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- Bitcoin traders were left alarmed after BTC crashed within minutes for no apparent reason while other Bitcoin markets were operating normally.
- As previously reported, Bitcoin prices fell from a high of around $65,760 to a low of $8,200 at 11:34 UTC, then quickly rebounded almost exactly to its previous level.
- Arbitrage traders quickly took advantage of price errors and brought Bitcoin back to normal levels. However, the company lost millions of dollars.
On October 21, 2021, Bitcoin traders trading on the Binance US crypto exchange witnessed a massive price crash; How did this happen?
What Caused Bitcoin’s Drop in 2021?
According to a former employee who began to reveal the inner workings of Sam Bankman-Fried’s company, the slump that caused Bitcoin (BTC) prices to temporarily drop by over 87% in 2021 was attributed to the ailing trading company, Alameda Research.
On October 21, 2021, Bitcoin traders on the Binance US crypto exchange panicked after BTC collapsed within minutes without a clear reason, while other Bitcoin markets were operating normally.
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As previously reported, Bitcoin prices plummeted from around $65,760 to as low as $8,200 at 11:34 UTC, before quickly rebounding to nearly the previous level. A Binance US spokesperson stated that the crash was caused by “an error from one of their institutional traders’ trading systems.”
The identity of the trader had remained a mystery until now, but recent tweets from a former Alameda Research employee suggest that the trading firm could be the cause of the incident.
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Baradwaj mentioned that most of Alameda’s transactions are carried out using algorithms, but there are times when traders can manually send orders or take advantage of a profit opportunity during market volatility. This is seemingly why the glitch occurred.
“They sold BTC for cents”
“The trader was trying to sell a block of BTC in response to news, and he sent the order through our manual trading system,” tweeted Baradwaj, adding, “What escaped their notice was that the decimal point was missing by a few spaces. Instead of selling BTC at the current market price, they sold it for a few cents.”
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Arbitrage traders quickly took advantage of the price discrepancies and brought Bitcoin back to normal levels. However, Alameda suffered losses in the millions.
“Alameda’s losses from the fat-fingered trade were staggering – in the tens of millions. But since it was an honest mistake, there wasn’t much to be done other than implementing additional sanity checks for manual trades,” said Baradwaj.
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