The price of bitcoin dropped to its lowest level last week. The decline is due to the worsening short-term news outlook and the sector’s margin traders. Moreover, a flash crash on the bitcoin trading platform BTC-e led to the fall of bitcoin price to $309.
Bitcoin price decline on BTC-e was followed by the same decreases at the leading bitcoin trading platforms, such as Huobi, Bitstamp and OKCoin.
It is not the first time when flash crash was observed on BTC-e. Thus, in February 2014, the price of the cryptocurrency reduced by $500 in one minute.
The analysis shows that price decline on BTC-e provoked a sharp drop across order books of other major exchanges.
The price of bitcoin started falling at 07:46 and by 08:51 hit $442. During the time, Chinese bitcoin exchanges, OKCoin and Huobi, also recorded price drops, still less notable. For instance, bitcoin price at Huobi dropped from ¥2880.1 to ¥2788 and at OKCoin they fell from ¥2880.4 to ¥2785.3.
According to the CoinDesk Chinese yuan BPI, the markets in China declined by 6% and reached ¥2,832.27.
In a new post on Raffael Danielli’s quantitative analysis blog Matlab Trading, margin trading critic asserted that the practice was chiefly behind market movements. BTC-e began providing margin trading to its customers last November.
Speaking to CoinDesk, Danielli told: “We have seen crashes like this before and they follow a certain pattern, namely a sharp drop followed by a swift rebound to about a bit less than the previous level.”
Danielli considers that the last week’s decline was caused by the margin trading and has also criticized the main exchanges that have remained opaque about the internal safeguards used to find suspicious orders that could change the price.
He also added that there is a lack of data for the market to make conclusions. He said: “Just to be clear: the only people who really know what happened are the ones operating the exchange. What we observe here is only the tip of the iceberg and we lack many pieces of information that the exchange has.”
Some market observers think that the market weakness worsened the situation on the exchange. Investor Tuur Demeester told CoinDesk: “I think BTC-e was the final drop, but the sell off would not have happened if the bidding on markets wasn’t weak either.”
Main bitcoin exchanges stated that they try to provide all the information about the possible risks and that they have internal safeguards to minimize market damage.
In an interview to CoinDesk, both Bitfinex and OKCoin, in an answer to Danielli’s criticisms, cited that the competitive interest is the key factor for not being transparent about these policies. Zane Tackett, OKCoin’s manager of international operations, said: “If it becomes public knowledge traders can use it to their advantage and find out ways to get around our preventative measures.”