Binance – the world’s largest and most prominent cryptocurrency exchange by market cap – has been experiencing a few problems over the past few days. It looks like one customer’s trading activities is responsible for sending the price of certain bitcoin futures up into the $100K range.
Binance Deals with a Naughty Customer
Binance chief executive Changpeng Zhao explained in a tweet:
Another day in crypto. A user’s [algorithm] went ballistic and sent multiple orders to achieve this.
The good news is that the price did not cause any clients to immediately liquidate their holdings or cash out. This could have had serious repercussions for the crypto space and could have potentially knocked the price of both bitcoin and bitcoin futures down to relatively weak points.
In a statement, the cryptocurrency exchange mentioned:
A single user placed a large number of orders over a very short period of time on the BTCUSD 0925 Quarterly Futures contract, resulting in a large candle wick up to 99,964 USD and a stretch of the K-line chart for all quarterly futures users… As Binance Futures uses the mark price as a reference in liquidations and calculations of unrealized PNL, the 99,964 USD wick and other extreme price movements during this period did not cause any liquidations in user positions. In order to prevent repeat occurrences of this incident, Binance would like to remind users to fully understand the design and price fluctuation mechanism of Binance products before opting to trade, as to avoid any unnecessary losses that may occur as a result.
Bitcoin futures trading has been highly popular since the year 2017 when bitcoin reached its all-time high of nearly $20K. CME Group, Binance and other similar firms give people an opportunity to settle bitcoin futures in cold, hard cash.
Many analysts believe that if the incident described had happened at any other exchange that held less prominence and strength than Binance, the results would have been disastrous. One of those figures is Glen Goodman, the author of “The Crypto Trader.” He comments:
Crazy price spikes like this are a trader’s worst nightmare. Thankfully, Binance’s systems ensured nobody’s account was liquidated, but not all exchanges would be so responsible in a similar situation.
What Would Have Happened with Other Exchanges?
He also stated that this should be a “wake-up call” to any trader that’s using a less-than-stellar or unknown exchange to handle large orders and transactions, stating further that:
It’s also a timely reminder that when you trade obscure derivatives like quarterly bitcoin futures, all it takes is one giant whale to corner all the little fish and liquidate their accounts.
Others, such as Cory Klippsten – tech investor and founder of Swan Bitcoin – felt no concern over the incident and believes that the crypto space has come far enough over the past few years to ignore situations like these.