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About the recent $BTC Crash:
What was the cause? Rumors..
Before discussing the current market situation, I would like to share with you the most probable reason for what happened on Friday (without conspiracy theories).
The Binance exchange allowed the use of USDe (the $ENA stablecoin), wBETH (wrapped ether), and BNSOL as collateral for margin positions.
But there was a problem with the exchange. The exchange's system valued these 3 assets based on the price in its own order book, rather than relying on external sources. This means that if someone inside the exchange dumps a critical volume of these assets, their price would instantly drop. The exchange's internal system would automatically consider the collateral assets depreciated and start liquidating clients' positions.
The exchange knew about this problem and announced on October 6th that it would switch from its own order book to oracles (a service that takes price data for an asset from all sources and provides an average value - giving an objective price and not accounting for manipulations on individual exchanges). However, the new system was only scheduled to start working on October 14th (8 days remained until the vulnerability was closed).
On October 10th, a large whale, who owns coins from the Satoshi Nakamoto era of Bitcoin (since 2011) and had been actively moving them to Ethereum in recent months, opened a SHORT position of over $1,000,000,000 on BTC and $ETH on the HyperLiquid exchange (most likely a close insider).
Just a few minutes before Trump began making aggressive statements about China and announcing new tariffs...
At that moment, someone intentionally dumped ~80M USDe on Binance (the price inside the exchange dropped from $1 to $0.65 - while it remained stable everywhere else). If oracles had been working, everything would have been fine. But the exchange's system, relying on the quote in its order book, decided that the "collateral" had depreciated and began liquidations of around ~$800M - $1B (including market maker positions).
Against the backdrop of Trump's statements, the crowd was in a state of panic and started closing their long positions / getting liquidated (selling), opening short positions (selling), dumping spot on emotions (selling). The algorithms of the largest exchanges/managers are oriented towards Binance (the largest and most liquid exchange) and automatically started selling/hedging/reducing liquidity to avoid losses.
And instantly, the $80M $USDe dump in the order book, combined with the panic from the news, triggered an unprecedented cascade of liquidations of ~$19B according to public data, and more than $80B (according to rumors).
Outcomes:
1. The short positions of the insider whale from the Satoshi Nakamoto era made a profit of $192M in a matter of minutes (and he has been converting his bitcoins to ether all year - he believes in the growth prospects of the alt market).
2. The market was completely cleared of leverage, loans (favorable). The capital of overconfident retail investors moved into the hands of insiders.
3. Binance has already stated that the technical problems were on their end and they are fixing the situation (switching to oracles), which means it is very likely that something similar will not happen again (now everyone will be afraid of a repeat). And technology like ChainLink is necessary for the stable functioning of exchanges in the future.
The situation is terrible, insidious, but the market is also high-risk. Most likely, this is a one-time, systemic problem and will be fixed soon. The manipulation was "covered" by the news of Trump's speech. CZ is silent (although he usually urges to buy the dip and not panic), this is unsettling. From the beginning of the week, we will get more accurate data on what happened, the guilty parties, the consequences for them, and the victims (it might be volatile). 1 reply
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