On Sunday, July 14th, the ether price crashed from $266 USD to $245 in less than an hour and then lower yet to $214 as the day progressed.
Some cryptoverse stakeholders quickly pointed to a 15,000 ether sell order on Luxembourg-based exchange Bitstamp as the cause of the ETH flash crash throughout the wider cryptoeconomy.
Just as quickly, debate kicked up as to whether the crash came about from a simple market dump or from market manipulation.
Naughty or Not Greedy?
If the 15,000 ether had been broken down into smaller sums and sold across several cryptocurrency exchanges over the course of Sunday, then the ETH price would have undoubtedly experienced less price slippage.
That dynamic suggests the seller didn’t mind such considerable slippage.
One possibility? The trader didn’t care to maximize profits and was content with the ease of selling the trove of ETH in one go. It’s also possible that price slippage was the point, i.e. coordinated market manipulation in order to trigger shorts on cryptocurrency derivatives platforms like BitMEX.
Accordingly, some in the space argued the sell came on a relatively illiquid trade like Bitstamp specifically so the sell-off would have a more exaggerated effect on BitMEX’s derivatives indexes.
In other words, the trader is alleged to have taken out an ETH short on BitMEX and then flash crashed the ETH price to manipulate their way to a large payday.
In case you didn’t know, the entire selloff yesterday was triggered by market manipulation.
A market dump of 15,000 ETH on the illiquid Bitstamp exchange caused a sell-off on Bitmex and from there the rest of the markets via contagion. pic.twitter.com/Czn7tbRbgn
— HuntingIsland – 'ETH is programmable money' (@IslandHunting) July 15, 2019
In kind, others argued the allegations of manipulation were based on speculation and that there was no evidence the flash crash was anything other than just a large ETH sell. As one Redditor wrote on r/ethtrader in the aftermath:
“Seems like this was an actual trade, not “manipulation” […] Unpopular opinion: This is a good thing. The only way to improve liquidity is to incentivize market makers to join the markets. Flash crashes like this are huge profit opportunities to smart market makers. Its a painful process, but these kinds of things build depth in the market.”
Of course, no one will know for sure what happened unless more definitive analysis is performed or the person (or persons) responsible come forward and provide an aye or nay with context.
Fallout: At-Risk CDPs Get Suddenly Liquidated
As Ethereum’s DeFi possibilities continue to grow, lending projects like MakerDAO and Compound — where users collateralize ether in a CDP smart contracts to draw out loans in the dollar-pegged Dai stablecoin — have risen in popularity.
But just like most things in the cryptoeconomy, CDPs have an inherent risk factor: they can be automatically liquidated if the ETH price falls below their respective liquidation prices.
With that said, dozens of at-risk CDPs were unsurprisingly liquidated on Sunday as the ether price dropped faster and further than it typically does in such a short amount of time.
One project, InstaDApp, used the swing to highlight its new Bridge service, which allows borrowers to swap their CDPs back and forth between MakerDAO and Compound, e.g. to get a better interest rate — or in Sunday’s case, a better liquidation rate.
ETH crashing. +120 CDPs liquidated. If you haven't yet, you should:
✅ low interest (15.2%)
✅ low liquidation rate (75%)
✅ low penalty (5%)
Save your debt positions.
— Sowmay Jain (@sowmay_jain) July 15, 2019
The flurry of activity gave InstaDApp a 100 percent increase on the day in the amount of USD value locked in its so-called “autonomous banking portal,” according to DeFi tracker site defipulse.com.
ETH Licks Its Wounds
Manipulation or not, Sunday’s sell-off seemed to be acute, as the ether price had consolidated around $230 as bitcoin (BTC) flirted with $11,000 by the close of Monday.
ETH is still up 37 percent over the last three months, but the weekend tumble puts the coin down 27 percent on the week for now. What happens next is ever inscrutable, yet the latest flash crash could end up being a blip in a market that has tilted toward bullishness recently.