What turned steady pressure into a sharp selloff was forced liquidation, beginning in crypto and then accelerating rapidly.
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In the span of a week, roughly $500 billion was wiped from the crypto market as leverage finally snapped. Bitcoin fell from around $80,000 to near $60,000, at one point dropping 15% in a single day, while Ethereum fell more than 30%, briefly slipping below $1,800. Overall market value sank toward $2 trillion, and more than $2.5 billion in leveraged derivatives positions were liquidated, underscoring how much of the move was driven by forced selling rather than discretionary exits.
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That pressure was highly concentrated in time. Over just 24 hours, more than $1.45 billion in crypto positions were liquidated, wiping out over 300,000 traders, with long positions accounting for the vast majority of losses. Bitcoin alone made up roughly $740 million of those liquidations. Once key price levels broke, selling cascaded quickly as liquidity vanished across exchanges.
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That same dynamic then spilled into other markets. Investors weren’t selling because their outlook suddenly changed — they were selling because risk limits, leverage, and internal rules forced them to. As prices fell, buyers stepped back. Retail participation faded, institutions were net sellers, and prices dropped faster simply because there was no one on the other side of the trade.

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Why the selloff spread — crowding, AI fears, and no buyers

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Once selling moved beyond crypto, crowding made everything worse. Too many investors — hedge funds, retail traders, and systematic strategies — were positioned in the same areas: AI, semiconductors, momentum stocks, metals, and retail favorites. According to Morgan Stanley’s quant team, markets experienced a momentum shock, where stocks that had been rising together suddenly started falling together. When those trades turned, selling wasn’t gradual — it was automatic.
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At the same time, AI uncertainty amplified the damage in software stocks. Recent releases of task-executing AI tools — such as Anthropic’s Claude agent and legal productivity plug-ins — showed how quickly AI is moving into core software functions like legal research, data analysis, coding, and enterprise workflows. That raised credible questions about how soon parts of the software industry could face disruption, widening the range of possible outcomes for future earnings.
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That uncertainty forced investors to reassess valuations all at once rather than gradually, hitting a sector that was already crowded and heavily owned. The pressure was compounded by software’s deep ties to private credit, where falling equity values raised concerns about financing and credit quality, feeding back into even more selling.
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The problem wasn’t just heavy selling — it was the absence of buyers. Retail investors, who had aggressively bought dips earlier in the year, barely showed up. Retail demand fell near the bottom of its historical range, while institutions were supplying stock. With no marginal buyer stepping in, even modest selling pressure pushed prices sharply lower.
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This was especially visible in momentum-heavy areas. Some of the most crowded momentum trades suffered their sharpest one-day drops in years, driven almost entirely by investors unwinding long positions. Historically, when selloffs are led by longs being cut — rather than shorts covering — weakness tends to last weeks, not days.
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Mechanical selling added fuel to the fire. Leveraged ETFs were forced to rebalance, dumping an estimated $18 billion of U.S. equities in a single day, much of it concentrated in tech and semiconductors. The same crowding showed up in precious metals, where gold and silver positions were unwound aggressively after prices rolled over.
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Put simply, this wasn’t a clean reset. Selling relieved some pressure, but positioning remains crowded and cash levels are still low. That’s why sharp bounces are possible — but also why they may struggle to hold. Until positions are meaningfully reduced and buyers return in size, markets remain vulnerable to sudden air pockets like the one we just saw.

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