Algorithm Bug Causes Bitcoin Flash Crash on BinanceUS

Algorithm Bug Causes Bitcoin Flash Crash on BinanceUS

Last updated on November 1st, 2022 at 12:05 am

BinanceUS cryptocurrency exchange

While Binance is the largest cryptocurrency exchange and is used by a large percentage of crypto traders globally, it is not short of mishaps that usually lead to traders critiquing the platform.

The most recent issue on the exchange happened on October 21st after Bitcoin’s price dropped by 87% to around $8,000 on the exchange.

The flash crash happened during the early trading hours and while the price of Bitcoin on BinanceUS dropped to $8,000, it remained at the level of around $64K on all other major exchanges.

Binance has now stated that the flash crash was caused by a bug on a trading algorithm.

In a statement to Bloomberg, BinanceUS stated that,

“One of our institutional traders indicated to us that they had a bug in their trading algorithm, which appears to have caused the sell-off. We’re continuing to look into the event, but understand from the trader that they have now fixed their bug and that the issue appears to have been resolved.”

However, the dip in the price of Bitcoin on BinanceUS did not affect the coin on other exchanges, as the price remained the same. The price corrected in a matter of seconds on the exchange and went back to the trading levels of above $60K.

While flash crashes are seen often in the crypto sector, they can lead to losses for traders who had set up stop-loss orders. A stop-loss order is one that automatically sells an asset if the price of that asset falls below a specified amount.

BinanceUS has yet to clarify whether any traders suffered losses because of this trading bug and whether the exchange will compensate them for the losses.

Flash Crashes in Crypto

As mentioned, flash crashes are common in the crypto sector. BinanceUS is not the first exchange to experience these types of crashes where the price of an asset falls massively before the price corrects almost instantly.

On October 11th, a massive sell order on Bitstamp exchange led to a flash crash in Bitcoin’s prices, which dropped to the lows of $51K before the price corrected.

Usually, a flash crash only affects the price on a single exchange, with the other leading exchanges maintaining the normal prices.

In December 2019, Binance suffered another flash crash that led to Bitcoin’s prices dropping by over 90% on the BTC and StableUSD trading pair. Before this crash, the same trading pair suffered a flash spike that led to the asset increasing from $5,000 to $11,000 before a correction happened almost instantly.

Earlier this year, the DOT/USD perpetual futures contract on Binance Futures underwent a massive flash crash where prices dropped from the highs of $33.862 to lows of $0.20 in an instant.

Cryptocurrency trading platforms rely on algorithms and computerized systems to complete trades. However, these systems are prone to errors whenever there is an unexpected abnormality during trades. Huge sell or buy orders are usually the main causes of a flash crash or a flash spike.

This is different to traditional stock exchanges. For instance, the New York Stock Exchange uses a circuit breaker that immediately halts trading if there is a major and unexpected dip in prices. This helps prevent losses for leverage traders and also alleviates market panic.

However, the use of something similar to this may not currently be the answer as Bitcoin and the cryptocurrency market as a whole is a very volatile asset.


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