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How An ‘Inconsequential’ Mistake Saw Bitcoin Crash To $8,000

Bitcoin is known to be a very volatile digital asset as its price is often wont to rise and fall unexpectedly, and sometimes without a clear reason. One of these instances of the digital asset flash-crashing was back in 2021 when the price of Bitcoin had fallen 87% on some exchanges in a matter of minutes. However, the mystery behind this flash crash has been unveiled two years after it first occurred.

Former Alameda Research Engineer Spills Secret

Alameda Research is the sister company of the now-defunct FTX crypto exchange run by Caroline Ellison who served as CEO until it collapsed. Following the bankruptcy, employees at the trading firm have, at various times, come forward to tell stories of what took place at the company. This time around, an ex-engineer Aditya Baradwaj is telling the story of how a simple mistake caused the company to lose tens of millions of dollars.

Baradwaj took to his X (formerly Twitter) account to reveal how an Alameda employee had unwittingly triggered a Bitcoin flash crash in 2021. According to him, the error was a result of two trading systems operated at the company.

The ex-engineer explained that Alameda had semi-systemic strategies in which a complex automated trading system was controlled by model parameters set by traders. The second was manual trading which would be done when the former could not execute a trade due to a number of reasons.

In the case of the trader who triggered the flash crash, they had to manually enter a trade to sell a large tranche of BTC using Alameda’s manual trading system. However, the trader had failed to realize that the decimal point in the trade was off by a couple of spaces, which meant that they were selling the BTC at much lower prices than the current price.

The result of this simple error was Alameda selling off a sizable portion of BTC at pennies on the dollar which resulted in a flash crash on multiple exchanges. The crash was most prominent on the FTX and Binance exchanges, where prices fell from $65,000 to $8,000 in a matter of minutes.

Covering Up The Bitcoin Crash

The aftermath of the flash crash, according to the ex-engineer, involved Alameda rushing to put in place sanity checks that should have been available before any manual trades were executed. He notes that this was not out of the ordinary as they were always waiting for things to break before fixing them at the company.

“That’s usually how things worked at Alameda – we would wait until something broke, and then rush to fix it,” he said. Baradwaj also referred to FTX founder Sam Bankman-Fried saying that the utility gained after the events outweighed the costs incurred from poor risk checks and hacks.

He also pointed to Binance commenting on the flash crash with a statement that blamed a bug in the trading algorithm of one of their institutional traders. “I guess Caroline had made some phone calls,” Baradwaj said, referring to Alameda’s CEO.

Bitcoin price chart from Tradingview.com (Bitcoin crash)

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Ex-Alameda Employee Claims Firm Triggered 87% Bitcoin Price Plummet In 2021

In a recent disclosure, a former employee of Alameda Research, a trading firm led by Sam Bankman-Fried, has unveiled crucial information regarding the dramatic 87% plummet in Bitcoin (BTC) value during 2021. 

The incident, which occurred on October 21, 2021, witnessed BTC’s price on Binance.US nosedive from approximately $65,760 to $8,200 within a short period.

Insider Details Of Bitcoin Plunge And Alleged Manual Trading Error

The ex-employee, Baradwaj, alleged that the trading firm was directly responsible for the sudden price drop, attributing it to a “manual trading error” rather than solely relying on algorithmic trading. 

Baradwaj claimed that a trader at Alameda Research inadvertently entered an incorrect decimal while attempting to sell a block of BTC in response to breaking news. 

Consequently, the trade was executed at an extraordinarily low price, resulting in a drastic crash.

Highlighting Alameda’s trading operations, Baradwaj revealed that the firm primarily employed semi-systematic strategies, where traders fine-tuned algorithms to execute trades automatically at high frequencies. 

However, manual trades were occasionally employed in instances of system bugs or arbitrage opportunities on platforms where automated trading had not been implemented.

Unlike automated trading, which adhered to sanity checks and market prices, manual trades were discretionary and prone to human error. Unfortunately, an Alameda trader’s mistake triggered a chain reaction on that fateful day in October. 

The erroneous trade caused Bitcoin’s price to plummet from its peak of $65,000 to as low as $8,000 on certain platforms before swiftly recovering through the actions of arbitrageurs.

The incident created a stir on social media, with traders and news outlets scrambling to understand the sudden price movement. Binance.US, the platform at the center of the flash crash, issued a statement attributing the event to a bug in the trading algorithm of one of their institutional traders.

Baradwaj further states that the losses incurred by Alameda Research were substantial, amounting to tens of millions. Still, due to the genuine nature of the mistake, the firm took immediate action to enhance sanity checks for manual trades. 

This incident exposed a vulnerability in Alameda’s risk management practices, prompting implementing “robust measures” to prevent similar occurrences in the future.

The former employee shed light on the working culture at Alameda, characterized by a philosophy of moving fast to capitalize on opportunities, even if it occasionally resulted in unforeseen costs or vulnerabilities. 

This approach, championed by Sam Bankman-Fried, shaped the culture at Alameda Research and the now-bankrupt crypto exchange FTX.

For nearly two years, the BTC flash crash incident remained a puzzle to the public, leaving many wondering about the cause behind such a significant price drop. With the revelations made by Baradwaj, the veil has been lifted, providing valuable insights into the events that unfolded behind the scenes.

Bitcoin

As of this writing, the largest cryptocurrency in the market, BTC, trades at $26,600, down by over 2.1% in the 24-hour time frame. 

Featured image from iStock, chart from TradingView.com 

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Solana (SOL) Plunges Over 13% – Will It Bounce Back?

Solana is facing its share of the bearish sentiment in the cryptocurrency market today. SOL has held above $20 since it jumped from $18 to $24 on January 14. 

However, the coin has seen a drop of 12.54% in price in the last seven days. Now, investors wonder if there are any signs of recovery.

Crypto Market Plunge Affects Solana

After the collapse of Alameda Research and FTX last year, SOL price joined the trend of price losses in the market. The Solana blockchain raised funds from FTX and Alameda Research, the trading firm of FTX former CEO, Sam Bankman-Fried.

However, when Binance withdrew from its planned takeover of the exchange, it spooked many investors as it meant the termination of support for Solana.

Following the incident, many key investors pulled out from the Solana blockchain. This action led to a drastic drop in price, leaving SOL to struggle. However, the asset started recovering in 2023. It started the year at $9.9610 but gradually climbed, recording rallies and pullbacks until it hit $25 on January 21 before retracing. 

The past weeks were eventful for SOL, as it touched a significant high of $24.7 (April 15). But recently, Solana’s price has also been facing challenges as the crypto markets portray several signs of fear due to the threat of economic recession. 

At the time of writing, Solana’s price stands at $21.33, indicating a drastic plunge in price by over 13% in the past week, compared to its past week’s performance.

Solana (SOL) Plunges by Over 13%, Will It Bounce Back?

For instance, on January 10, 2023, Solana enjoyed a 12% price increase after the blockchain’s Shiba-Inu-themed token, BONK, launched.

If another development or event occurs on the Solana blockchain, there could be a possible recovery for the asset.

$19.8 Support Critical To Halt SOL’s Downtrend

SOL is in a downtrend today, losing most of its gains in the past week. The asset has declined to the $21 price level as the bears seize market control. 

Solana is trading a bearish signal below its 50-day Simple Moving Average (SMA). However, it remains above its 200-day SMA, sparking hope of a long-term revival.

SOL’s Relative Strength Index (RSI) is 44.61, confirming the bearish trend. Notably, the indicator moves sideways, reflecting trader indecision in today’s market.

SOL’s trading volume is down by over 26% today, thus halting its price gains. Solana’s support levels are $14.96 and $19.87. Also, its resistance levels are $23.99, $26.04, $29.79, and $30. 

Solana will likely drop below $20 in the short term. However, the $19.87 support level will prove critical to the asset and could be the pivot point for an uptrend if the bulls prevail.

Featured image from Pixabay and chart from Tradingview