Top Analyst Explains The Reasons Behind The Crypto Market Crash

The crypto market tanked over the weekend, losing over 300 billion USD in market capitalization, dropping to $1.9 trillion USD.

Bitcoin dropped below $70k AUD, and most altcoins also dropped in value. ETH was down -11%, falling to $2,900 AUD. Ripple’s XRP, which made significant gains over the last week, fell by -12%, while Binance’s BNB coin dropped by -10%.

China Mining Blackouts

At first, the reason behind the crash was attributed to massive blackouts in Northwest China, specifically, in the Xinjiang region, which affected the hash rate of several BTC mining pools. The hashrate dropped nearly 50%.

#marketupdate, breaking it down, post mortem.
We just saw the single largest 1-day drop in mining hash rate since Nov 2017. The hash rate on the network essentially halved, causing mayhem in BTC price as it crashed. pic.twitter.com/zzdgDikjXt
— Willy Woo (@woonomic) April 18, 2021

Some others blamed the circulating rumours about the US Treasury charging financial institutions with money laundering, but there is no evidence to back this claim.

High Leveraged Liquidations

According to analyst Adam Cochran, the reason behind the crash can be attributed to a set of conditions that include ignorance of market-making combined with massive leveraged trading across exchanges like Binance.

1/22
So a lot of people think that the treasury rumor (which is painfully false) caused the crash.
While *maybe* it was a contributing factor, it certainly wasn’t the cause.
My current working theory is that there could have been an exchange issue driving this.
— Adam Cochran (@adamscochran) April 18, 2021

The rumours, the power outage, combined with margin accounts trading with 100 – 150x leverage on several exchanges could have made the perfect receipt for disaster.

Binance Futures markets tanked the hardest. Exchanges with high leverages remained at lower prices, while Coinbase and other exchanges remained at average levels during the crash.

9/22
It was Binance that led the market in the dip, and specifically Binance futures.
We know this because the futures market is what tanked the hardest, fastest and furthest.
— Adam Cochran (@adamscochran) April 18, 2021

Margin accounts on Binance were building big positions using leverage up to 150x, but as price dips below certain points, some of these accounts were below maintenance limits, which liquidates them.

20/22
When you look at the usual suspects, Coinbase dips were in the average range, Kraken lacked the volume to cause a dip this big and FTX ran smooth as butter.
So that really leaves Binance, although I’m not sure we’d ever get clarity on the issue if one happened anyway.
— Adam Cochran (@adamscochran) April 18, 2021

When traders are liquidated, crypto is exchanged for Tether, which makes the crypto drop in price. Currently, the volume/market cap for Tether is 4.62, and Tether went up 1.05 USD after the crash.

This triggers other accounts to sell their positions, creating a toxic cycle that ends in the liquidation of most retailers. Over 1 million positions were liquidated, while the largest liquidation was $68 million on Binance.

13/22
That $63M position getting liquidated is what put the market in major jeopardy, but by that time there was already degraded performance issues connecting to Binance and spiking gas fees.
So there was very little way for anyone to backstop or arbitrage that liquidation.
— Adam Cochran (@adamscochran) April 18, 2021

Despite the sudden crash, the market is slowly recovering. Several cryptos rebounded quickly. Ethereum is now trading at $2,150 while Bitcoin managed to recover above $56k, after falling nearly $10k in price.

PS- Reminder this is a working theory, its impossible for us to get the data we need to know for sure, so all we can do is take educated guesses and try and interpret the market.
— Adam Cochran (@adamscochran) April 18, 2021

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