Ethereum exchanges need to right flash crash losses

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.

 

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$10,000 bitcoin can’t happen with these exchange outages

While bitcoin was dropping like a stone on Monday with sellers clamoring for the exit, thereby crashing the Coinbase exchange, another digital crypto-like token, ethereum, soared to record highs.

Other exchanges like BTC-e, tweeted on Monday that it was hit by a distributed denial-of-service attack, or DDoS. Their website was back online at 4:00pm EST.

This was the second outage for Coinbase in the last three weeks and both outages were when bitcoin was falling.

So what is with the bitcoin exchanges, that they work fine when there are $200-$500 run ups in price, but fail miserably on the downside? And why can’t they get their stories straight?

For any cryptocurrency to gain broader appeal safeguards must be put in place to give each investor equal opportunity to buy and sell. The last thing anyone needs is a government to step in to regulate the market.

Another question is how is it that a digital currency exchange is developed that is not robust enough to handle spikes in traffic? The exchanges are built with the express purpose of having scalability. It’s not like you built a physical market and then people started trading it online and you were caught short.

The exchanges by using the ploy of server outages due to traffic or DDoS attack at a critical junction are setting themselves up for comparison with Mt. Gox and its implosion some years ago.

If you want to see a $10,000 bitcoin price, these exchanges — and there are about 10 of differing sizes on bitcoin — must come together to execute sales for each other if one exchange goes down.

You can’t expect neophytes, new to the cryptocurrency markets, to be able to manage navigating different exchanges to find one to buy or sell on.


The Federal Reserve is schedule to announce Wednesday the result of its two-day meeting on whether to raise rates another quarter point.

I’ve written numerous times that Yellen & Co. will not raise again this year.

So I’ll stand by that and say the Fed will stand pat and wish to monitor the markets and inflation and stand ready to raise at upcoming meetings, but will stand pat today.

While the low rates have created numerous asset bubbles from stocks to bitcoin, the tightening of credit will have a disastrous effect on the overall economy. GDP is looking at below 2% for the quarter after coming off a sub 1% first quarter.

That’s my call we will see at around 2PM EDT whether I am right or not.

Bitcoin falls $500, but Coinbase cratered worse

Well right after I posted yesterday that bitcoin had broken through the $3,000 mark all hell broke loose.

The digital currency lost $350 in an 18-minute span and an hour later would fall another $150 before finding a floor at $2,530 or so.

This is why I caution “investors” in the currency. You need to be able to stomach the market gyrations on the up side as well as the down side. If you enjoy roller coaster rides, then this may be the investment instrument for you.

A I write bitcoin sits at $2,743, up 3% for the past 12 hours.

The more troubling aspect of yesterday’s drama was the performance of Coinbase, one of the largest digital currency exchanges.

Coinbase tweet

The platform was “down” for a good part of the day, while prices were cratering. Above is the tweet the company put up yesterday at 2PM EDT.

“Investors” could not log on to their accounts and pricing information was spotty at best with no ability to trade. This needs to be rectified immediately if the cryptocurrencies are going to have broader appeal. You can’t have  a major exchange go down when traffic spikes.

This is the second time in a month Coinbase has suffered an outage due to high trading volume. This lack of quality control leads me to believe that the exchange did not want to suffer a liquidity squeeze as sellers were trying to get out of the market.

If that is the case, this could be the first sign of trouble in the cryptocurrencies.

Fangs may lead marts south; BTC heads north of $3K

On Thursday, I wrote about hearing on the street that Friday was going to be a difficult day for stocks.

I then wrote on Friday that futures were not showing any worries from either the James Comey testimony, the English election results nor the possible rate hike this week by the Federal Reserve. However, the headline I wrote was “Nothing to see here, please go buy some FANGs”.

Well the FANGs were the problem. The Nasdaq traded lower by 1.8% Friday as Facebook (-3.3%), Apple (-3.8%), Netflix (-4.7%) and Google (-3.4%).

The selloff came from a Goldman Sachs analyst report saying these and other tech firms’ stock prices are getting overvalued and reaching valuations like the pre-Internet bubble burst.

The pullback should not be too much of a surprise since the Nasdaq is up more than 15% year-to-date, which is double the Dow Jones industrial average’s gains over the same period.


Bitcoin spent much of the overnight trading session above the $3K mark, before pulling back to $2995 by 6AM EDT.

The cryptocurrency is finding strength on each pullback, which for a market technician means there’s a large base being formed. This base is allowing for $80-$100 spikes in daily pricing like we saw Sunday.

Weekends are still the best price appreciation days since the buying does not need any major trading outpost such as London, New York or Hong Kong to execute the trade.