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Binance.US blames Bitcoin flash crash on investor bug

By Robert Davis

17:00, 22 October 2021

Bitcoin gold coin and defocused chart background
Bitcoin gold coin and defocused chart background – Photo: Shutterstock

Yesterday’s Bitcoin flash crash on popular trading exchange Binance.US has some analysts wondering why better safeguards were not already in place.

At 7:30 am EDT (UTC-4), the price of Bitcoin dropped more than 87% from $65,000 to $8,200 before rebounding completely within a matter of seconds. The flash crash also had an impact on the price of Bitcoin on other platforms.

Later on Friday, Bitcoin was trading near $60,000 per unit, representing a more than 5% drop from its record-breaking day on Thursday.

‘Bug in their trading system’

Binance.US issued a statement to Bloomberg saying that an “institutional investor” indicated there was a “bug in their trading system,” thus causing the crash.

“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,” the statement said.

Capital.com reached out to Binance.US to confirm the statement but did not receive a reply. Additionally, Capital.com confirmed that Binance.US has not issued a statement on their website.

Expect high volatility

The high volatility moment for Binance.US came as several institutional investors are launching Bitcoin and cryptocurrency exchange traded funds.

For example, the ProShares Bitcoin Strategy ETF gained more than 4% Wednesday during its first day of trading on the New York Stock Exchange (NYSE). VanEck is reportedly following suit and will launch a crypto sometime next week, according to a filing with the Securities and Exchange Commission.

Changpeng Zhao, CEO of Binance, tweeted on Thursday after the flash crash that investors should expect “very high volatility in crypto over the next few months.”

XRP/USD

0.59 Price
+5.430% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.01168

UNI/USD

10.78 Price
+1.260% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.08964

ADA/USD

0.63 Price
+0.120% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.00646

BTC/USD

57,009.65 Price
+4.270% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00

Safeguards

Despite the inherent cryptocurrency market volatility, several users took to Twitter to express their concern that better safeguards were not already in place.

Blackouts and flash crashes are almost expected these days as investing has become more digitised. However, other institutions like the NYSE put safeguards in place to mitigate their damage. For example, the NYSE has backup generators that will keep the market open during power outages.

Binance’s competitor Coinbase had a similar event occur in 2017 when Ethereum experienced a flash crash. The event prompted the company to institute safeguards such as removing “circuit breakers or automated trading halts based on predetermined price bands,” according to Coinbase’s trading rules.

Read more: Cryptocurrency predictions 2021: will the growth continue?

The difference between stocks and CFDs

The main difference between CFD trading and stock trading is that you don’t own the underlying stock when you trade on an individual stock CFD.

With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you.

However, with traditional stock trading you enter a contract to exchange the legal ownership of the individual shares for money, and you own this equity.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional stock trading, you buy the shares for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks.

CFDs attract overnight costs to hold the trades, (unless you use 1-1 leverage) which makes them more suited to short-term trading opportunities. Stocks are more normally bought and held for longer. You might also pay a stockbroker commission or fees when buying and selling stocks.

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