Bitcoin “flash crash” turns heads as crypto liquidity shifts toward the US

Whoops… Bitcoin’s up more than 40% this year, but for a brief moment this week things weren’t lookin’ so hot. On Monday, the price of BTC on the Seychelles-based BitMEX exchange plummeted to $8.9K (against the dollar-pegged stablecoin tether) before recovering 10 minutes later to about $67K. Meaning someone who bought the dip within that time could have sold for a nearly $60K profit minutes later. BitMEX said someone selling huge amounts of bitcoin was behind the “flash crash,” which can occur when an order book’s sell orders significantly outnumber its buy orders. A flash crash flashback:

• Blip: On Binance’s US exchange in 2021, bitcoin momentarily slipped to $8.2K from $65K within a minute.

• Eek: In 2017, ethereum briefly nose-dived to ten cents from $319 on a Coinbase exchange in the span of a second. The fault: a multimillion-dollar market sell order. 

• First flash crash: In 2010, a $4.1B sell order led to the New York Stock Exchange’s biggest plunge in decades, all within 20 minutes.

Not lit… A key factor in the BitMEX crash was liquidity (or rather, the lack of it). If investors can trade an asset without affecting its price all that much, then a market’s considered liquid. Lower liquidity can mean higher volatility (more price swings), because an asset isn’t trading hands very often. If a market has low liquidity, then a significant sell order could cause a flash crash. An internet sleuth called out the sale of 977 bitcoin on BitMEX as a possible cause of Monday’s short-lived plunge.