Bitcoin’s 90% flash crash on Binance US, explained πŸ’₯πŸš‘πŸš“πŸš‘πŸš“πŸš‘πŸš“πŸ’₯

Bitcoin prices plunged nearly 90 percent on the United States trading platform Binance in a flash Thursday morning. Prices dropped to as low as $8,200 from around $65,000. The cryptocurrency exchange attributed the flash price crash to a β€œbug” in the trading algorithm of an institutional customer.

“We are continuing to look into the event, but understand from the trader that they have now fixed their bug and that the issue appears to have been resolved,” a spokesperson said.

This came a day after the cryptocurrency surged to a lifetime high of $67,000, six months after its previous high. This rally fuelled by the debut of ProShares Bitcoin Strategy ETF now seems to have taken a breather. The crypto was last trading 3 percent lower at $62,852.

What happened on Binance?

At around 7:34 am New York time, the price of Bitcoin crashed from $65,760 to as low as $8,200. Within fleeting seconds, it bounced back up to almost exactly the price earlier. Volume stood at 592.8 Bitcoin on the exchange during the crash, which is just short of $40 million at current prevailing prices.

The plunge occurred only on Binance but knocked the Bitcoin price on other exchanges as well. On Bitstamp, the price dropped 2.3 percent around the same time but did not go below $63,600. On Coinbase, Bitcoin lost around $1,000.

The crash on Binance also had an impact on the Ethereum price rally, which lost around $2,000 from its price of just over $4,000 per ether.

Reason for the crash

Binance blamed the Bitcoin flash crash on an institutional trader’s rogue algorithm. β€œOne of our institutional traders indicated to us that they had a bug in their trading algorithm, which appears to have caused the sell-off,” Binance told Bloomberg. The company said the issue was resolved after the trader fixed the bug.

However, the flash crash came soon after Binance’s chief executive warned crypto traders of high volatility in the coming months. “Expect very high volatility in crypto over the next few months,” Binance CEO Changpeng Zhao tweeted a day before the crash.

Mistaken crashes like this happen in finance when traders mess up details of their intended trades. Or when they enter the wrong order size or price. If the size of the trade is colossal, it can overwhelm an entire exchange leading to a quick, massive decline. This is called a flash crash.

One such instance happened back in May 2010, when the entire Wall Street flash crashed. While US equities have stayed out of trouble since that instance, the same cannot be said for cryptos.

A string of trading woes

Binance flash price crash is the latest in a string of trading problems in crypto. Earlier this month, the new decentralised exchange Synthetify was forced to halt trading shortly after its debut because of bad data provided by the Pyth Network.

In September, a bug caused an error in the crypto data network Pyth’s platform, prompting it to show a nearly 90 percent drop in Bitcoin prices for a brief period.

(Edited by : Yashi Gupta)

First Published: IST

Bitcoin’s 90% flash crash on Binance US, explained

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