The cryptocurrency market’s “Black Thursday” might best be compared with a night out at a dank bar: bad decisions were made, shocking things happened, and the hangover never seems to end.
At least, that’s what the April 21 Coin Metrics State of the Network report appears to be telling us. Although Bitcoin’s price may have recovered significantly since its shock 50% decline—a crash that hasn’t been seen on such a scale since Mt. Gox’s demise—the fallout is continuing.
One of the main protagonists in the fateful crash on March 12 is BitMEX, which suffered a distributed denial-of-service (DDoS) attack on the worst day imaginable. Ironically, that attack may have helped stop and even reverse part of bitcoin’s price plunge.
BitMEX now appears to be paying dearly for the blip, according to Coin Metrics. Its figures show that BitMEX’s futures contract volume and the number of bitcoins it holds on behalf of traders collapsed within days.
Two scenarios are put forward for this sudden decline: crypto traders deleveraging and withdrawing their unused trading capital, or worse, the exchange losing market share.
During the attack, performing trades on the platform was impossible—and to make matters worse, the outage was initially blamed on a hardware issue. Understandably this resulted in a myriad of conspiracy theories percolating on the crypto internet.
What isn’t in dispute is that at the same time BitMEX’s platform halted that evening, a steep decline in the price of Bitcoin also ended.
Bitcoin suffered two price collapses on the day the entire financial market crashed, according to a March 23 Coin Metrics Network report. In the early morning, BTC fell from $7,300 to $5,690 in an hour. That night, it tanked again, dropping from $5,800 to $3,900 in about three hours.
The mechanics of what happened are complex, although well explained in Coin Metrics’ March 23 report. Basically, it suggests that BitMex underwent a liquidation spiral, in which the need to automatically auction off traders’ collateral after a missed margin call—which happens when the value of their collateral drops below the amount they bet in futures contracts—caused prices to drop, forcing more margin calls. A vicious cycle ensued, the theory goes. And with the network down, traders could not intervene to protect their positions.
“As soon as BitMEX was attacked, the price recovered and surged to $5,300,” said the report.
On the issue of whether BitMEX’s business is dwindling, Coin Metrics looked at the company’s share of the futures market. Whereas this stood at about 35% on Black Thursday itself, it has since slid as low as 25% since.
To add insult to injury, rival exchanges have seen their futures market shares go up since then, most notably Binance. It had a modest 11% or 12% market share on March 12—but by the beginning of April, this had more than doubled.
“It’s been more than a month since Black Thursday and while most of its immediate impact has now faded away with volatility reducing and spreads tightening, some of the longer-term consequences are only starting to become visible,” the April 21 report added.
Of course, BitMEX isn’t the only crypto firm damaged by Black Thursday margin call mistakes. MakerDAO is being sued for $28 million by disgruntled borrowers whose ether collateral was auctioned off for zero-dollar bids when the price of ETH collapsed.