Bitcoin Black Thursday
- One -
On March 12, 2020, the Bitcoin and overall digital currency markets experienced a baptism of blood and fire.The market value of BTC fell by up to 3,600 US dollars in a day, nearly 40%, which is the largest single-day drop since 2013.
What exactly happened on March 12, 2020 (and the morning of March 13, 2020)? Of course, the macro environment of financial markets has a great impact:
1. The exponential spread of coronavirus in the European Schengen area and North America;
2. Trump announced a 30-day travel ban on the Schengen area at a press conference, aggravating panic;
3. Unexpectedly, ECB President Lagarde did not announce a European Central Bank interest rate cut.
These macroeconomic factors have led to a complete sell-off and tight liquidity in almost all asset markets, and the digital currency market is no exception. But in addition, let BTC fall from 6,000 US dollars to 3,600 US dollars within a few hours, and then quickly rise again. In the process, there are some micro factors worth discussing.
- Two -
Around 6pm on March 12, We saw the first BTC waterfall fall from $ 7.3k to $ 5.6k (BitMEX Perpetual Swap price). The decline in BTC prices has accelerated with liquidation of long positions, similar to what happened in late September last year. The market is clearly under heavy selling and clearing pressure, as futures trading prices continue to fall below spot trading prices for a long time (about 2 hours).
After the consolidation pattern that continued until midnight, the BTC price continued to decline, triggering another wave of closing positions. However, it is worth noting that clearing orders are no longer met and the futures market is again significantly lower than the spot market transactions. Usually in this case, the arbitrage trader will step in and balance the price difference. But due to tight liquidity, these orders remained unfulfilled for hours. As Bitcoin dropped to a low of about $ 3.6k on BitMEX, the platform's transactions froze and went offline around 3:30 AM. During this period, the BTC spot market finally started to rise, as the huge selling pressure from BitMEX long position liquidation was eased.
- Three -
When BitMEX finally went back online after 20 minutes and attributed the failure to a hardware problem, its futures market was still not very stable, and the spread was as high as 600-700 US dollars, and there was still no market maker or arbitrage dealer involved and executed clearing instruction. The liquidity on the platform is still very low, and Bitcoin orders worth $ 1 million (which can usually be absorbed without pressure) will cause the price to drop by $ 50.
Fortunately, in the next few hours, there was a large amount of buying on BitMEX to absorb the liquidation and selling volume, which eventually led to the completion of all clearing orders at around 06:10 in the morning of March 13, which was already after the wave of liquidation. 5.5 hours. Due to the price suppression effect of liquidation, the financing rates of BTC and ETH futures have also remained at their maximum negative interest rates, which means that holders of short positions pay holders of long positions.
- Four -
"Hardware problems" are likely to be just an excuse, and the interruption of trading may be intentional, just like the market Circuit Breaker that the SP500 stock market triggered twice this week. This time, BitMEX played the role of the government.
The problem is that processing clearing on BitMEX results in more clearings than in previous systems – if a $ 10 million clearing sell order results in more than $ 10 million new clearing, the market will enter a vicious circle, This cycle is likely to completely defeat the BTC market and reduce its price to extremely low or even zero.
After the incident, the BitMEX trading desk took over the remaining liquidation and executed it in batches, amounting to $ 10 million, while trying to limit the impact on the market as much as possible.
- Five -
Given that BitMEX has liquidated long positions worth more than $ 1.5 billion over the past 24 hours.
We will see how the market is now responding to this sharp drop in asset prices, but it is clear that the market has been completely deleveraged from a bullish perspective.
We should also consider whether the digital currency market needs to refer to the Circuit Breaker of the stock market in order to avoid similar vicious cycles of liquidation from happening again.
- Six -
At present, investors should fully realize that in the selection of digital currency exchanges, they should choose reputable and globally operated digital currency exchanges. For example: NabobTradeEX digital currency exchange. Investors have the opportunity to take advantage of the world-wide synchronized clearing capabilities of these powerful exchanges to regain sufficient profits with a timely stop loss. From March 12th to March 13th, NabobTradeEX assisted its clients to clear their positions and re-arbitrage to build positions. Most of the customers safely passed this extreme market event, and some customers even received hundreds of thousands of dollars to more than one hundred Thousands of dollars in return.It is hoped that there will be more platforms similar to the NabobTradeEX exchange in the future to provide more help for the security and income of their clients' funds.
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