10-Minute Heaven, Millions Lost: The Rise and Fall of BitMEX's Bitcoin Flash Crash to $8,900
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10-Minute Heaven, Millions Lost: The Rise and Fall of BitMEX's Bitcoin Flash Crash to $8,900
BitMEX mentioned the possibility that someone might be attempting to manipulate the market.
Navigating Web3 tides with focused insightsSource: Bloomberg
Compiled by: Yanan, BitpushNews
There are roughly a dozen stock exchanges in the United States, and every stock trades on each of them. From time to time, a stock’s price on one exchange will be slightly lower than on another. There are countless books and analyses about this phenomenon, and many people have made substantial profits by specializing in it.
However, these differences are negligible relative to the overall market. If I told you that over the past hour, Apple shares had been trading at $174 on NYSE Arca while simultaneously trading at $175 on Nasdaq, you probably wouldn’t believe me.
One reason I’d say that is because market rules help prevent large price discrepancies. Another reason is that securities trading is now fully computerized, all prices are transparent, and there are always traders quick to spot even the smallest price difference and profit from it. If Apple really were trading at $174 on Arca and $175 on Nasdaq, arbitrageurs would immediately buy shares on Arca and sell them on Nasdaq, capturing risk-free instant profits.
As a result, numerous arbitrageurs would rush in, quickly eliminating the price gap within seconds.
Yet for professional arbitrageurs who profit from such spreads, the reality isn't quite so simple—using high-frequency trading systems, they can capture fleeting micro-discrepancies, such as buying a stock at $174.99 and selling it at $175.00, earning tiny but frequent profits.
That said, such occurrences aren’t common under normal timeframes. You won’t see a situation like the hypothetical Apple example, where one exchange consistently trades a dollar cheaper than another for a full hour.
But this stability only holds true because there are many arbitrageurs with deep capital and fast computers. Furthermore, making arbitrage work requires significant technological and regulatory infrastructure to ensure these traders can connect to all exchanges, receive real-time pricing data, and swiftly move funds to trade at the lowest available price.
Now imagine a very different trading environment. Picture the New York Stock Exchange and Nasdaq located in opposite corners of downtown. In that era, traders had to ride horse-drawn carriages through city streets to execute trades. They couldn’t communicate instantly via telephone, and each transaction depended solely on individual trader decisions. As a result, price differences between exchanges could reach several dollars—and persist for hours. This scenario isn’t hard to envision because, roughly 100 years ago, markets operated much like this. Obviously, it’s vastly different from today’s automated, computer-driven trading systems.
Now, let’s talk about Bitcoin.
Unlike traditional stock exchanges, the world of Bitcoin is decentralized—there's no single authority coordinating prices across all exchanges. On the evening of March 18, Bitcoin briefly crashed to $8,900 against Tether’s USDT stablecoin on BitMEX, while trading above $66,000 on other platforms. This event highlighted the potential volatility within the Bitcoin market.
However, a BitMEX spokesperson stated they had launched an investigation and found that "aggressive selling by a very small number of accounts caused prices to deviate from expected market ranges," though the exchange’s systems remained functional and all user funds were secure.
In a social media post, BitMEX said it was “investigating potential misconduct in the Bitcoin/USDT spot market.”
Unlike traditional stock exchanges, BitMEX does not employ internal market makers. According to the post, the sell orders were “so large and rapid that independent market makers and other traders could not react in time.”
The post also noted that the incident had no impact on BitMEX’s derivatives market and did not trigger any forced liquidations.
According to X user “syq” (a pseudonym), “someone sold over 400 Bitcoins in blocks of 10–50 BTC over the past two hours, causing more than 30% slippage in the XBTUSDT pair on BitMEX, resulting in losses exceeding $4 million.”
“syq” added, “I suspect their selling has paused for now. Over the past 3.5 hours, total trading volume approached 1,000 BTC, with prices briefly dropping as low as $8,900. Currently, BitMEX has suspended withdrawal functionality.”
Notably, such extremely low prices didn’t last long, but there was a period of around 10 minutes with severely depressed levels. Each time the whale dumped 10–50 Bitcoins, BitMEX’s price dropped far below quotes on other exchanges.
As I mentioned earlier, if I were a Bitcoin market maker on Coinbase and noticed Bitcoin suddenly crashing to $8,900 on BitMEX, I’d immediately switch to BitMEX and start buying at, say, $9,000. That would be free money!
So why didn’t anyone do that? Perhaps some did, and the gap eventually narrowed—but judging from BitMEX’s own statement, the price recovery seems more attributable to the whale pausing its sell-off rather than active intervention by buyers.
More importantly, this highlights a fundamental difference between cryptocurrency exchanges and stock exchanges. In the U.S., when you buy stocks on an exchange, your money doesn’t go directly to the exchange. Instead, it goes through a clearinghouse to pay the seller (and the seller delivers shares to you via the same mechanism). All U.S. stock trades are settled through a central clearinghouse, with every exchange and broker connected to it. So if you’re an arbitrageur looking to buy $100 million worth of stock, you don’t need to deposit $100 million into each of the 12 exchanges just to be ready to trade wherever prices are lowest. You simply keep the funds with your broker, and regardless of which exchange executes the trade, your broker handles the settlement.
In the crypto space, exchanges typically hold customer funds themselves. But this creates problems. Sometimes exchanges accidentally lose user assets—or worse, staff misuse or misappropriate funds. As a result, traders must be cautious, carefully assessing the credit risk of each exchange. After all, no one wants to deposit a large sum—say $100 million—into an exchange that might collapse or turn out to be unsafe. So before trading on a new platform, users must conduct due diligence to protect their capital.
Beyond that, there’s an operational hurdle: even if an exchange is trustworthy, if you want to buy $100 million worth of Bitcoin there, you must first transfer $100 million into that exchange—which means those funds become unavailable elsewhere.
In its post about the flash crash, BitMEX quipped: “Yes, we’re investigating possible misconduct in the Bitcoin/USDT spot market. And by the way—you may not know this, but we actually offer spot trading too!” complete with a playful emoji. Honestly, however, BitMEX’s spot market is largely insignificant—not just to BitMEX itself or its customers, but even to those focused on spot Bitcoin trading. BitMEX has long branded itself as the “leader in crypto derivatives,” and compared to its massive derivatives business, its spot trading volume is minuscule.
If you’re in the business of converting Bitcoin to USD (or USDT), you’d likely prefer to deploy your capital and technology on major spot exchanges like Binance or Coinbase, where efficiency is higher. BitMEX’s spot market is, at best, a side feature. If Bitcoin suddenly crashes 90% on BitMEX for 10 minutes, you probably won’t have enough time to transfer funds over and take advantage of the dip.
BitMEX raised the possibility that someone might have attempted market manipulation. While BitMEX is primarily a major platform for crypto derivatives, it also operates a relatively small spot Bitcoin market. Suppose you hold bearish Bitcoin derivative contracts (i.e., you profit when Bitcoin’s price falls). In that case, you might dump large amounts of Bitcoin on the spot market to drive down the price. Even if you lose money on the spot sale, your derivatives position could generate significant gains—especially if your derivative exposure is large while your spot sell-off is relatively modest. Since the spot market has lower liquidity, pushing prices down doesn’t require enormous capital, potentially making this a highly profitable strategy.
“This event had no impact on our multi-billion-dollar derivatives market. It did not affect market pricing nor trigger any margin calls, as our index is independent and rigorously tested”—BitMEX reiterated.
Another possibility, I think, is that this was simply an operational error or similar mishap: someone holding a large amount of Bitcoin on BitMEX wanted to sell it. In fact, there are safer ways to do this—such as gradually selling in smaller batches, or withdrawing the Bitcoin from BitMEX and depositing it into another exchange with deeper liquidity, stronger market-making presence, and higher trading volume, thereby minimizing market impact. The crypto market isn’t as tightly interconnected as the stock market. Dumping your entire Bitcoin holdings at once on a single exchange could come at a steep cost.
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