Bitcoin flash crash amplified by leverage and ‘systemic issues’

Bitcoin flash crash amplified by leverage and ‘systemic issues’

The bitcoin flash crash has exposed how “systemic issues” under the surface of the cryptocurrency market, combined with leverage offered by many leading exchanges, exacerbate episodes of volatility.

Bitcoin prices plunged $10,000 in less than an hour on Wednesday from $40,000 in one of the most severe drops since the world’s most actively traded digital coin began its meteoric ascent to record peaks last autumn. It rebounded almost as spectacularly as it fell later in the day, and continued its rebound on Thursday, climbing above $42,300.

The scale of the losses and recovery in such a short time, coupled with the frenetic nature of the trading, illustrate how even as the digital asset industry has grown rapidly, many systems underlying the market remain fragile and stutter during unusually busy periods.

Coinbase and Binance, two of the highest-profile digital currency exchanges, were among the venues that suffered technical issues during the shake-up on Wednesday.

At the same time, analysts said some retail and institutional traders’ use of leverage — borrowing to amplify potential returns — also heightened the velocity and magnitude of the fall in prices as bets rapidly unwound.

“When the price is crashing, everyone that leveraged and [bet on rising prices] sees their leverage