Former Alameda Research Employee Discloses Details of Bitcoin Plunge
In a recent disclosure, a former employee of Alameda Research, a trading firm led by Sam Bankman-Fried, has revealed crucial information about the dramatic 87% drop in Bitcoin’s value during 2021. The incident occurred on October 21, 2021, when BTC’s price on Binance.US plummeted from approximately $65,760 to $8,200 within a short period.
Insider Reveals Alleged Manual Trading Error
The ex-employee, Baradwaj, claimed that the trading firm was directly responsible for the sudden price drop due to a “manual trading error” rather than relying solely on algorithmic trading. He stated that a trader at Alameda Research mistakenly entered an incorrect decimal while trying to sell a block of BTC in response to breaking news. This resulted in the trade being executed at an extremely low price and causing a drastic crash.
Alameda Research’s Trading Strategies
Baradwaj highlighted that Alameda Research primarily used semi-systematic strategies where traders fine-tuned algorithms for high-frequency automated trades. However, manual trades were occasionally used in cases of system bugs or arbitrage opportunities on platforms without automated trading. Unlike automated trading, manual trades were discretionary and prone to human error. Unfortunately, an error by an Alameda trader triggered a chain reaction leading to the flash crash.
The Aftermath and Lessons Learned
The erroneous trade caused Bitcoin’s price to drop from $65,000 to as low as $8,000 on certain platforms before recovering through arbitrageurs’ actions. The incident generated buzz on social media and Binance.US attributed it to a bug in the trading algorithm of one of their institutional traders. Alameda Research incurred significant losses amounting to tens of millions. However, the firm took immediate action to improve sanity checks for manual trades and implemented robust measures to prevent similar incidents in the future.
The Culture at Alameda Research
The former employee shed light on Alameda’s culture, which emphasized moving fast to seize opportunities, even if it occasionally resulted in unforeseen costs or vulnerabilities. This approach, championed by Sam Bankman-Fried, also influenced the culture at the now-bankrupt crypto exchange FTX.
Unveiling the Mystery Behind the BTC Flash Crash
For almost two years, the cause of the BTC flash crash remained a mystery. Baradwaj’s revelations have provided valuable insights into the events that unfolded behind the scenes, bringing clarity to this significant price drop.
As of now, Bitcoin is trading at $26,600, down by over 2.1% in the past 24 hours.
Hot Take: The Truth Behind Bitcoin’s Dramatic Plunge Revealed
A former employee of Alameda Research has exposed crucial details about the dramatic drop in Bitcoin’s value in 2021. The incident was caused by a manual trading error at Alameda Research, leading to a drastic crash in BTC’s price. This revelation sheds light on Alameda’s trading strategies and risk management practices. While the firm suffered substantial losses, they took immediate action to prevent similar occurrences in the future. This incident also highlights the culture at Alameda Research and its influence on FTX. With these disclosures, the mystery behind the BTC flash crash has finally been unveiled.
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