Binance Flash Crashes Almost 90% in Seconds

Anyone with mobile phone alerts for prices on Binance received a shocker of a notification yesterday. The price of Bitcoin on Binance went from almost $67,000 to $8,200 in seconds. The sum rebounded almost instantly but for a brief moment, the cost of Bitcoin on the exchange was on sale. 

Flash crashes occur when someone with a large amount of money makes a poor trading decision; or in this case, has a bad trading algorithm. Every trading platform, cryptocurrency or not, has something called liquidity.

Liquidity is essentially how much can be purchased or sold without causing the price to move dramatically. If an attempt is made to make a trade too large, it could incur a loss, as the price of the asset can change much more dramatically than it should.

This was the case yesterday, with Binance. An institutional investor had a bad trading algorithm that activated a very large sell-off. It is unsure what the size of the loss is for this investor but it was considered substantial as Binance has some of the largest amounts of liquidity in cryptocurrencies. 

This is not the first time a flash crash has occurred and it is likely not the last. These events have caused traders to put in buy orders at extremely low prices. Prices you would not typically expect to see.

Yesterday the price dropped almost 90% and recovered straight away. This means if a Bitcoin was purchased at the bottom of a drop, the price would have an almost 1000% increase in its investment, instantly. 

On the occasion where a buyer seeks a coin as a fraction of its value, the general consensus of that buyer is a hope for an unlikely flash crash event.

There are already many articles voicing that events like this are reasons to avoid cryptocurrencies altogether. However, these articles fail to voice that such events are not just with digital currencies. In May 2010 the entire New York Stock Exchange flash crashed due to an institutional investor’s bad algorithm.

Eventually, safeguards will be put into place on these trading platforms which will stop events like this from happening. Many users have pushed back against safeguards like this in fear of the trading of crypto assets going against the decentralized nature of these coins.

Recently Robinhood has been in hot water for ceasing trading on a few of its assets when the market was moving quickly. This is the exact scenario that crypto traders want to avoid on large exchanges like Binance.

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Written by Isabella Aslam

Reporter

Isabella is an experienced writer in B2B and B2C journalism. Alongside crypto, Isabella writes and discusses the topics of relationships and psychology. Isabella holds a first-class degree in music journalism and often interviews electronic artists and DJs.

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