FTX CEO: Bitcoin Could Fall To Zero If BitMEX Didn’t Stop Trading
The CEO of the Hong Kong-based FTX crypto-derivatives exchange, Sam Bankman-Fried, put forward a “crazy theory” on his Twitter that the only thing that saved Bitcoin from falling to zero this night was the halt of trading on the rival BitMEX platform..
According to BitMEX itself, from 05:16 to 05:40 Moscow time, the trading platform experienced “hardware problems with one of the cloud service providers.” This caused a “delay in processing requests”. Normal operation of the exchange was restored by 06:00 Moscow time.
Bankman-Freed, however, suggests that there were no hardware issues at BitMEX. “Evidence: (a) BitMEX shut down and the crypto recovered; (b) their kill engine was slow, ”he writes..
The FTX CEO proposes to introduce a “critical ratio” R, which is defined as liquidations caused by a $ 1 move divided by the liquidation volume per $ 1. “R was huge today. Endless liquidations amid an empty BitMEX order book, ”he adds.
If R rises above 1, the market may enter a cycle. In the scenario described, $ 10 million liquidations cause a movement that absorbs more than $ 10 million in liquidity. This can continue until the liquidity in the order book is completely depleted. According to the theory, BitMEX could have deliberately stopped trading in order to give the price a chance to recover and interrupt a cycle that would bring it to zero..
BitMEX commented on the words of the FTX CEO, confirming that he is indeed putting forward a crazy theory: “BitMEX has the largest insurance fund in the industry and remains in perfect order. There is no compelling reason why a platform like BitMEX, which has been on the market for more than 5 years, would sink to the level you described in order to avoid a situation for which it is already prepared. “.
“Sorry for the guess! Although I do not understand why you are so negative about it. I didn’t pursue that goal, ”Bankman-Fried replied.
In 24 hours, the liquidation volume on BitMEX exceeded $ 1.1 billion, the largest in the last 18 months. BitMEX’s insurance fund has decreased by 1,627 BTC, from 33,508 BTC to 33,881 BTC. The Deribit Exchange Fund, on the other hand, lost over half of its reserves and dropped from 392 BTC to 181 BTC.