Former Engineer Reveals Alameda’s Role in Bitcoin’s 87% Plunge
Aditya Baradwaj, a former engineer at Alameda Research, has come forward to disclose that the cryptocurrency trading firm was responsible for bitcoin’s 87% drop in 2021. Baradwaj explained that this incident was a result of Alameda’s work philosophy, which prioritized speed over risk management.
BTC Flash Crash and Binance.US
In October 2021, BTC experienced a flash crash, with Binance.US being the most affected exchange. While BTC dropped to $54,100, $58,500, and $63,600 on other platforms like Kraken, FTX, and Bitstamp respectively, it nosedived to $8,200 on Binance.US. The cause of this decline was initially unknown.
Binance.US later revealed that the flash crash resulted from a trading algorithm bug from one of its institutional traders.
Alameda’s Trading Systems
Baradwaj explained that Alameda utilized both automated and manual trading systems. The automated system was the main mode of trading and involved setting model parameters for executing trades at high frequency. However, manual trades were necessary in certain situations.
Unfortunately, during one such manual trade, an Alameda trader made an error by misplacing a decimal point while selling BTC. This caused the asset to be sold for significantly lower than its market price and led to the crash.
Implementing Additional Sanity Checks
Following the incident, SBF and the Alameda management were compelled to introduce additional risk checks for manual trades. The firm had a pattern of waiting until something broke before taking action to fix it.
Hot Take: Alameda’s Impact on BTC’s Plunge
Aditya Baradwaj’s revelation about Alameda Research’s role in bitcoin’s 87% drop highlights the importance of risk management in the cryptocurrency industry. This incident serves as a reminder that even small errors can have significant consequences in the market. It also underscores the need for proactive measures to prevent such incidents from occurring in the future. Traders and firms must prioritize risk management alongside speed and efficiency to ensure the stability and integrity of the crypto market.
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