Bitcoin and cryptocurrency markets were shocked last week when the bitcoin price briefly plunged to under $4,000 per bitcoin, sparking fears of a crypto wipeout.
The sudden fall was led by Seychelles-based bitcoin and cryptocurrency exchange BitMEX, with the bitcoin price dropping to a low of $3,600 on the exchange before it was closed for “maintenance.”
The bitcoin price recovery to back over $5,000 per bitcoin was led by U.S.-based exchange Coinbase with BitMEX lagging far behind the other major exchanges and now crypto analysts have warned so-called leveraged trades, where investors can open positions much larger than their own capital and are popular on BitMEX, can lead to “extreme corrections.”
“On March 12th, bitcoin fell below $4,000. At one point, due to a backlog of liquidations, the price of bitcoin on BitMEX was over $300 below the price on other exchanges,” said Geoff Watts, senior data scientist at U.S.-based Digital Assets Data, which has analysed last week’s bitcoin sell-off.
“We’re seeing a lot of leveraged trades in the crypto markets and that leverage can lead to extreme corrections during periods of high volatility.”
On BitMEX users can borrow against their deposits up to a ratio of 100:1, providing traders the opportunity to amplify their gains, as well as potential losses.
During last week’s crash, BitMEX users saw $750 million in bitcoin liquidated in a matter of minutes.
BitMEX has claimed its outage was caused by a planned DDoS attack against the exchange.
“At 02:16 UTC a botnet began a DDoS attack against the BitMEX platform,” BitMEX chief executive Arthur Hayes wrote in a blog post this week.
“We discovered shortly afterward that this botnet had been responsible for a similar, yet unsuccessful, attack a month ago on 15 February.”
Deribit, a smaller bitcoin and crypto exchange in the Netherlands, also experienced outages during bitcoin’s flash crash last week, one during the sell-off and another after the recovery began.
BitMEX and Deribit, acting as two of the largest liquidity providers, experienced technical issues which may have likely contributed to the extreme volatility, Digital Assets Data researchers found.
Last year, the chief executive of the world’s largest bitcoin and crypto exchange by volume, Binance, Changpeng Zhao warned the bitcoin price was potentially being inflated by the increased use of leveraged trades.
Bitcoin and cryptocurrency markets have fallen sharply over the last few weeks, plummeting along with traditional markets in the face of coronavirus chaos.
Bitcoin and and other major cryptocurrencies saw some $100 billion worth of value erased in just a week, with some senior figures in the crypto community warning confidence in digital assets has “evaporated”—potentially leaving bitcoin and crypto vulnerable.
First Published at Here’s What Caused Bitcoin’s ‘Extreme’ Price Plunge – Forbes