On Wednesday, June 26, the price of BTC came close to reaching $14K. One hour later, it had dropped by close to 18%. Such events are known as a flash crash, a moment in time where a rapid-sell off happens and often times a few exchanges become inoperable. Over the last few years, especially when the market is extremely bullish, flash crashes have been prevalent.
The June 2019 BTC Flash Crash
The price of bitcoin core (BTC) took a dive on Wednesday after touching $13,850, dipping to $11,900 at an extremely rapid rate. In the midst of the drop, Coinbase suffered an outage and customers could not access the website. Not too long afterward, the San Francisco exchange detailed that the platform was operational again. The outage and the $1,700 flash crash was yet another reminder of the risks assumed when people use centralized trading platforms. Cryptocurrency traders have dealt with flash crashes a lot over the years and it’s safe to assume there will be more in the future. In order to understand these events, news.Bitcoin.com has collected data on some of the biggest crypto flash crashes of our time.
Flash Crashes Have Plagued Crypto Traders Since 2011
Mt. Gox June 19, 2011 and April 10, 2013
One of the first big flash crashes was in 2011 when BTC was trading for $2 per unit on Mt. Gox before suddenly creeping up to $32 per coin. At the time, bitcoiners celebrated the fact that BTC met parity with 1 ounce of 0.999 fine silver. However, on June 19, 2011, there was a large flash crash on Mt. Gox which saw the price plummet from $17 to $0.01 in a matter of no time. The sell-off was initiated by the announcement that Mt. Gox had been hacked. The Mt. Gox website was also inoperable at the time and customers could not access their funds. The exchange reopened that Sunday at 10 p.m. EST and not long after, most bitcoiners forgot about the incident.
Another crash that took place in the spring of 2013 saw BTC prices tumble from $266 to $100 in a few hours. At the time, BTC prices were extremely bullish, rising from just $13 in January to over $200 during the start of the spring. The crash took place on Wednesday, April 10, 2013, and during the downswing, Mt. Gox customers complained of login issues and extreme lag using the trading engine. Some trades allegedly took more than 70 minutes to process according to Vitalik Buterin’s recount of the day. The community assumed Mt. Gox was suffering from a distributed denial-of-service (DDoS attack) but Mt. Gox told clients it wasn’t a DDoS and said the lag was due to “high volume trades.” Another Mt. Gox tweet that followed said: “Network maintenance, don’t freak out!”
Btc.e Exchange, February 10, 2014
The now-defunct Btc.e exchange was a popular and long-running trading platform during the earlier years of crypto. On Monday, February 10, 2014, traders on the exchange watched the price of BTC drop from $620 to $102 in a matter of seconds. According to reports, the price of BTC bounced right back on the exchange two minutes later. “The crash is the result of what appears to be a single person selling at least 6,000 bitcoins significantly below the market price,” explains the Bitcoin Wiki page en.bitcoin.it/wiki. The crash record notes that the motivation behind the sale was a “subject of debate” and “the sale was made with apparently extreme loss.”
Bitfinex August 19, 2015 and November 29, 2017
In the summer of 2015, the price of BTC dropped 29% on Bitfinex in roughly a 30-minute period. The entire global average took a 14% hit that day, but on Wednesday, August 19, 2015, BTC prices dipped from $255 to $179.35 on the exchange. At that time, Bitfinex was one of the most liquid bitcoin trading platforms by volume and told the media the crash was “triggered by several leveraged positions.” Bitfinex executive Phil Potter explained in an interview that the exchange dealt with “technical difficulties” and “lag in its live engine.”
On November 29, 2017, Bitfinex had multiple flash crashes as the prices of NEO, OMG, and ETP reportedly lost more than 90% of value in minutes. At the time, Bitcoin futures had just been announced and the price of BTC was rallying toward $10k. The same day, BTC’s price corrected by 20% and Sam Aiken wrote a blog post on Medium describing how he lost a great deal of money. Aiken said the price of ETP instantly fell from $3.50 to $0.05, triggering stop-losses and liquidations. “A bit later ETP will fall down again from $2.7 to $1.00 and jump right back — After that NEO fell down from $33 to $4,” Aiken declared.
GDAX/Coinbase, June 21, 2017
Ethereum traders were shocked to see the price of ETH fall from $319 per coin to as low as $0.10 on the GDAX exchange, which is now called Coinbase Pro. The flash crash was blamed on a “multimillion-dollar market sell order.” Reports state that when the price of ETH dropped more than 800%, stop loss orders and margin trade liquidations took place. Coinbase vice president Adam White explained that “some customers did not receive the quality of service we strive to provide and we want to do better.” White revealed that the San Francisco-based company would reimburse traders after the flash crash. “For customers who had buy orders filled — we are honoring all executed orders and no trades will be reversed. For affected customers who had margin calls or stop-loss orders executed – we are crediting you using company funds.”
Kraken May 7, 2017 and May 29, 2019
The price of BTC to Canadian dollars (CAD) dropped on Kraken exchange from $11,200 to $101 on May 29, 2019. The drop was over 99% but it lasted only a minute or so before the price stabilized. Years prior on May 7, 2017, ethereum traders saw the price of ETH/USD plummet from a high of $98 per ETH to $26 a coin which triggered a cascade of margin liquidations. Kraken revealed that despite the fact there was a DDoS attack “the liquidations had been triggered and they could not be stopped – DDoS or not.” “The DDoS did neither cause nor exacerbate liquidations,” Kraken added. “[If Kraken should have halted trading while under attack] the consequences for traders would have been even worse.”
Poloniex, May 26, 2019
Poloniex, a subsidiary of Circle Financial, had a flash crash on May 26, 2019, when the price of clams (CLAM) plummeted. Reports state that margin traders saw the price of clams lose 77% in value in less than an hour. Poloniex revealed that the platform’s margin lending pool took a loss of $13.5 million thanks to a burst of liquidations. “The velocity of the crash and the lack of liquidity in the CLAM market made it impossible for all of the automatic liquidations of CLAM margin positions to process as they normally would in a liquid market,” Poloniex told customers. “Lenders impacted will see the reduction in their accounts when they next log in,” the exchange added.
Trade Safely: Flash Crashes Can Happen at Any Time
The flash crash last Wednesday is a good reminder that cryptocurrency markets are still very much prone to these incidents. It also should give large trading platforms a kick in the ass to prepare for large waves of users if 2019 is anything like 2017. Exchanges had more than a year to prepare for the next bull run and heavier usage. Traders who keep funds on exchanges should be aware that flash crashes could happen at any time and there may be a chance they cannot access funds when they need to trade. People should never put down more than they are willing to lose on a centralized trading platform.