Bitfinex experienced a ‘flash crash’, and the price of Bitcoin fell 14% in 30 minutes

The price of Bitcoin fell 14% in 30 minutes yesterday after a bizarre 'flash crash' on Bitcoin exchange Bitfinex.

Before the decline, the price of Bitcoin remained at around 1,600 RMB. After the strange market crash on Bitfinex, the market price of Bitcoin fell to as low as 1,419 RMB. The scene on the Bitfinex platform was even more shocking, and it once fell to 179.35 US dollars (1,147 RMB).

Bitfinex, which bills itself as one of the most liquid Bitcoin exchanges in the world, reportedly experienced a ‘flash crash’ after a large sell order worth 10,000 BTC ($2.3 million) was placed.

The company tweeted at 03:22am US time:

“The sell orders and margin trading positions that are used to dump the market are real and legal, and the lenders are not affected.”

In addition to regular buy and sell orders, Bitfinex also offers margin trading (leverage trading), which means that users can borrow funds from the platform's lenders, who charge a certain interest. These users will judge whether the price of Bitcoin will rise or fall, and then trade "short-term" or "long-term" contracts.

When prices change suddenly, like they did yesterday, users of ‘long’ contracts who have borrowed funds may see their account equity drop to zero, in which case Bitfinex will automatically liquidate their accounts, which will exacerbate price volatility.

Regarding margin trading, traditional exchanges will impose a 10% price change limit on transactions, but it is not clear whether Bitfinex will adopt this "circuit breaker mechanism."

Phil Potter of Bitfinex, a member of the ‘whale club’, told CoinDesk that the platform had experienced several technical setbacks.

Timo Schlaefer, CEO of derivatives trading platform Crypto Facilities, told CoinDesk that margin trading has caused several flash crashes in the bitcoin price in the past, including the crash on Bitfinex and BTC-e in August last year, which caused the bitcoin price to drop by 10%.

He said:

“This is bad for Bitcoin because it shows that the market is still immature and unreliable, and it seems that there has been little progress in this regard over the past year.”

However, an anonymous Bitcoin market maker said that margin trading was not the only reason for the Bitfinex flash crash.

“You can do margin trading, which is not actually offered by the exchanges, and there is nothing stopping you from borrowing money to fuel your gambling habit.”

He claimed that this was due to the "gambling mentality" in the cryptocurrency world, where traders invested large amounts of money and then used a lot of leverage, exacerbating price fluctuations.

He also added that the current uncertainty surrounding the Bitcoin XT “fork” war of words has also had a negative impact on prices.

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