What's that Flash Crash?

When asset prices suddenly drop drastically, you need to know the reasons behind it. This drastic decline event was named Flash Crash. See a more complete explanation of this event in this article.

Getting to Know Flash Crashes

A flash crash refers to a market situation where asset prices experience a rapid and significant decline over a short period of time, only to quickly return to previous levels.

In the world of cryptocurrency, flash crashes can occur in a matter of hours or even minutes. These sudden market fluctuations are often associated with high frequency trading.

Causes of Flash Crash in Cryptocurrency World

There are several main factors that cause flash crashes, see below:

• Intrinsic volatility: Digital currencies have a volatile nature, making them susceptible to drastic downward price movements.
• Selling pressure: Intense selling pressure contributes to rapid shifts in crypto values, resulting in flash crashes in many cases.
• Market manipulation: Manipulation by bad actors, such as spoofing and wash trading, can trigger flash crashes.
• Negative news: Negative news about cryptocurrencies or unfriendly regulations can cause investor fear and trigger a flash crash.

Flash Crashes Beyond Cryptocurrencies: A Wider Perspective

Flash crashes are not limited to cryptocurrencies; they also occur in other industries such as stock and foreign exchange markets. A striking example is:

• July 2015 flash crash: Affected the New York Stock Exchange (NYSE), causing a suspension of trading for more than three hours.
• 2014 bond flash crash: Triggered by algorithm-focused trading programs.
• Dow Crash in 2010: Triggered by spoofing.

Unique Flash Crash Triggers

In the realm of cryptocurrency, flash crashes are triggered by different dynamics. For example:

• Bitcoin flash crash 2021: Wiped approximately $310 billion from the digital currency market, leading to the liquidation of $10 billion worth of BTC. This crash was related to a power outage in China's Xinjiang region, where some of the world's largest Bitcoin mines are located.
• Terra (LUNA) flash crash 2022: Triggered by the depegging of the UST stablecoin from the US dollar, causing a dramatic drop in the value of LUNA.

Analisis Flash Crash Bitcoin 2021

The outage in Xinjiang caused significant disruption, causing nearly half of the Bitcoin network to go down. The hash rate dropped from 215 to 120 exahashes per second, triggering a massive Bitcoin sell-off. The impact of this flash crash highlights the cryptocurrency market's connection to real-world events.

Conclusion: Navigating Uncertainty

Understanding flash crashes is important for navigating the unpredictable terrain of financial markets, especially in the dynamic world of cryptocurrencies. The interconnectedness of these events emphasizes the need for investors and traders to:

• Stay informed: Keep up with the latest news and developments in the cryptocurrency market.
• Adjust strategy: Have a plan to reduce risk during sudden market downturns.
• Portfolio diversification: Don't put all your eggs in one basket, and invest in a variety of assets.
• Managing risk: Understand risk tolerance and implement appropriate risk management strategies.

Also read:

What are Algorithmic Stablecoins?

Bitcoin Price Suddenly Drops Sharply, Here's the Reason & Analysis

What is a Death Cross?

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.