The sharp crypto market sell-off in October marked a turning point for professional traders, bringing an end to years of relatively low-risk arbitrage strategies, according to BitMEX.
In its State of Crypto Perpetual Swaps in 2025 report released Thursday, the exchange said the crash between Oct. 10 and Oct. 11 erased roughly $20 billion in value and triggered what it described as the most damaging event for sophisticated market makers in the industry’s history.
BitMEX argued that the collapse exposed structural weaknesses in how exchanges manage risk. Automated deleveraging systems, designed to protect platforms during periods of stress, instead created a cascading effect.
Profitable, hedged positions were forcibly unwound, breaking the assumptions behind delta-neutral strategies that market makers had relied on for years.
“For a long time, perpetual swaps offered reliable yield through funding arbitrage and spread capture,” the report said. “That combination of easy returns and structural stability effectively ended in 2025.”
Liquidity drains push order books to multi-year lows
Market makers play a central role in crypto trading by providing liquidity and ensuring tight spreads. They typically hedge spot exposure by shorting derivatives, keeping overall risk neutral.
During the October sell-off, however, auto-deleveraging systems closed those hedges at the worst possible moment. As a result, market makers were left holding unprotected spot positions as prices fell sharply.
The breakdown shattered confidence in the neutrality of exchange risk engines, prompting market makers to pull liquidity across platforms in the fourth quarter. BitMEX said this retreat pushed order books to their thinnest levels since 2022, increasing volatility and execution costs for traders.
The report also noted that spot-futures arbitrage has become increasingly crowded. With funding rates compressed to around 4%, the once-lucrative strategy now underperforms even low-risk instruments like U.S. Treasury bills.
Source: BitMEX
Exchanges diverge as traders shift on-chain
BitMEX said the turbulence has accelerated a split among centralized exchanges. Some platforms operate as neutral matching engines, while others function as so-called B-Book exchanges that take the opposite side of customer trades.
According to the report, aggressive B-Book practices — including the use of “abnormal trading” clauses to void winning trades — have undermined trust and pushed users to seek alternatives.
Trading activity has increasingly migrated to high-performance on-chain perpetual exchanges such as Hyperliquid. However, BitMEX cautioned that decentralization alone does not eliminate market manipulation.
The exchange pointed to the September launch of the Plasma (XPL) token, where transparent on-chain data allowed attackers to map liquidation levels. With no reliable price oracle and limited liquidity, the token was allegedly manipulated to trigger forced liquidations in on-chain perpetual markets.
The incident, BitMEX said, highlighted that transparency without robust safeguards can introduce new vulnerabilities rather than solve old ones.
“The shakeout of unproven, high-risk platforms has reset the competitive landscape,” the report concluded, adding that established exchanges and durable innovations are now better positioned to regain trust.