Crypto Market Loses $20 Billion Over Bitcoin’s $1,000 'Flash Crash'

Over the last 24 hours the cryptocurrency ecosystem has lost a total of around $20 billion, likely over a ‘flash crash’ that saw bitcoin drop from around $7,700 to a $6,700 low on most cryptocurrency exchanges, caused by a 5,000 BTC sell order.

According to available data, the flagship cryptocurrency’s price suffered from a 5,000 BTC sell order on popular cryptocurrency exchange Bitstamp. On the exchange, BTC fell to a $6,200 low before it started recovering.

The massive sell order has led to various theories, as users on social media struggle to find out why anyone would dump $36.3 million worth of BTC and flash crash the market in such a way. While some believe the dump could’ve been caused by bots glitching, others point to potential market manipulation.

As some users pointed out, if the trader set up a large short position on a derivatives exchange like BitMEX could turn out to be profitable if it managed liquidate long positions. This is possible as BitMEX uses Bitstamp and Coinbase in its price index.

Other theories revolve around Bitfinex, as the 5,000 BTC dump occurred shortly after it was revealed a New York judge ordered its affiliated stablecoin issuer Tether to freeze transfers to it. As covered, both firms were accused of an $850 million ‘cover-up’ earlier this year.

At press time, bitcoin’s price has started to recover from the ‘flash crash’ as it’s currently trading at $7,260 after falling 8.9% in the last 24-hour period, according to CryptoCompare data.

Bitcoin's price performance in the last 24-hour period

Given the flagship cryptocurrency’s drop, most altcoins quickly followed suit, leading to a $20 billion for the cryptocurrency ecosystem. Most cryptocurrencies are down between 6% and 14% in the last 24 hours.

XRP, ether, and bitcoin cash, which managed to briefly outperform the market earlier this month, are down 6.4%, 6.7%, and 9.7% respectively, while TRON’s TRX and Stellar’s XLM – which saw its blockchain go down for two hours this week – are down by 14%.

Despite the drop most cryptocurrencies are still up so far this month. BTC, for example, has still seen its price rise by 25.8% in May, and by 39.3% in the last 30 days. What’s behind this year’s crypto market rally isn’t clear, although some analysts point to rising tensions between the US and China.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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