Bitcoin’s Flash Crash

The price of bitcoin suffered a so called, ‘flash crash’ dropping it to as low as $162 last Tuesday compared to a steady $250 to $255 it had been sitting at. The price decline was a direct result of margin trading on Bitfinex. Margin trading is when exchange users borrow funds from the platform’s lenders – known as ‘peer liquidity providers’ – at a rate of interest to trade bitcoin. In bitcoin trading, margin calls are done automatically, so when prices shifted, Bitfinex automatically liquidated positions, generating a sell order. Bitfinex sent a tweet after the price drop saying, “The selling that occurred during the dump were legitimate sell orders and positions being margin called. Lenders were not affected.” The price of bitcoin has since bounced back, sitting at around $230.