What's behind the recent multi-billion-dollar wipeouts in the crypto market?

The crypto market’s recent sharp selloff wiped out nearly $20 billion in leveraged positions in a matter of hours, with the overall market reportedly losing half a trillion dollars over a weekend.  

For Anthony Georgiades, founder and GP at Innovating Capital, the event exposed long-standing structural flaws but also demonstrated how far the industry has come. Heading up a firm that has $220 million in committed capital with nearly 50 portfolio companies across crypto, AI, and enterprise, Georgiades has a unique vantage point and has been sharing his view on the crypto market with InvestmentNews.

“These losses revealed how much structural leverage had quietly built up across parts of the crypto market,” Georgiades says. “Close to $20 billion in positions were unwound in a matter of hours as margin calls and forced liquidations overwhelmed available liquidity. Once prices started falling, the lack of depth on offshore exchanges created a feedback loop that intensified the decline.”

He called it a necessary but painful “flush” that forced markets to confront risks that had been quietly accumulating beneath the surface.

“Unlike past collapses, the market’s recovery was fast, with Bitcoin and Ethereum rebounding within days,” he notes.  “That suggests the underlying infrastructure - including custodians, clearing systems, and institutional liquidity providers - has become far more resilient than in previous cycles.”

But resilience doesn’t mean immunity and Georgiades acknowledges that there is some fragility, made evident by the crypto market falling again last week.

“The market’s sensitivity to macro cues means we can’t assume all structural issues are solved. This drawdown acted as a useful correction, flushing excess leverage, but the market is not immune to shocks and volatility,” he warns.

Cautious investors

Georgiades explains that the market’s fragility is what keeps institutional players cautious and focused on the most liquid corners of the market.

“Bitcoin and Ethereum fell about 10% to 12%, while many smaller assets dropped as much as 70% to 80% in a single day,” explains Georgiades. “That kind of volatility reinforces why most institutions will continue to focus on the largest, most liquid assets for now. We expect capital to concentrate in vehicles like Bitcoin and Ether ETFs, which offer scale, clarity, and strong oversight.”

For Georgiades, the recent slumps also illustrate a broader shift in how investors are approaching digital assets.

“The market is becoming more selective,” he says. “Tokens that serve real economic functions, like powering decentralized compute, storage, or verification, are starting to outshine pure speculative plays. This marks a shift toward substance over hype, favoring assets that solve problems rather than those that just ride momentum.”

That shift, he believes, will define the next growth cycle.

“Infrastructure tokens are becoming the backbone of the next growth cycle,” he says. “They represent the digital equivalent of utilities, critical for powering decentralized apps, AI integration, and cross-chain operations. As institutions seek exposure to core blockchain infrastructure rather than riskier meme assets, these tokens will capture growing demand, and over time, they’ll underpin the industry’s transition from speculative trading to productive digital economies.”

Protection from future losses

Better transparency and risk management, Georgiades says, will be key to preventing the kind of cascading losses seen recently.

“The industry needs better risk management, consistent margin standards, and more transparency across derivatives markets to avoid the kind of liquidations we saw earlier,” he says. “On-chain tools that allow for real-time collateral checks and automated circuit breakers will also be important to limit contagion during periods of stress.”

For investors and their advisors, who are likely to have been made nervous by the losses seen in recent months, Georgiades points to several early warning signs to monitor.

“Watch funding rates, open interest spikes, and collateral utilization trends across major derivatives venues,” he advises. “On-chain lending metrics and exchange inflows can also indicate excessive leverage. When speculative volume starts outpacing spot trading or offshore futures premiums rise sharply, that’s a warning sign.”

Institutions are reshaping the market

“Institutional investors are replacing retail leverage with more disciplined capital,” says Georgiades.  “This shift is reducing knee-jerk volatility while bringing better governance and liquidity management to exchanges and custodians. As regulated funds and ETFs dominate flows, crypto behaves more and more like a mature asset class tied to macro trends.”

He expects this discipline to extend beyond trading practices into regulation and market design.

“This type of stress event typically speeds up innovation and oversight. Regulators and exchanges alike will push for automated margin transparency, standardized reporting, and circuit-breaker mechanisms. On-chain collateral verification could become the norm, bridging the gap between traditional finance risk controls and DeFi transparency,” he says.

Looking ahead, Georgiades envisions a crypto ecosystem defined less by leverage and speculation and more by genuine utility with clear regulation, institutional-grade infrastructure, and real-world use cases driving value.

“Leverage will play a smaller role, replaced by tokens tied to productive activity, including compute, data, and finance. Crypto will ultimately evolve into a regulated, utility-driven digital economy rather than a speculative frontier,” he anticipates. “We’re seeing the early signs of a market maturing. The excess leverage has been flushed out, and in its place, we’re seeing capital flow toward infrastructure, data, and compute; things that actually make blockchain technology work. That’s a healthier foundation for long-term growth.”