Bitcoin's "24,000 USD" fake fall: an in-depth analysis of the liquidity trap in the new USD1 trading pair

During the Christmas holiday, the BTC/USD1 trading pair on mainstream cryptocurrency exchanges experienced a shocking flash crash. Bitcoin’s price momentarily plunged on the chart to $24,111, then rapidly rebounded within seconds to above $87,000. This extreme volatility did not affect the prices of major trading pairs like BTC/USDT. The root cause lies in the newly launched USD1 stablecoin, issued by World Liberty Financial with a Trump background, which has extremely thin liquidity in its trading pair.

This incident coincided with the platform launching a 20% annualized high-yield promotion for USD1, attracting a large influx of arbitrage funds. During the holiday period with low trading volume, a normal sell order triggered a price collapse. It serves as a warning to all traders: operating in emerging or low-liquidity trading pairs may face slippage and risks far beyond expectations.

Event recap: a “Bitcoin crash” that only exists on the chart

For most Bitcoin investors monitoring the market during Christmas, the market seemed calm. However, a screenshot from a major trading platform caused brief community panic: on the BTC/USD1 candlestick chart, a long lower shadow appeared, with the lowest point marked at $24,111. This starkly contrasted with the mainstream price of around $87,000 at the time, a gap of over 70%. Panic spread instantly—was Bitcoin crashing unnoticed somewhere?

The market quickly calmed down. Further verification showed that this price anomaly was strictly limited to the BTC/USD1 trading pair. All major, high-liquidity pairs like BTC/USDT, BTC/USDC, and even BTC/FDUSD remained stable, unaffected. The flash crash lasted only seconds, more like a chart data “misreport” or order book penetration under extreme conditions. Data showed that after the rapid rebound, the price stabilized above $87,000. Due to extremely low liquidity, this extreme trade did not trigger widespread on-chain liquidation, and the actual market impact was minimal.

Nevertheless, this sudden “needle” was enough to send chills down market participants’ spines. It dramatized a often-overlooked corner of the crypto market: new trading pairs with sparse volume and lacking market maker support are extremely fragile and unreliable in price discovery. Quotes seen by traders can become unrecognizable under moderate buy/sell shocks. The protagonist of this event, USD1, as a new stablecoin with a market cap exceeding $3 billion but still building trading depth, is undoubtedly high risk.

Analysts call such phenomena “microstructure events,” reflecting issues specific to certain trading venues or pairs rather than fundamental asset changes. For ordinary investors, the key takeaway is: when checking Bitcoin prices, always rely on mainstream pairs like BTC/USDT with absolute depth and liquidity. Extreme quotes on small or emerging stablecoins are often just “noise” caused by market illiquidity, not genuine trend signals.

In-depth analysis: multiple factors leading to this textbook flash crash

This flash crash was not accidental but a typical example of combined effects from market liquidity cycles, platform promotions, and investor arbitrage behavior. First, timing was critical—happening during the Christmas holiday. Major global markets were closed, reducing overall crypto activity. Many professional market makers and quant teams decreased trading frequency or narrowed quotes. This “holiday effect” made the already thin BTC/USD1 order book even shallower, lowering its resilience to shocks.

The most direct catalyst was the platform’s promotion of a 20% annualized yield “Booster Program” for USD1. High yields acted like a magnet, attracting massive funds in a short period. WuBlockchain monitoring showed that within hours of the promotion’s launch, USD1 on-chain supply surged by over 45.6 million tokens, with a total market cap exceeding $2.79 billion (now over $3 billion). Large inflows pushed USD1’s price higher relative to other assets, creating a roughly 0.2% premium.

The arbitrage logic and structural market changes behind this event

Arbitrage capital flow

• Promotion attraction: 20% high annual yield enticed users to deposit USD1 into savings accounts.
• Lending arbitrage: savvy investors borrowed USD1 on the platform and sold it in spot markets at slight premiums, earning the spread.
• Sell path: some arbitrageurs sold USD1 via BTC/USD1 to acquire Bitcoin.

Market structural weaknesses

• Liquidity gap: BTC/USD1, as a new trading pair, has severely insufficient market maker depth, with fragile buy support.
• Holiday amplifier: during low activity periods, small sell orders can break through all limit buy orders, causing price gaps.
• Automated trading: algorithmic trades or stop-loss orders triggered by abnormal prices can accelerate downward momentum.

As community analyst Punk explained, arbitrageurs typically borrow USD1 and sell. When some of these sales happen through the least liquid BTC/USD1 channel, disaster strikes. A seemingly small sell order can instantly consume the sparse buy orders, causing a sharp price drop until hitting the next (far below market price) buy order. Joao Wedson, founder of Alphractal, pointed out that such liquidity crunches are more common in bear markets, where overall capital inflow weakens and market depth recovers slowly.

This event is essentially a stress test, exposing the true liquidity level of USD1 in trading scenarios, especially when paired with non-stablecoin assets. Despite its market cap ranking among top stablecoins, its trading depth and ecosystem application still need time to develop. For project teams and exchanges, rapidly scaling via high-yield incentives while simultaneously cultivating healthy depth and diverse use cases is key to avoiding damage to reputation.

Key comparison: why is BTC/USDT almost immune to such flash crashes?

A natural question is: could this happen to the most traded pair, BTC/USDT? The answer is: extremely unlikely. The difference reflects the gap between mature financial infrastructure and emerging market experiments. BTC/USDT supports the largest capital flows and trading demand in crypto, forming a robust barrier against shocks.

Maartunn, citing Kaiko data, provided strong evidence. The “1% market depth” metric (funds needed to move the price by 1%) has not only recovered from the bear market but expanded significantly. By October 2025, at market peaks, the 1% depth on major platforms exceeded $600 million, even surpassing pre-2022 crash levels. This means a $1% price move in BTC/USDT requires billions of dollars in single-sided impact.

More importantly, liquidity did not shrink during the price decline. During Bitcoin’s drop from $110,291 to $86,089 (a 21.77% fall over 100 days), the daily spot trading volume remained high at $19.8 billion, with total trading volume reaching $613.5 billion. Such continuous turnover ensures order book thickness and resilience. Even large institutions selling for some reason would have their orders split into tiny pieces by algorithms, smoothly integrating into market depth without causing abrupt gaps.

This liquidity moat results from years of network effects, user trust, and market habits. Tether, having endured multiple cycles, remains a stable anchor. In contrast, emerging stablecoins like USD1, despite strong backers and high yields, still have a long way to go to build comparable depth and cross-platform liquidity. For ordinary traders, the clear advice is: for large or critical trades, choose pairs like BTC/USDT, BTC/USDC with top-tier depth to protect against abnormal volatility.

USD1 stablecoin and WLFI ecosystem: the real challenges behind the halo

What is USD1? To fully understand this flash crash, one must examine its issuer, World Liberty Financial, and its ecosystem. USD1 is a fiat-backed stablecoin pegged 1:1 to USD, with the notable backing of former US President Trump’s family. This political narrative quickly gained attention and initial trust among certain groups. WLFI’s vision extends beyond issuing a stablecoin; it aims to build a new “financial track” using USD1 as a cornerstone.

The ecosystem employs a dual-token model: USD1 as a stable value and transaction medium, and the native WLFI token for governance and capturing ecosystem value. Dylan, a team member, explained their linkage: widespread adoption of USD1 would bring long-term value to WLFI. For example, as collateral on exchanges, for fee discounts, or governance in DeFi protocols. But all this depends on USD1 becoming a widely accepted, sufficiently deep infrastructure—currently a major challenge.

This flash crash cast a shadow over this ambitious blueprint. It revealed that, despite rapid growth in market cap driven by high yields and platform support, USD1’s core function as a transaction medium—providing deep, stable, reliable liquidity—is still fragile. Market trust in stablecoins is not unconditional, especially when real money is involved. Depth and security are paramount.

WLFI team clearly recognizes the importance of deep integration with top exchanges. Besides high-yield promotions, they have also replaced collateral backing BUSD (B-Token) with USD1, embedding USD1 into the platform’s core financial architecture. This “inside system” role provides initial support but also dependency risks. The flash crash exemplifies this “greenhouse” approach. Long-term health depends on moving beyond single-platform reliance, establishing genuine demand across broader DeFi, payment networks, and commercial scenarios.

Lessons from historical crashes: market maturity and investor self-protection

Crypto markets have long seen flash crashes—from Bitcoin arbitrage gaps across exchanges to small-cap tokens zeroed out by single large sell-offs. Early crashes often stemmed from poor inter-exchange connectivity and incomplete arbitrage mechanisms. Today’s crashes, like USD1’s, occur in “new-old” hybrids with strong backers but immature ecosystems, reflecting increased complexity and risk transfer.

For investors, this event is a vivid risk lesson. It highlights several scenarios to watch out for: first, large trades in newly listed or low-volume pairs; second, during global holidays or low-activity periods (Asian late nights, European weekends); third, chasing high yields without regard for underlying liquidity. These increase the chance of extreme slippage or chain reactions.

How can ordinary traders protect themselves? First, develop the habit of checking “market depth” charts. Before trading, spend a moment observing bid-ask thickness and spreads—more intuitive than technical indicators. Second, use advanced order types like iceberg or conditional orders to avoid single large impact trades. Most importantly, focus on core pairs with proven depth—like BTC/USDT or BTC/USDC—and limit exposure to emerging pairs for small exploratory trades.

Looking ahead, as tokenized traditional assets and cross-border RWA (real-world assets) increase, pairs like BTC/USD1 will become more common. They will inevitably face liquidity pains early on. Regulators, exchanges, and projects must work together to incentivize market makers, improve risk disclosures, and educate investors, preventing microstructure issues from evolving into systemic risks. Each “false fall” is a stress test, revealing what foundational elements need strengthening on the path toward a mature financial ecosystem.