We don’t support any short-term position in the Bitcoin market at the moment.
On Monday, Bitcoin crashed temporarily on BTC-e. We described this in our last alert:
(…) earlier today we saw a massive sell-off which brought the price of Bitcoin down from around $460 to $309 (!) in a matter of minutes. The currency erased most of the losses in the subsequent quarter of an hour and has stabilized around $440 since then.
Right now it seems that the move down to $300 is not representative of the sentiment so we wouldn’t bet on such a move at this moment. Also, the level at which Bitcoin has paused today is around $450 which corresponds to a similar level on Bitstamp.
The actual reason for the rapid decline on BTC-e can only be summarized by stating that somebody sold a lot of currency. We’ve read a more speculative analysis aiming to present a possible cause of the decline:
The event started at 1:36 PM (UTC+1) when large sell orders began to show up on the third largest western Bitcoin exchange BTC-e. Downwards momentum increased steadily as the orderbook became increasingly thin, crashing prices to a low of USD 309 per Bitcoin at 1.43 PM. In the following minutes prices rebounded swiftly on thin volume back to around USD 442 as arbitrage traders started to take advantage of the discount relative to other exchanges.
BTC-e is one of the few large exchanges that offer margin trading to their clients via the MetaTrader platform since November 2013, but the details of who excactly provides the funds necessary for margin trading have remained unclear. The shape and especially timing of the crash points towards margin traders being liquidated (or stop orders being executed), similar to what happened on Bitfinex a couple of days ago.
However, unlike Bitfinex which is transparent about open swap positions, BTC-e does not provide important data which would be needed to provide a more thorough analysis and so this last statement can only be considered a good guess.
So, it might be possible that the crash was caused by margin calls. Does this change anything?