Cryptocurrency Flash Crashes
On January 3, 2009, Bitcoin network was launched over the internet, and has suffered no down time since*. Although the technology that enables Bitcoin and other open source financial instruments is inherently stable and resilient, the pioneering markets for trading internet based coins and tokens have been anything but.
In the first years of cryptocurrency most of the discourse and purchases were done freely online with no oversight or barrier for entry — and the wild nature of an ecosystem born over free internet access has appropriately furnished one of the most wild and interesting markets the world has ever seen.
Along with the accelerated speed of development, evolution and news turnover, the cryptocurrency world can boast some of the most exciting price swings ever seen by speculators. So without further ado, here’s a rundown of 3 moments of extreme volatility:
The Night Bitcoin dropped 80%:
On February 10, 2014, Bitcoin was still coming down from its 2013 bubble peak.
While America, Europe and west Asia were sleeping, MTGox, the biggest Bitcoin exchange at the time, announced (for what was to be the last time) that it has disabled withdrawals.
Shortly afterwards someone placed two huge sell order (one of which was for more than 6,000 Bitcoins) on two of the surviving (and unregulated) Bitcoin exchanges, BTC-e and Bitfinex. About seven million dollars worth of Bitcoins for sale at one moment was what it took to trigger a price fall of more than 80% to 102$ (a number Bitcoin hasn’t seen since) before bouncing back.
The price move liquidated almost all the leveraged positions that existed on the exchanges and created a shock in the entire Bitcoin market.
Either a panicked novice investor or market manipulation triggered the crash. Those who had a low priced buy order for Bitcoins that night were very lucky customers.
Ethereum — from 360$ to 0.1$ in 2 seconds:
Not much more than a year prior to the writing of this article Ethereum suffered its biggest flash crash.
Perhaps surprisingly it happened in one of the most regulated exchanges, GDAX, which was under the New York State BitLicense. On June 21, 2017, a single order for the sale of 96,100 Ethereums (approximately 30 million dollars worth of currency) was placed.
The sale and its effect on leveraged speculators, pre-placed orders and trading bots sent the price to the floor of the exchange and into the hands of the lucky buyer of an unconfirmed amount of Ethers for the price of only 0.1$. The new exchange honored both the buyers of the dirt cheap coins, as well as reimbursing the accounts that were damaged by the crash.
ViaCoin pumps 9,900%:
It was just a matter of time until a hacker tried this scheme:
On March 7, 2018, a criminal hacker gained access to several trading bot accounts on the cryptocurrency exchange Binance. Reportedly it was impossible to withdraw coins from the accounts, so instead the hacker used the money under his control to escalate the price of the somewhat obscure Viacoin 100 times its market price!
The hacker had placed in advance, in the 31 trading accounts he prepared, sell orders for his Viacoins at an inflated target price.
Luckily Binance recognized the abnormality, disabled automated withdrawals from the exchange and then seized the suspicious accounts — and returned the money to the hacked account as if it had never happened. The only evidence of this can be seen on the graph:
In conclusion:
The cryptocurrency ecosystem is quickly evolving and though it is becoming more professional and stable at every turn, its nature is still to keep delivering surprises, less and less by extreme volatility and more by technological hacks with unimaginable impact — serving and reinventing the future of money and the nature of open networks.
* To be exact: Bitcoin has enjoyed a 99.99% up-time according to bitcoinuptime.com
