The Crypto Flash Crashes

Coindesk

A crypto clash crash is an unexpected, sudden, and brief market crash typically caused by algorithmic trading programs.

In the industry of crypto, when a crypto experiences a big sell-off and then rebounds quickly in a short period it causes a flash crash.

This was the situation with ETH, when its price plunged from over $300 to $0.1 in a few minutes on GDAX exchange in the year 2017. Such like case happened when Ethereum plunged by nearly 50% due to a jump in the consumer price index (CPI) of the United States for May 2022 which has led to a big sell-off by whales in the market making its prices plummet on a decentralized exchange.

Regulators of global exchanges such as the New York Stock Exchange (NYSE) and the Chicago Mercantile Exchange (CME) have looked into a number of potential solutions, including the installation of circuit breakers that halt market trading when an asset falls below 10% within a 15-minute period.

However, in the decentralized world of crypto where regulations are minimal and volatility is high, such measures are quite difficult to implement. Trading activities can be paused by centralized exchanges but as decentralized exchanges are not government by any central body, they cannot be paused.

Even if the (DAO), decentralized autonomous organization that governs does intervene, because of their slow decision-making process and flash crashes take place in a short space of time, the damage will frequently result.

It's quite hard to pinpoint a single factor as the root cause of crypto flash crash, however, often times they happen due to activities by both, human and computer.

The US stock market saw arguably the most famous flash crash on May 6, 2010, when major stock indexes experienced a quick 10% decline. Since then, there have also been many flash crashes in the cryptocurrency markets.

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