The cryptocurrency market suffered a major flash crash on Wednesday losing 96% in value in 10 seconds, before bouncing back.
Ethereum — which is a derivative off of bitcoin — plunged from $315 to $0.10 on massive volume created by a deluge of stop-loss orders and margin squeezes.
A stop-loss order is a trade that is executed automatically once a security – in this case ethereum – hits a particular price.
Again as I wrote earlier, the culprit in the crash is the exchanges, which could not correctly process a large sell order. Of course the exchange alleges that there could be market manipulation behind the crash, due to a large sell order.
Adam White, the vice president of GDAX which is an exchange run by Coinbase, posted on the firm’s blog, outlining what took place at around 12:30 p.m. PT on Wednesday. According to White, the multimillion dollar market sell order resulted in a number of orders being filled from $317.81 to $224.48.
“Our initial investigations show no indication of wrongdoing or account takeovers. We understand this event can be frustrating for our customers. Our matching engine operated as intended throughout this event and trading with advanced features like margin always carries inherent risk,” White said in a blog post.
“We are continuing to conduct a thorough investigation and will keep customers updated with any resulting actions.”
Some investors point the initial coin offering (ICO) demand on Ethereum to a funding launch for an ethereum-based messaging app called Status which took plenty of processing power off of the network.
Message boards point to Ethereum buy orders at $0.10, which were fulfilled and as the price soared back to $300, made millions on the crash.
When stock exchanges flash crashed in May 2010, trades such as the one above were cancelled. It is still unclear what will happen to crypto investors who had their Ethereum was sold for pennies on the dollar, due to stop-loss orders that were executed at far lower levels than the contract specified.
Ethereum is trading at $328 Thursday morning.