New Bitfinex Flash Crashes Prove Devastating for Traders: What Happened?
Cryptocurrency exchange Bitfinex has been catching hell lately in the press for, well … several reasons.
The latest scandal occurred on Wednesday, November 29th, as numerous traders on the exchange had their market positions liquidated in a series of devastating flash crashes.
Something’s gone seriously amiss. We’ll put it all into perspective for you .
“Bitfinexed,” “Margin-robbed” … Traders are livid
Whatever went wrong on Bitfinex, the episode was as strange as it was devastating.
That’s because many users complained of outrageous orders executing that they hadn’t even set in the first place.
Other users who claimed not even to be trading complained of not being able to withdraw crypto funds, either.
And, unsurprisingly, affected users are letting their rage be heard loud and clear, particularly on Reddit:
“Even with 10% margin and tight stop losses, my OMG, NEO and ETP trades we're all liquidated and I lost 70% of my entire portfolio.” – u/bigtimeexpress
“I lost everything. Woke up to a negative balance. Don't know what to do ... stressed I lost 14k not much compared to others but this is bullsh*t.” – u/tonishiii
“I had a balance of some ETP on my account. Today when I logged in, I saw that all of it has disappeared. After checking my reports, I have discovered that Bitfinex executed an order ‘exchange stop’ and sold all of my ETP for $0.11. All of this was without my consent, obviously. The ETP was trading at about $2.6 at that time.” - u/Martenus
Indeed, look no further than the r/bitfinex subreddit to get your finger on the pulse of the community’s rage. At press time, the front page of the sub included posts like:
- Margin calls through “flash crash” – we need to unite!
- Take legal action against Bitfinex
- Bitfinex “STOLE” my money
- Leveraged 15.5 ETH for 273 LTC and lost $7k
What should’ve happened?
According to Bitfinex’s support page, their margin call policy should prevent traders’ balances from dipping into the negative:
[Block quote] "When a position is force-liquidated, the system places a limit order at the zero-equity price (rather than simply executing a market order). We do this to prevent a liquidated position creating a negative account balance for the user due to slippage during highly volatile market periods."
Yet numerous users have negative account balances from the November 29th crashes. So what gives?
Allegations Swirl as Community Searches for Answers
In the absence of certainty, speculation has run wild. As such, a range of theories have been proposed so far.
We’ll break them down for you:
- Bifinex API / trading engine crashed
- Glitch / bug caused orders to mismatch
- Database corrupted
Liquidity Falsification theories:
- Bitfinex didn’t have enough liquidity
- Bitfinex miscounted by relying on Bitstamps’ liquidity
- Hack was involved
- Rogue employee/s involved
Routine crash theory:
- The Nov. 29th crashes were routine crashes resulting from acute volatility
Let’s be clear: these are all just theories for now, but they highlight how the community’s been wracking their brains for any possible answers as emotions run so high.
Will Bitfinex refund traders?
It’s still too early to say definitively. Perhaps. Perhaps not.
We’ll just have to wait and see. But the situation is ugly right now, and people want to know the truth.
Indeed, we all deserve the truth.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.