Deribit Exchange Causes Flash Crash, Compensates $1.3M to Traders
The Deribit exchange saw a flash crash to $7,700, triggered by Coinbase glitch and bot trading.
Deribit, a newly launched derivative exchange, saw a one-off event that wiped out Bitcoin (BTC), flash-crashing the price to $7,700 while filling orders all the way down. The sudden price anomaly saw the price return immediately to above $9,000.
Deribit has announced it will cover the losses from its own funds, not resorting to the insurance fund for derivatives:
https://twitter.com/DeribitExchange/status/1190047067365953536
A flash crash may erase the value of any asset to almost zero, and has happened for BTC and Ethereum (ETH) a few times in history. Because of automated orders, BTC is vulnerable to those events. Deribit explained that its algorithms should have excluded an outlier value from the calculation of the reference price, to use a more fair value for the futures.
Fortunately, the loss was small, and Deribit continues to operate. The exchange did not have its domain seized, as a FUD tweet suggested on November 1.
https://twitter.com/Cryptoeasymone2/status/1190109342609137666
The trading algorithms caused cascade effects based on a short-term order glitching on Coinbase Pro. Traders reported canceled orders and price gaps.
https://twitter.com/CaptainofCrypto/status/1190030181450293249
This led to small liquidations on BitMex, and a loss of confidence that pushed BTC to lows around $9,055. However, the levels above $9,100 found enough support and BTC recovered.
On Friday, the leading coin traded at $9,148.89, on volumes above $26 billion in 24 hours. The Bitcoin fear and greed index is at 50 points, down slightly from 53 points a few days ago. Now, the weekend may see another attempt at a bigger rally.