The cryptocurrency market was sent into a frenzy on March 12 when the BTC/USDC pair on Binance flash spiked to $50,000, costing traders $50,000 per Bitcoin (BTC). The reason for the impulse spike is unknown, but it is likely due to a “fat finger” trade of a large order or thin order books for the newly launched BTC/USDC pair on Binance. Fortunately, the futures market remained unaffected by the spot BTC/USDC pair, otherwise it could have triggered massive short-side liquidations.
This isn’t the first time cryptocurrency exchanges have seen flash crashes and spikes. In August 2017, a flash crash on GDAX, now called Coinbase Pro, saw Ether (ETH) prices plummet to as low as $0.1 due to a customer error. Ether was trading at around $300 elsewhere at the time.
The panic was further exacerbated by the news that USDC’s value dropped to lows of $0.87 on March 11 after Circle, the issuer of USDC, revealed that it had $3.3 billion exposure to the defunct Silicon Valley Bank (SVB). USDC trading pairs have been unstable on other exchanges since the SVB revelations. On March 11, the BTC/USDC pair on Kraken spiked to over $26,000 due to fears about the collapse of USDC.
The fears were put to rest when the United States Treasury, Federal Reserve, and Federal Deposit Insurance Corporation decided to bail out the customers of SVB and Signature Bank but not the shareholders and other stakeholders, restoring market confidence for now.
It is important to note that flash crashes and spikes can occur in the cryptocurrency market due to panic and uncertainty. Therefore, it is important for traders to be aware of the risks and conduct their own research before making any investment decisions.