Chain.com (XCN) token loses 96% of its value in flash crash, Celsius’ CEL token price surges 8x before falling back

On Tuesday, the token of cloud blockchain infrastructure provider Chain.com (XCN) suddenly lost more than 90% of its value before recovering most of the losses later in the day. In a post-mortem analysis published by Chain.com, the company said that market maker and API errors caused XCN to fall sharply. Further downward pressure was caused by low liquidity and margin calls.

XCN token prices quickly recovered after developers determined that a technical issue, rather than a security vulnerability, triggered the massive sell-off.

According to Chain.com CEO Deepak.eth , a large margin call appears to have exacerbated the flash crash, with up to 500 million XCN ($42.24 million at the time of publication) worth of tokens purchased via leverage being liquidated in a short period of time.

The price of a token is not always proportionally related to changes in supply and demand. Contrary to popular belief, a single large trade or a series of large buy/sell orders in a short period of time can have a disproportionate impact on the price of a token, especially when there is little liquidity.

For example, as crypto enthusiast dev.eth first pointed out last month, the price of the token for crypto project Cope fell 77% after developers said they needed to sell tokens to “get developers through this tough time.” However, due to a lack of liquidity, the developers only had to sell 10% of the circulating COPE tokens to cause the massive drop.

Meanwhile, the CEL token of troubled crypto lending platform Celsius jumped eightfold, from 30 cents to an intraday high of $2.57, according to FTX data. But within an hour of the surge, CEL's price fell back and was trading around 54 cents at press time, with a market cap of around $125 million.

That’s still up from 35 cents before the recent crash, when Celsius halted withdrawals on Sunday, citing “extreme market conditions.” In response to the news, Celsius’ CEL token plunged 48% from 35 cents to 18 cents late Sunday.

The latest price surge appears to have been driven by large spot buyers on crypto exchange FTX, according to data from the exchange.

One trader who spoke to CoinDesk said the price action suggests a short squeeze in the market because shorting Celsius tokens has become an “overcrowded trade.” A “short” position is one in which traders bet that a token’s price will fall.

A short squeeze occurs when a token’s price rises sharply, prompting traders who were short it — often with borrowed money or tokens — to buy back or “cover” their positions to avoid even bigger losses.

Questions surrounding Celsius’ financial situation have been making waves in the cryptocurrency market. On Tuesday morning, Celsius appeared to have repaid $28 million of its outstanding loan with Maker, a decentralized finance protocol for lending the stablecoin DAI . The company also appears to have $250 million in Bitcoin collateral outstanding.