Binance founder Changpeng Zhao (CZ) commented on the short-term sharp price movements of the BTC/USD1 trading pair.
CZ said that the phenomenon, known as a “flash crash” in the crypto market, was caused by instantaneous price fluctuations due to large market orders placed on illiquid trading pairs, and that no liquidations occurred during the event.
Regarding the background of this process, Solve Protocol’s Head of Business Development Catherine said that Binance’s 20% annual fixed rate deposit campaign per USD 1 temporarily affected the market balance. After the campaign, many users converted USDT to USD1, and the price of USD1 temporarily increased by about 0.39%. After that, some users borrowed 1 USD through the Lista DAO lending market with SolvBTC or SolvBTC-BTCB as collateral and gradually sold these funds on the spot market according to demand.
During this process, it was noted that some investors directly sold their BTC through market orders for the BTC/USD1 pair, but due to the extremely low liquidity of this pair, one large order quickly exhausted the buyer side, causing the BTC price to plummet in a very short period of time. He added that the price drop was quickly reversed due to the intervention of arbitrage bots, and levels returned to normal.
CZ claimed in a statement that the incident was not related to any direction or intervention by the exchange. He said that large market orders on new trading pairs with low liquidity could cause such sudden price movements, adding that arbitrageurs quickly made up the price difference and the pair in question was not included in any index, so it did not trigger chain liquidations.
*This is not investment advice.
