In general terms, Flash crash refers to a sudden crash or a fall in the price of stock. It happens within a very short period of time and can lead to serious losses
Cryptocurrency flash crashes
Flash crashes in cryptocurrency can be described as when prices of cryptocurrency assets declines over a very short period of time and then picks up in a recovery period, the end result appears as though the crash never happened.
Flash crashes may happen for several reasons such as:
As started, flash crashes occurs within the shortest possible time and you may not really know when it happens, but the values are always seen. The currencies are volatile, therefore,computer programs can be a prime cause of flash crashes. Computers are designed to trade large volumes and carry out series of trade in split seconds which is beyond human capabilities , sometimes this programs are suppressed by pressure placed on them and can then lead to a dive in the price.
Traders performing illegal trade are also a reason to the flash clashes experienced in recent times. Most of them perform several trades and sales order at the same time which can result system congestion and system malfunction. While Researcher are still yet to know the root causes of flash crashes, others say it is initiated by some high profile traders to make profit.
Examples of Cryptocurrency Flash Crashes
On 26th June 2019, COINBASE customers were not able to access accounts due to an blackout. Price of Bitcoin at this time dropped by 18% which was about $1,700.
Another occurred on May 26, 2019, Poloniex (CLAMS) lending pool lost about $13.5 million due to a programmed insolvency.
June 21, 2017 GDAX now Coinbase flash crash Etherum (ETH) dropped by more than 800% due to a multimillion – dollar market sell order which activated the stop-loss orders and margin trade liquidation, though Coinbase Pro traders were reimbursed.
Several flash crashes in Bitfinex resulted in a total price drop of more than 90% on NEO, OMG etc in November 29 2017. On August 19, 2015 Bitcoin surged from $255 to $179.35. The flash crash was prompted by several leverage positions.
There are many more examples to inform us of the effect of Cryptocurrency flash clashes.
In conclusion, even though flash crashes are rare, they still happen in the cryptocurrency market. Whatever you do, there’s no way to completely prevent loss in the event of flash crash, but a properly place stop –loss order can keep risk to minimal.
We are reminded that flash crashes are real and the risk is left untold. You must trade with caution.
For further reading:
https://corporatefinanceinstitute.com/resources/knowledge/finance/flash-crashes/
