Data observation after the flash crash on October 11: Liquidity is proportional to the degree of the plunge, and prices have generally recovered by 80%.

By Frank, PANews

Despite the passing of more than ten days, the market is still reeling from the October 11th flash crash. The prices of many tokens plummeted to zero in a very short period of time, only to rebound violently by a thousand-fold or even ten-thousand-fold, creating a state of panic in the market.

Just how severe was this epic plunge? Which narrative tokens were hit the hardest? Has the market's "real" trauma healed despite the astonishing rebound?

More importantly, is the widely speculated "liquidity depletion" the real culprit of this crisis? To clarify the truth, PANews conducted a detailed data analysis of 430 spot trading pairs on Binance Exchange from October 10th to October 20th. This article will use multi-dimensional data to gradually uncover the facts behind this extreme market.

This data analysis uses the Binance exchange and the market conditions of 430 spot trading pairs between October 10 and October 20.

Plunge and "false" rebound: The average instantaneous drop is 66%, how much will the real market recover?

In reality, the dramatic price fluctuations on October 11th were truly shocking. On that day, the average price drop for all tokens reached 66%, with seven tokens experiencing drops exceeding 99%, and 32 tokens experiencing drops exceeding 90%. A total of 344 tokens, representing 80% of the total, experienced drops exceeding 50%.

In terms of the distribution of quantity, the number of tokens with a drop between 60% and 90% is the largest, totaling 272, accounting for 63.2%.

After the massive instantaneous drop, many tokens hit record lows in a short period of time, making subsequent rebounds seem particularly exaggerated. For example, IOTX's rebound from its low reached a staggering 1,230,900% (with its lowest point reaching 0.000001). Furthermore, several tokens like ENJ, ATOM, and ANKR saw their largest rebounds exceed 1,000x. Twenty-two tokens saw rebounds exceeding 10x, making the rebound figures from the lowest point seem somewhat unrealistic. According to PANews statistics, the average rebound strength of all tokens from the low on October 11th to the close of October 20th reached 5,509%.

Obviously, this data alone doesn't represent the actual situation. Therefore, PANews compiled data from another perspective, comparing the price data for October 20th with the opening price before the crash on October 11th. This provides a true reflection of the market's decline. Based on this actual decline, the average price drop for all tokens after the rebound compared to their pre-crash prices is approximately 17.22%. Compared to the maximum drop of 66% mentioned above, this indicates a significant rebound. Many tokens have even surpassed their pre-crash levels after the rebound, with data showing that 26 tokens have exceeded their opening prices on October 11th.

Sector Performance Review: MEME Becomes the "Hardest Hit Area", Indiscriminate Falling Points to Liquidity Issues

Are there different results depending on the type of token?

First, let’s take a look at the performance of the public chain.

The average maximum drop for Layer 1 public chains on October 11th was approximately 63%, a figure that was not significantly superior to the overall decline. Comparing the price after the rebound on October 20th to the opening price before the October 11th crash, the overall drop for Layer 1 tokens was 19%, which clearly underperforms the overall performance. In other words, Layer 1 public chains did not maintain their previous resilience during this period of decline, but instead experienced a more significant decline.

The performance of Layer 2 is similar to that of Layer 1, with an average maximum decline of 65.8%. The decline from the opening on October 11 to October 20 was approximately 17.98%, which is also lower than the average level.

Overall, DeFi and AI tokens performed better than average. First, in terms of average maximum drawdown, both categories were roughly on par with the overall market, with the AI category experiencing an average maximum drawdown of approximately 63%, outperforming the overall market. Furthermore, DeFi tokens experienced a 14% decline from the market opening on October 11th to October 20th, indicating a stronger rebound than the overall market.

Among all categories, MEME tokens performed the worst, with an average maximum decline of 78%, making them the most volatile token category at the time. Furthermore, compared to the opening price on October 11, the price level as of October 20th had fallen by 20%, indicating a lack of rebound potential. Considering the historical performance of previous extreme market conditions, MEME tokens have consistently high risk factors, and their market fragility is magnified during such volatile ups and downs.

Overall, from a category perspective, the market showed almost equal results during this plunge, with no single category performing exceptionally well. In the subsequent rebound, the performance remained largely similar. From this perspective, previous market speculation that the plunge was caused by liquidity seems to have some basis for speculation.

Finding the "Real Culprit": Trading Volume Reveals a Strong Correlation Between Liquidity and Decline

To verify the direct correlation between liquidity and the October 11th plunge, PANews conducted further analysis of the liquidity data for these tokens. Taking the market price spread as an example, the average market price spread for tokens that dropped less than 20% on October 11th was approximately 0.11%, while the average market price spread for tokens with the largest daily drops of 70% to 80% was around 0.13%.

However, this data seems to have limitations, as among over 90% of tokens that saw declines, the lowest spread was only 0.07%. This phenomenon may be due to exchanges proactively increasing liquidity for these tokens with greater intraday volatility after the plunge. (Spread data is from October 20th.)

However, another data point reveals the correlation between liquidity and the crash. According to PANews' average transaction volume and average transaction value data, tokens with higher average transaction volumes and transaction values experienced less volatility during the October 11th crash.

Tokens with a drop of 20% to 30% saw an average 24-hour transaction count of 757,000, with an average 24-hour trading volume reaching $239 million. In contrast, tokens with a drop of over 90% saw an average 24-hour transaction count of only 59,000, with an average daily trading volume of only around $6 million. Tokens with a drop of over 99% showed even more pronounced performance, with an average daily transaction count of only 11,600 and a daily trading volume of around $2 million. Compared to tokens with a drop of less than 30%, the trading volume of these tokens differed by a factor of a hundred.

In contrast, data on transaction volume and turnover can better reflect market demand. Therefore, this epic plunge is directly related to liquidity.

How much will the market recover?

After the plunge, it may be more worthy of attention to explore the subsequent direction.

First of all, from the perspective of contract holdings, the overall contract holdings in the market have dropped significantly with this plunge. According to data from Coinglass, on October 8, the total amount of open contracts in the market reached a historical high of US$233.5 billion. By October 19, this figure had dropped to US$146.6 billion, a decrease of 37%.

This change in holdings is even more pronounced in some major altcoins. For example, the holdings of XRP and DOGE have both dropped by over 65%. On the one hand, this decline in holdings suggests that the market's overleverage problem has been quickly addressed after this major market cleanup. On the other hand, the significant drop in contract holdings also suggests that the market is uncertain about future trends and is in a wait-and-see state. If this trend persists for a long time, it could indicate the beginning of a cooling-off period.

In addition, from the perspective of the panic index, the panic index during this period fell below 40 again, but still remained above 20, and the market did not completely enter extreme panic.

Regarding stablecoin data, issuance has not been interrupted by market panic, reaching $307.6 billion as of October 21st, continuing to set new records. According to CoinDesk, Citigroup is optimistic about stablecoins as the primary driver of the next wave of cryptocurrency growth.

In short, the October 11th market crash was both an indiscriminate market slaughter and the inevitable result of a previous overheated market. An in-depth study of this unusual crash may offer several insights. On the one hand, the ultimate culprit behind this flash crash was insufficient liquidity. On the other hand, it was also closely linked to excessive leverage in the market.

The positive side of the crash is that this high leverage has been forcibly removed, reducing resistance to further gains (assuming the bull market continues). The negative side is that the market may suffer a severe blow, causing it to struggle to recover or requiring a long time to recover. In either case, the key lesson is that choosing assets with greater liquidity is always the best way to avoid risk.