TLDR
- The BTC/USD1 pair plummeted briefly while the global market was trading at $87,000.
- Low holiday liquidity and a large sell order caused the lightning-fast drop.
- Arbitrageurs corrected the anomaly within seconds, stabilizing the price.
While the world celebrated Christmas, a technical anomaly on Binance sparked terror across social media. In the middle of Christmas Eve, the Bitcoin price experienced an extreme flash crash, sinking to a low of $24,111 on the BTC/USD1 pair.
The asset remained at that depth for only a few seconds before bouncing back to $87,000; however, screenshots of the event went viral, fueling panic among less experienced traders. It is important to note that this event was not a global market phenomenon.
The crash was limited exclusively to the pair linked with USD1, a stablecoin launched by World Liberty Financial. While this pair showed an absurd discount, the rest of the BTC markets remained stable above $87,000, proving it was a local execution issue.
USD1 Liquidity and the Role of Arbitrageurs
Analysts blame a combination of technical factors for the event. First, liquidity in the order books was extremely low due to the holiday season.
Meanwhile, Binance had recently launched a 20% interest promotion for USD1, which attracted capital to the stablecoin but left the sell-side of the Bitcoin price vulnerable. A single massive sell order was enough to exhaust the available buy bids, forcing the system to seek much lower prices to complete the transaction.
The BTC rebound was almost instantaneous thanks to arbitrage traders, who bought the asset at a discount on Binance to sell it at market price on other exchanges. This coordinated action returned the Bitcoin price to normal within seconds.
Regarding this, Changpeng Zhao clarified that the exchange does not intervene in trades, emphasizing that these events are inherent risks of pairs with low liquidity.
In summary, this incident highlights the importance of market depth, especially in emerging stablecoins like USD1, which was recently chosen by Abu Dhabi’s MGX fund for a $2 billion investment on the platform.
