Bitcoin’s 87% Drop in 2021 Was Caused by Sam Bankman-Fried's Alameda, Ex-Employee Claims
An ex-Alameda employee claims a trader at the firm punched in a wrong decimal which led to bitcoin's 87% drop on Binance.US in 2021.
Updated Oct 4, 2023, 3:50 p.m. Published Sep 21, 2023, 7:34 a.m.
Disgraced trading firm Alameda Research was behind the hiccup that caused bitcoin (BTC) prices to temporarily drop over 87% in 2021, as per an ex-employee who has started to reveal the inside workings of the Sam Bankman-Fried's company.
On Oct. 21, 2021, Bitcoin traders on the crypto exchange Binance.US were left scrambling after the asset plunged within minutes, with no apparent reason, while other bitcoin markets operated normally.
As previously reported, bitcoin prices fell from around $65,760 to as low as $8,200 at 11:34 UTC (7:34 a.m. ET), then quickly bounced back up to almost exactly where it was before. A Binance.US spokesperson told CoinDesk at the time that the crash was due to a bug in the trading systems of one of their “institutional traders.”
The actual identity of the investor remained a mystery so far, but new tweets from a former Alameda Research employee reveals that the trading firm may have been the cause of the ruckus.
PART 2: THE FAT-FINGER
— Adi (e/acc) (@aditya_baradwaj) September 20, 2023
or
The story of how a misplaced decimal point at Alameda Research caused a market crash that echoed around the world.
(1/n) 🧵#SBF #FTX pic.twitter.com/jCykh6rg1o
Baradwaj claims that while most of Alameda trades were executed using algorithms, there were times when traders could manually send orders during times of market volatility or take advantage of a profit opportunity. And this why the apparent mishap took place.
“The trader was trying to sell a block of BTC in response to the news, and sent out the order via our manual trading system,” Baradwaj tweeted. “What they missed was the decimal point was off by a few spaces. Rather than selling BTC at the current market price, they sold it for pennies on the dollar.”
Arbitrage traders quickly took advantage of the mispricing and restored bitcoin to normal levels. Alameda, however, lost millions of dollars.
“Alameda's losses on the fat-finger trade were staggering - on the order of tens of millions. But because it had been an honest mistake, there wasn't much to do except to implement additional sanity checks for manual trades,” Baradwaj added.
Baradwaj and Binance.US did not immediately respond to requests for additional comment.
Shaurya Malwa
Shaurya is the Co-Leader of the CoinDesk tokens and data team in Asia with a focus on crypto derivatives, DeFi, market microstructure, and protocol analysis. Shaurya holds over $1,000 in BTC, ETH, SOL, AVAX, SUSHI, CRV, NEAR, YFI, YFII, SHIB, DOGE, USDT, USDC, BNB, MANA, MLN, LINK, XMR, ALGO, VET, CAKE, AAVE, COMP, ROOK, TRX, SNX, RUNE, FTM, ZIL, KSM, ENJ, CKB, JOE, GHST, PERP, BTRFLY, OHM, BANANA, ROME, BURGER, SPIRIT, and ORCA. He provides over $1,000 to liquidity pools on Compound, Curve, SushiSwap, PancakeSwap, BurgerSwap, Orca, AnySwap, SpiritSwap, Rook Protocol, Yearn Finance, Synthetix, Harvest, Redacted Cartel, OlympusDAO, Rome, Trader Joe, and SUN.
