Community post: Cryptocurrency is the wild west

This post was submitted by a Fat Wallet listener on 15 August. The writer has granted Just One Lap permission to publish this email.

Many people would be aware that the price of Bitcoin has sky-rocketed in the last week (once again). At the time of writing, Bitcoin is exactly ZAR 63,000.

This shit is getting out of hand. When I first considered buying Bitcoin, the price was R13,000. Many people will have similar tales.

Most people probably won’t know about the massive Ethereum crash on GDAX (a cryptocurrency coin exchange) a few months back. On June 21st, some oke dumped a multi-million dollar amount of Ethereum into GDAX’s exchange, filling all orders from $224.48 all the way up to $317.81.

I’m not an expert trader and cannot sufficiently explain what happened next, but as I understand it this caused the price of Ethereum on this exchange to fall, possibly due to there being no demand. This caused various stop losses and margin traders’ funds to be liquidated. That caused the Ethereum price to plummet. As I understand it, traditional stock exchanges has something called a “circuit-breaker” that would cause all trades to be locked down for a while, but this coin exchange had no such mechanism. This meant that for a few seconds the Ethereum price dropped to $0.10.

Gdax call it a book slippage of 29.4%, whatever that means.

Now, if I log in to my stock broker, there is nothing preventing me from placing an order for some DBX World at a price of 10c:

It’s absolutely idiotic to do this, right? One would assume that this trade will never go through?

It seems this is exactly what some people on GDAX did. As I understand it, the price was that low for only a few seconds, after which it climbed back to over $200. One would assume any trades that took place were for pending orders and one would assume the seller would be some poor fool margin trading whose funds got automatically liquidated due to a stop loss. This is a call to GDAX’s API showing some of the trades that completed at the time: https://api.gdax.com/products/eth-usd/trades?after=6326580

I’ll only highlight the top trade:

{“time”:”2017-06-21T19:30:18.05Z”,”trade_id”:6326579,”price”:”0.10000000″,”size”:”7203.30515953″,”side”:”buy”}

Some random oke purchased 7203 Ethereum coins at a price of $0.10! A few seconds later, the price went back up to over $200. Some very rough calculations as of the current ZAR/dollar exchange rate.

The coins would have cost him R9589.00 and assuming an Ethereum price of $200 a few seconds/minutes later would have been worth R 19 186 342.98.

That is a very big number. This shit is the wild west.

A statement from GDAX right after this occurred: https://blog.gdax.com/eth-usd-trading-update-5d8142b5bdc1