BitMEX XRP Flash Crash

After an awful 2019, XRP had just started exhibiting signs of recovery in January 2020. As of 13 February, the year-to-date return was close to 70%. And these promising stats seem to have enticed the traders to long the XRP/USD pair on all-crypto exchange BitMEX.

As luck would have it, the Ripple trade did not work in the trader’s favor. A presumable scam wick on BitMEX wiped out entire trader accounts and they lost all their holdings.

What happened?

On 13 February 2020 at 9:00 ET, the price of Ripple (XRP) plummeted by 60% for a very very brief period. It plunged from $0.32 to $0.14 but recovered within a second. But by the time, the worst had already happened. The bet had gone wrong for many traders as the stops failed to execute on BitMEX. And they ended up losing everything they had on the exchange.

BitMEX Speaks

Till now there has been no sound explanation from BitMEX as to what exactly occurred. When the hapless traders contacted BitMEX, they were informed this was not an extraordinary event and their platform was operating fine. Thus, there would be no rollbacks or refunds.

The sudden crash and then a quick recovery suggests that it was a “fat-finger” or perhaps a trading algorithm glitch.

But we would want BitMEX to answer these questions:

  • Who triggered such a big sell?
  • MarkPrice was around $0.3. When the Ripple(XRP) price dropped to $0.1, if someone sold at $0.1 and established a short position, he should have huge unrealized PNL based on the mark price and very likely to be liquidated immediately. Especially when lots of retail users use mark orders to buy and sell.
  • Conditional order that was triggered by LastPrice would also have been triggered unexpectedly. It is hard to believe no client took any loss.

We are still waiting for BitMEX to answer the questions.

In the meantime, Altcoin Buzz Team reached out to Jack Tao, CEO of the derivatives exchange platform, Phemex. We tried to understand how derivatives platforms can be better prepared for such situations.

What Phemex does to protect flash crash?

As per Jack, Phemex is well prepared to protect derivative traders from facing losses in such situations. Here are the preventive features:

  • Phemex rejects orders if the price of the underlying asset goes beyond +/- 10% of the last listed price or +/- 15% mark price. With a capped Market order execution price, such unexpected slippage is avoided.
  • Phemex sets a quantity limit on a single order. This prevents a “fat finger” to wipe out the entire book.
About Phemex

Phemex comes across as a highly-sophisticated cryptocurrency derivatives exchange that was launched on 25 November 2019. Headed by 8 former Morgan Stanley executives, it offers higher performance and reliability without sacrificing user experience.

In a short period, Phemex has acquired 35000 users and has recorded maximum trades volumes close to $400  million.

Meanwhile, the 2.1 BTC hunt by Phemex is still on. 

 

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