The Bizarre Reason Behind Today's Cryptocurrency Flash Crash

Update (1605ET): Prices for some of the most popular cryptocurrencies dropped sharply Monday, with some such as Ripple suffering a flash crash, from which it however quickly rebounded.

https://www.zerohedge.com/sites/default/files/inline-images/20180108_EOD4.png

One apparent reason - according to the WSJ - for the sudden plunge: an adjustment from a popular website on its digital-currency price quotes.

The popular price-tracking website, coinmarketcap.com, on Monday removed data from some South Korean exchanges from its price quotes for a range of virtual currencies including bitcoin, Ethereum and Ripple’s XRP. The move followed a South Korean government crackdown on cryptocurrencies.

A representative of the website confirmed the moves in an email to The Wall Street Journal, citing “extreme price discrepancy” among South Korean exchanges. The company added in a tweet Monday afternoon that it “excluded some Korean exchanges in price calculations due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity.”

The sharp "repricing" - if only in the data feeds - following the discontinuance of Korean data sources, is shown in the coinmarketcap.com chart below:

sdf

Without the Korean-exchange data, the XRP price fell to about $2.50, and at one point on coinmarketcap.com, fell below $2.10. On Ripple’s website, the company quoted XRP at $2.41, with its source being a weighted average of prices on the U.K. exchange Bitstamp.

That 'signal' from one exchange was picked up by the various algos and humans that trade crypto and triggered a mini flash crash on a number of other exchanges. But as the chart below shows, once the initial dump had finished, the machines recognized the lack of real offers and XRP was bid back up to unchanged relative to the pre-crash level.

https://www.zerohedge.com/sites/default/files/inline-images/20180108_xrp_0.png

... which however this time was completely unwarranted.

The reason the Korean price was dropped from the feed is because, as we have reported previously and as the WSJ confirms,  South Korea and Japan have become major markets for bitcoin and other cryptocurrencies, at the same time that China was clamping down on the sector. The flood of new money and enthusiasm in these countries led to price quotes that were higher, sometimes by hundreds of dollars, than on exchanges elsewhere. In Korea, this gap was nicknamed the “kimchi premium.”

In Japan, authorities embraced the sector, implementing rules for proper trading of bitcoin and other cryptocurrencies. In South Korea, though, the government has been more concerned with the potential for criminal activity tied to cryptocurrencies, and even retail investor losses amid a global mania and what many fear is a bubble in the sector.

More than $100 billion of the sector’s total market value was erased over the last 24 hours, according to the site. On Sunday, it stood at $835 billion. On Monday, it fell to as low as $683 billion, and lately was at $722 billion. And ironically, or perhaps patly, the catalyst behind these sharp price moves had nothing to do with actual, market-clearing, price.

The loss for Ripple is a gain for Ethereum which has now regained the 2nd spot in crypto market cap...

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_xrp1.png


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Update (1050ET): Ripple crashed down over 30% after the initial headlines then exploded back higher... and Ethereum is now unchanged on the day...

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto28.png

 

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Amid headlines that South Korean regulators are inspecting 6 banks, including Industrial Bank of Korea, that provide virtual accounts to companies related to cryptocurrency, has sparked selling pressure across the entire space with Ripple down almost 20% today.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto22.png

Bloomberg reports that South Korea's Financial Services Commission Chairman Choi Jong-ku said in a speech text:

  • There’s high possibility cryptocurrency transactions could be used in money laundering.
  • South Korea to suspend virtual account- related operations of banks if they are found to have broken laws related to cryptocurrency.
  • Regulator also strengthen probe into cryptocurrency exchanges over price manipulation, money laundering, pyramid scheme.
  • Side effects of cryptocurrency "serious"; regulator will consider all measures including shutdown of cryptocurrency exchanges.
  • Cryptocurrency fever in S. Korea is much stronger than other countries; regulator won’t let S. Korea take the lead in abnormal cryptocurrency trading.

And the last few days have seen that Korean exuberance being smashed out of cryptos.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto23.png

Ethereum remains the YTD winner for now, but as is clear Ripple quickly went from hero to zero as the volatile trading continues.

Bitcoin is back below $15,000...

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto21.png

 

Ethereum is holding above $1000 for now...

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto25.png

 

and Ripple is testing significant support...

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_crypto24.png

As CoinTelegraph reports, as speculative investments into Bitcoin and altcoins continue to trouble regulators worldwide, Korea has taken a hardline stance in recent months.

New legislation will seek to place heavy restrictions on how cryptocurrency exchanges can operate in the country, as well as who can use them and to what extent.

South Koreans will likely only be able to hold one exchange account linked to their real name, while tax obligations are also being overhauled regarding profits.

Reporting on the inspection, Yonhap News Agency appeared to forecast a predatory climate for exchanges.

“They (the FIU and FSS) are seeking to cut off fund inflows into cryptocurrency exchanges and shutter cryptocurrency exchanges that have loopholes in their system,” it claims.

What these “loopholes” might entail remains vague, yet the security setup of principal exchanges has come into the spotlight following an organized hacking attempt by a Korean news agency.

Using private white-hat hackers, the agency successfully gained entry into exchange accounts it set up maliciously, bypassing even two-factor authentication, it reported last month.

Comments

small axe Mon, 01/08/2018 - 09:55 Permalink

Dogecoin cryptocurrency hits $2bn milestone

“I have a lot of faith in the Dogecoin Core development team to keep the software stable and secure, but I think it says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn't released a software update in over 2 years has a $1B+ market cap,” Palmer said to Coindesk.

https://www.rt.com/business/415272-dogecoin-crypto-worth-2-billion/

Gap Admirer zorba THE GREEK Mon, 01/08/2018 - 10:29 Permalink

Now look, all you oldbug peanutz.  This is stable currency based on rare, valuable, maff.  These small ups and downs are what all stable currencies do on an hourly basis.  Cryptos are money, not speculation vehicles.

buy, Buy, BUY!!! 

sell, Sell, SELL!!!

buy, Buy, BUY!!! 

And that Doggie Coin that the 1st post is pumping... Going to the MOON!!!  It has rare, valuable, maff backing it so moon-shot is guaranteed.  Puppy Coin will be next.  Get in on these rare, valuable, stable, monies while you still can.  Again, not becasue they are speculation vehicles and you want to make a quick buck for no work, but becasue they are sound money.

In reply to by zorba THE GREEK

pods Pinto Currency Mon, 01/08/2018 - 17:18 Permalink

Could be traders; definitely not the buy and hodlers.  

I will tell you one thing, the more I learn about what the blockchain/distributed ledger is, how it's supported, and what it may do, the more I am a supporter of it.

There are obvious scams, Ripple's XRP and tether being the biggest. But many are not scams, they just might not have a market for the underlying tech. That doesn't make it a scam, just makes it something that isn't going to make it (Divx anyone?).  

With so much funny $$ chasing yield around the world as the real economy dies, it is easy to see big moves into cryptocurrencies by those trying to stay ahead in this god forsaken, joobuck controlled, fractional reserve world.

pods

In reply to by Pinto Currency

LetThemEatRand tmosley Mon, 01/08/2018 - 11:07 Permalink

In a truly "free market," there are no rules or regulations.  It is just a market of buyers and sellers.  The downside is that some of those buyers or sellers may be committing fraud, and there are no rules or regulations (or regulators) to stop them.  Kind of like if you buy a bunch of illegal drugs from some guy on the corner and get home only to realize he sold you fake drugs.  You can't exactly call the police on him, can you.

In reply to by tmosley

LetThemEatRand tmosley Mon, 01/08/2018 - 11:25 Permalink

That sounds great in theory, but it is a meaningless statement.  Once there are rules, there need to be people who can enforce those rules, and then people who can arrest people who violate the rules because just having people pay up when caught isn't going to prevent them from doing it again.  Then then you need arbiters to decide if a rule was really broken (judges).  Pretty soon it looks exactly what like what you now call regulated markets.

In reply to by tmosley

LetThemEatRand BaBaBouy Mon, 01/08/2018 - 10:55 Permalink

"This is whats called a FREE MARKET"

But TPTB hate free markets.  The only markets allowed are ones they can tax and control.  True story, Max Keiser had a guy on a couple of days ago (Richard Heart, some Bitcoin enthusiast/expert) who was literally complaining without irony that a bunch of shady characters had copied bitcoin and were stealing away BTC buyers, and that there is no regulatory framework to stop them.  I could not help but think of the first groups in the Wild West who said to each other, "maybe we ought to get a sheriff."

In reply to by BaBaBouy