TL; DR Breakdown
- Binance U.S experienced a Bitcoin(BTC) flash crash on Thursday. The event saw BTC plummet momentarily from a high of $ 65,815 to lows of $8,200.
- The firm says a bug in a customer’s trading algorithm prompted the sell-off. The customer resolved the glitch, and BTC recovered rapidly.
In Thursday’s event, BTC plummeted a whopping 87 percent for a few seconds. From a high of $ 65,815, the king crypto crashed o a frightening low of $8,200. It, however, quickly regained value, closing well above $ 62,000.
The event sent tongues wagging as to what could’ve caused it prompting Binance U.S’s response. The firm’s spokesperson then fingered a bug in one of its market maker’s trading algorithms for the crash.
The spokesperson said that the trader alerted Binance U.S of the issue. And added that the institutional trader had since resolved it. Binance also undertook to investigate the matter further.
Binance’s statement, however, fell short of mentioning who the trader is fueling further speculation. Some quarters have suggested that the trader is SBF or one of his firms. That’s because his FTX platform has faced similar issues.
Impending BTC volatility
Yesterday’s crash coincided with Binance’s chief executive’s warning on impending crypto fluctuations. Changpeng Zhao (CZ) had tweeted that crypto lovers should prepare for high volatility within crypto markets.
This week has seen an upsurge in BTC prices. It set an all-time high of $66,974 on Wednesday. It has, however, fallen to about $63,000 at the time of writing.
Analysts credit this rise to listing the U.S’s first BTC futures-linked exchange-traded fund (ETF). The ETF’s listing on the New York Stock Exchange (NYSE) has fuelled demand for the coin. It has also raised concerns about a possible sell-off.
CZ isn’t alone in cautioning about the impending volatility. Alianz’s Mohammed El-Erian echos his sentiments too. El-Erian contends that the liquidity wave also arose from the Federal Reserve’s Covid-19 stimulus interventions.
The Fed has since warned that it’ll start easing those measures. And El-Erian says investors should be wary. He adds that investors have been riding on a Fed-induced liquidity wave. But this wave will break, sometimes exposing them to higher volatility.
Crash places Binance U.S under scrutiny
The development places Binance U.S under sharp scrutiny. Users have expressed concern that the exchange didn’t have safeguards against such occurrences.
Flash crashes aren’t a new occurrence in the financial world. They occur due to the digitization of trading activities. An error in the system can trigger an asset’s sell-off.
That’s why many in the financial sector implement measures to guard against such happenings. For instance, the New York Stock Exchange has circuit breakers. These stop trading on detecting sudden price drops.
The exchange’s competitor Coinbase has a similar protective mechanism. It has a price protection points feature. The mechanism allows it to cancel any orders that violate certain price parameters.
It isn’t the first time that the firm is experiencing such a crash also. In December 2019, it suffered a similar fate whereby BTC tumbled by over 90% when trading against the StableUSD stablecoin.
That said, many exchanges have also suffered the same situation. It’s a concern because it can affect users who’ve placed stop-loss orders. It isn’t clear if any traders suffered losses during the event.