The October 10 Crypto Market Crash: A Deep Dive into Binance’s Flash Crash of Altcoins

Key Takeaways:

• Some altcoins, including Cosmos’s ATOM token, briefly fell near zero on Binance during the recent crypto market crash.
• In contrast, the same altcoins retained real market value on other centralized crypto exchanges.

On October 10, the cryptocurrency market experienced one of its most severe downturns since the FTX collapse, resulting in a staggering $850 billion loss in total market capitalization within mere hours. Bitcoin (BTC) saw a dramatic decline, plummeting from approximately $124,000 to lows near $105,000—a drop of about 10-15%. However, altcoins faced even harsher realities, particularly on the Binance exchange.

Multiple tokens witnessed catastrophic declines, with many altcoins plummeting 99.99-100% in a matter of minutes. Notables included Cosmos (ATOM), IoTeX (IOTX), and Enjin (ENJ), which briefly traded at zero on Binance. In stark contrast, ATOM fell 53% on rival exchanges, while IOTX and ENJ dropped 46% and 64.5%, respectively. Crucially, these altcoins never hit zero valuations anywhere else, marking a unique phenomenon on Binance.

What Caused the Altcoins to Fall to Zero?

The crash stemmed from over 1.6 million traders losing their positions as nearly $20 billion worth of crypto was liquidated during the tumultuous days of October 9 and 10. This liquidation was about 20 times greater than what was observed during the devastating COVID-19 market rout in 2020.

Many traders utilized leverage to amplify their profits. However, as prices began to fall, Binance’s automatic systems initiated sales of collateralized altcoins to cover losses, exacerbating the downward pressure. This cascade of automated sell-offs created a vicious cycle, pushing prices down further.

As the situation worsened, Binance’s trading infrastructure faced considerable strain. Users reported issues such as frozen accounts, missed stop-loss orders, and delayed trades, compounding their misfortunes. Amidst this chaos, notable market makers like Wintermute withdrew their funds from Binance due to system delays, effectively leaving the platform with a lack of buy orders for a short period. This absence resulted in quotes showing zero prices for certain altcoins, despite their ongoing values on other exchanges.

This “flash crash” phenomenon is not unprecedented. A similar incident occurred in 2017 when Ethereum briefly collapsed to $0.10 on GDAX, triggered by a flood of automatic sell orders. Such events underscore the vulnerabilities inherent in highly leveraged trading environments.

Binance’s Response

In light of the turmoil, Binance co-founder Yi He, who serves as the Chief Customer Service Officer, extended an apology, acknowledging that some users experienced transaction issues amid extreme market volatility and surging platform traffic. Following suit, CEO Richard Teng also expressed regret, stating, “I’m truly sorry to everyone who was impacted. We don’t make excuses— we listen closely, learn from what happened, and are committed to doing better.”

Binance further clarified its stance on compensation, promising to reimburse users for verifiable losses directly resulting from platform or system failures. However, it stipulated that losses arising from normal price fluctuations or unrealized gains would not be eligible for compensation.

These recent events highlight the critical importance of understanding market dynamics, especially during periods of volatility. While platforms function as facilitators for trading, external factors, leverage, and system integrity play crucial roles in the overall trading experience for users.

Amidst the chaos, many investors and traders are now reassessing their strategies and the risks involved in leveraging cryptocurrencies, particularly in a tumultuous market landscape. The October 10 crash stands as a stark reminder of the urgent need for enhanced risk management practices, not just at the individual level but also within the operational frameworks of exchanges themselves.

This focus on operational transparency will be key as Binance and other exchanges navigate through the aftermath and implementation of necessary improvements to their platforms. As the crypto landscape continues to evolve, attention to these challenges will likely be paramount for all stakeholders involved.