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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Bitcoin Flash Crash Explained, And How To Prepare For The Unpredictable

Tony "The Bull" Severino
Tony "The Bull" Severino
1 year ago
3 mins read
crypto flash crash

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Overnight on Saturday, in the late hours of the night, Bitcoin price flash crashed by over 10% and $1,400 in just ten minutes.

But what caused such a massive crash in the cryptocurrency, and how can investors and traders prepare for such an unpredictable event?

3/10 The moment BTC hit $12,000 was right afer midnight on a Saturday night in New York and around 6:30 AM Sunday in Europe. That means that most of Europe and N-America was not trading, only the Asian traders were in the market. Therefore liquidity was relatively low.

— Marc van der Chijs (@marcvanderchijs) August 2, 2020

What Caused This Weekend’s Midnight Flash Crash In Bitcoin Price?

Right after the clock struck midnight in New York City, Bitcoin spiked to a high of $12,098. At that moment, a cascading collapse in price began.

The initial selloff pushed the cryptocurrency below $12,000 where it paused momentarily, then the floor fell completely out from below.

Ten minutes later, BTCUSD had lost over 11% value and dropped another $1,400 to $10,600. In less than an hour total, the asset had fallen by over 12.5% and $1,500.

But what exactly happened that caused this?

Related Reading | Dramatic $17,000 Bitcoin Peak Possible Within Weeks Based on Halving Fractal

The move was likely caused by a large, strategic actor who sought to take advantage of the lowest liquidity moment of the market. At that time of the night, entrepreneur Marc van der Chijs says North American and European traders would have been sleeping.

In addition, the large whale taking profit during such a low liquidity timeframe, caused a cascading effect of overleveraged derivatives traders forced to cover their positions or through stops being triggered.

The same happened during Black Thursday, albeit far more severe and was driven by different circumstances and not just one whale’s profit-taking.

It also happened in reverse in 2019, as Bitcoin broke up from $4,000 to kick off a rally to $14,000. A single, strategic actor placed several buy orders across exchanges at low liquidity moments overnight on the weekend, to have a more pronounced impact.

BTCUSD Saturday Night Flash Crash | Source: TradingView

How To Prepare For The Unpredictable in The Crypto Market

Flash crashes are rare but do still happen in the crypto market. Black Thursday was especially notable. Assets everywhere experienced a liquidity crisis, but none as bad Chainlink’s flash crash to nearly zero.

In those situation’s it is almost impossible to prepare aside from having reasonable stop losses set and to never take positions with sizes too large where losses become too risky.

It situation’s like Saturday’s crash, van der Chijs says “do not sell” or panic – this is somewhat normal behavior for Bitcoin on the weekend during a “bull market.”

Related Reading | The Most Common Bitcoin Scams And How To Avoid Them

He advises investors to “HODL” on for the ride, or perhaps try your hand at trading the wild price swings for profit. He claims its “a chance to make quick money,” but admits it isn’t a game he plays himself.

Whatever you do decide to do, there’s no way to completely prevent loss in the event of a flash crash, but a properly placed stop-loss can keep risk to a minimum. Whether you are a trader or simply an investor, the stop loss is a tool everyone should become familiar with and utilize as a precaution against flash crashes.

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Tony "The Bull" Severino
Tony "The Bull" Severino

Tony "The Bull" Severino

Tony "The Bull" Severino, CMT, is a distinguished figure in the cryptocurrency analysis sector, renowned for his in-depth technical expertise and innovative approach to market trends. As the Head of Research at NewsBTC, Tony leads a team dedicated to providing cutting-edge insights and forecasts, helping both novice and experienced traders navigate the complexities of the crypto market.
A seasoned Chartered Market Technician, Tony's prowess in identifying and capitalizing on market patterns is unmatched. His academic and professional journey in market analysis has firmly established him as a leading authority in technical trading strategies. Tony’s approach is heavily influenced by the principles of Elliott Wave Theory, a method known for its rigorous assessment of investor psychology and price movements.

Read more

Beyond his role at NewsBTC, Tony is the visionary founder of CoinChartist.io, an educational platform aimed at demystifying the nuances of cryptocurrency trading. CoinChartist.io serves as a valuable resource for traders seeking to enhance their technical analysis skills. The platform offers a range of learning tools and resources designed to empower traders with the knowledge to make informed trading decisions.

In addition to his educational initiatives, Tony is a prolific author and a dominant voice in the crypto community. He writes the CoinChartist VIP newsletter, a weekly dispatch that has become a staple among crypto enthusiasts, revered for its insightful analysis and actionable trading advice. This newsletter has consistently ranked as a best-seller on SubStack, boasting thousands of subscribers who rely on Tony’s expertise to guide their trading strategies.

Tony is also celebrated for his literary contributions to the field. He is the author of the highest-rated Crypto Trading Journal on Amazon.com, a testament to his ability to communicate complex trading concepts in an accessible manner. This journal is widely regarded as an essential tool for traders aiming to track their progress and refine their strategies.

Before his ascent in the financial analysis world, Tony honed his skills in journalism. His background in this field has endowed him with a unique ability to present intricate market dynamics in a clear and compelling manner, making his insights highly sought after by a broad audience that ranges from casual readers to professional traders.
His professional affiliations underscore his commitment to excellence and continuous learning. As a partner of Elliott Wave International and TradingView, Tony collaborates with other leading experts to enhance his knowledge and skills. His active membership in the CMT Association further aligns him with the highest standards of industry practices and ethics.

Tony’s nickname, "The Bull," aptly reflects his aggressive and optimistic outlook on the cryptocurrency markets. His forecasts often anticipate significant upturns, earning him a reputation for bullish predictions that have frequently led to lucrative outcomes for those who follow his advice.

In summary, Tony "The Bull" Severino, CMT, is more than just a technical analyst; he is a mentor, educator, and innovator whose influence in the cryptocurrency space continues to grow. His dedication to advancing the understanding of market forces and his commitment to providing high-quality, reliable analysis make him a pivotal figure in the world of cryptocurrency trading.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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