Bitcoin’s price was fluctuating wildly Sunday after it was rumored that an order for the currency priced at $1000 got filled in the early New York morning on Shanghai-based USD and CNY exchange Lake BTC just days after the exchange’s CEO Thomas Xie issued warnings to the platform’s customers about such events.
The price discrepancy was first picked up when bitcoin’s standard price benchmark, the CoinDesk Bitcoin Price Index (BPI), wavered erratically between $354.73 and about $435.
Another rumor in the market cited a “flash crash” of Lake BTC’s proprietary algorithm as the chief cause for the price discrepancy in the CoinDesk BPI. A flash crash is where the exchange’s bid-ask spreads become mismatched, producing wild swings in the price.
Still, higher volatility is expected in the coming weeks as the bulk of selling has petered out in the past month at just below $340, which represents the previous 18-month average purchase price for bitcoin. The benchmark is viewed widely as the point at which most holders would refuse to capitulate to further selling pressure.
Lake BTC CEO “Flash Crash” Comments
Sunday’s price action, which was caused by an unknown malfunction on the Lake BTC trading platform, comes less than a week after the company’s CEO speculated such events could occur soon.
“A lot of people [lose] a non-trivial amount of money, while a few “lucky” guys [bring] home piles of cheap coins,” Xie told customers in an extensive post on the subject, published on October 20th.
Xie added that most incidents were caused by heavy margin trading, which has picked up lately as the price of bitcoin has stabilized, with profit-hungry traders positioning themselves for further swings.
One example of a margin provider that has clocked up increased trading volumes is Canada-based BTC Solutions, which lets customers bet up to 8 times their principle investment. As a result of surpassing $1 million in daily trading volumes recently, the company has recently slashed its lending rates.