(We are super excited to be participating in conferences in Singapore and NYC this coming week. Aditya and Brian will be representing Qume at The Capital and Blockshow in Singapore. Jasmina and Shreyas Chari will be attending Consensus Invest in New York City. Be sure to look out for them in case any of you are at either of these places, or just drop in a line here and we will make the connect.
Just to be clear, it so happens that these conferences happen to be in cities that these folks live and work out of. As a rule of thumb, most conferences that require you to fly out to another city are super-disruptive, unless there is an investor or customer check waiting at the end of the flight, to be brutally honest! Therefore we typically avoid the crypto/blockchain conference circuit as much as possible, as that can be a full-time occupation in itself).
Last week, a momentary outage at Coinbase triggered a flash crash on Deribit
- a leading crypto derivatives exchange - the price fell down to $7500 from $9300, resulting in massive liquidations of BTC longs. It was a simple arithmetical mistake - Deribit in their calculations for the index by averaging prices, while dropping one of the numerator entities ( the coinbase price) to zero, forgot to decrease the denominator count by 1, and this ended up massively skewing the index downwards. Deribit has since offered to pay back close to 1.3m dollars to traders that were affected by this.
We wrote an interesting piece on reference price design at Qume
, where we talk about our design approach, and how it is superior to a lot of the current offerings out in the market, leading to far more stable through-the-cycle prices, and far fewer arbitrary liquidations.
Two days later, BTC price on CME temporarily decreased to $8500, raising even more concerns around potential price manipulation that crypto exchanges for long have been accused of. This is also one of the main reasons why the SEC has been reluctant to approve a Bitcoin ETF.
These flash crashes set in motion a cascade of events where price action on one exchange triggers unfair liquidations on other exchanges. Sometimes, these outages can be a source of tremendous opportunity for vigilant traders who can exploit the price action following an outage to buy/sell BTC at very low/high prices. That was the case on Aug-23 when an AWS outage crashed the orderbook on a few Asian exchanges, resulting in some trades being able to buy BTC for less than a dollar.
The frequency with which these outages seem to be happening, while par for the course for an emerging sector, is a serious concern that can affect regulator views around incremental legitimization of cryptocurrencies.