Bitcoin Flash Crash

Bitcoin Flash Crash

What Happened ?

Bitcoin prices experienced a flash crash on multiple exchanges before recovering rapidly to normal levels on the 21st October, a day after Bitcoin reached a new all-time high above $67'000. Prices dropped to as low as $8'200 on Binance's US platform and $54'000 on Kraken. There was a large increase in volume as 592.8 bitcoins (approx. $40 million) were sold within the minute.

Within seconds, prices bounced back up to almost to pre-flash crash levels. Although the flash crash only occurred on Kraken and Binance US, prices on other exchanges such as Bitstamp and Coinbase took a hit but to a lesser degree.

What caused the flash crash ?

Binance attributed the flash crash to a "bug" in the trading algorithm of an institutional customer. They mentioned that

One 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

The company said the issue was resolved after the trader fixed the bug. Crypto news platform 'The Block', expressed their surprise at the occurence of such an event. This is because exchanges typically have systems in place to avoid such situations.

The New York Stock Exchange for example, uses circuit breakers to stop trading if sudden price drops are detected. Coinbase has implemented price-protection-points, which automatically prevent orders from being filled if they fall outside certain parameters or 'price-points'. That is why Coinbase and other exchanges were able to avoid the flash crash.