounts for 60–80% of the information flow, depending on market conditions.
The mechanism behind all of these findings is structural. The funding rate system continuously links perpetual prices to their underlying assets, forming a feedback loop that makes futures the reference point for valuation.
Each funding adjustment triggers behavioral shifts. Positions are either closed, reopened, or hedged, which feeds liquidity and volatility back into the same market that initiated the signal.
In effect, the futures market creates the conditions it responds to, turning perpetuals into the nucleus of price discovery.
Reflexivity and the Illusion of Liquidity
In earlier markets, spot prices reflected genuine buying and selling. Today, price behavior has become reflexive: movements depend less on new information and more on the leverage embedded in perpetual futures.
When leverage builds in perpetuals, prices can rise without new capital entering the system. The mechanics rest on three intertwined forces.
A positive funding rate means longs pay shorts, which is an indication of crowding on the long side. That invites basis trades: investors short perpetuals and buy spot or index baskets to collect funding. Momentum traders may still add to their long positions despite the cost if the trend and liquidity indicate continuation.
When funding turns negative, the dynamic flips. Shorts pay longs, basis traders take the opposite side, and momentum shorts pile in if volatility and order flow support further declines. Across both regimes, dealers and market makers hedge deltas dynamically, causing prices to move toward the side with greater leverage and hedging pressure. Market direction, in short, follows positioning before fundamentals.
Once prices approach margin thresholds, liquidations amplify the move. High leverage and shallow liquidity make it easy to trigger cascading closures.
Retail traders, overextended in euphoria or panic, magnify these chains. In rallies, short squeezes drive rapid surges as forced buyers chase the price higher. In selloffs, liquidation cascades accelerate declines as forced sellers flood the market with bids. The liquidation engine turns positioning into pure mechanical flow.
The third and least influential force is spot volume. Organic buying and selling contribute relatively little to short-term price direction as spot markets primarily respond to signals produced by derivatives.
Conclusion
The October crash was an unfortunate event; there’s no question about that. Many traders saw years of effort vanish in less than an hour.
But markets are indifferent to sentiment. They punish ignorance and overconfidence with equal force. The lesson here is not just about price, it’s about preparation.
You must understand the system in which you trade. And in this report, I explained exactly how perpetual futures govern today’s crypto market.
Like it or not, the reason many lost everything wasn’t only because of market manipulation or exchange failures. It was because they misused the tools at their disposal. They traded with their entire portfolio as collateral, ignored the lessons of FTX and similar collapses, and kept all their funds on a single account instead of dividing risk across funding and trading accounts. They took oversized positions, risking 10%, 20%, even 50% of their capital on a single trade, when risk should rarely exceed 0.5% to 2%.
And many didn’t understand leverage at all. They blamed the number, 10x, 50x, 100x, when the real danger came from position sizing. A $1,000 position is a $1,000 position, whether you use 1x or 100x leverage.
What changes is the margin required. Risk comes from the amount of your total capital you commit, rather than the leverage multiple you choose.
Compounding the problem, countless traders neglected basic risk management, including no stop-losses, no hedging, and no overnight protection. In a market where prices move faster than comprehension, that’s a recipe for disaster.
For most people, the safest path is simple: avoid perpetuals altogether. The average investor will lose money there more often than not, not because they’re unlucky, but because the system is designed for professionals.
For those who choose to stay, survival depends on discipline. Use small collateral, divide capital across accounts, limit risk to a few percentage points per trade, and never trade without a stop. The goal is not to win every trade, but to stay solvent long enough to learn from the ones you lose and then never repeat those mistakes ever again.
Beyond trading, the primary goal is to establish an investment portfolio first and treat trading as a secondary, supporting strategy. Dedicate only a small portion of your capital to active trading, and whenever you profit, reallocate at least half of those winnings, if not more, into your long-term portfolio. Leave the remaining share in your trading account to compound your future performance as position sizes naturally scale with account growth.
This balance between investment and speculation is what separates gamblers from professionals. It builds resilience, enforces discipline, and transforms short-term success into lasting wealth.
Perpetual futures are powerful instruments. They allow continuous exposure, efficient hedging, and sophisticated trading strategies. But they also magnify the human weaknesses that define every market: greed, fear, and overconfidence. The October crash was a brutal reminder that when structure and psychology collide, the unprepared always pay the price.
If the crypto market has entered its perpetual age, then knowledge, risk management, and restraint, not speculation, will be the only edges that endure.
Toghrul Aliyev is the Head of Research who began his journey in crypto in 2021. It all started with a Reddit post that went viral, leading to a writing position while he was still in medical school. As he learned more about crypto, he became deeply interested in it and decided to focus entirely on this field after completing his medical degree and becoming a doctor.
Toghrul specializes in thorough research, always aiming to find details others might miss. He also has a strong understanding of stocks, real-world asset tokenization, and related areas. He is skilled in Python and SQL, which he uses to improve his crypto analysis through data analytics and data science.
When he’s not working, Toghrul enjoys sports, hiking, reading philosophy, such as Seneca's works, and playing story-driven video games.
