Binance Glitch Causes Major Altcoins to Briefly Plummet

Trading Anomaly Sparks Investor Concern
The cryptocurrency market experienced a significant disruption last Friday as several major altcoins, including Cosmos, saw their prices inexplicably drop to nearly zero on the Binance exchange. While the values remained stable on other trading platforms, the incident triggered alarm throughout the community, raising questions about a potential system malfunction or a large-scale liquidation.

Market Loses $850 Billion in Value

In the hours surrounding the incident, the total cryptocurrency market capitalization fell by an estimated $850 billion. The sharp decline represents one of the most dramatic market-wide drops since the collapse of the FTX exchange in 2022, underscoring the ongoing volatility within the digital asset sector.

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Altcoins Plummet as Technical Issues Plague Major Exchange

The cryptocurrency market experienced a severe flash crash, with Bitcoin’s price plummeting from approximately $124,000 to $105,000, a sharp decline of over 15%. While the leading crypto asset took a significant hit, the impact on altcoins was far more catastrophic, particularly on the Binance exchange.

Several tokens, including Cosmos (ATOM), IoTeX (IOTX), and Enjin (ENJ), saw their prices collapse to zero on Binance. Curiously, these assets maintained significant value on other major exchanges like Coinbase and Kraken. On those platforms, ATOM was down about 53%, IOTX fell by 46%, and ENJ declined 64.5%—all substantial losses, but nowhere near a total wipeout. This discrepancy led many investors to suspect that technical glitches or a system overload on Binance were to blame for the extreme price action.

The event, described by some analysts as one of the most severe flash crashes in recent altcoin history, triggered widespread alarm. Countless users reported on social media that their sell orders were executed at drastically low prices, compounding their losses.

A $20 Billion Cascade Fueled by Mass Liquidations

Data from CoinGlass revealed the staggering scale of the fallout, showing that approximately $20 billion in crypto positions were liquidated in the 24-hour period between October 9 and October 10. This figure is twenty times larger than the mass liquidation event seen during the market panic of March 2020. Over 1.6 million traders had their entire positions wiped out in a domino effect driven by leveraged trading.

Leverage allows traders to borrow funds to amplify their positions, which magnifies both potential profits and risks. As prices began to fall, Binance’s automated systems started selling off collateralized assets to cover the mounting losses. This created intense selling pressure, pushing prices down further and triggering a negative feedback loop of more liquidations.

BitMEX founder Arthur Hayes noted that the situation was worsened by cross-margin liquidation mechanisms, where a single failing position can trigger the forced sale of a user’s entire portfolio. He explained that major exchanges like Binance were selling enormous amounts of collateral at the same time, accelerating the crash. Amid the chaos, many users also reported frozen accounts and malfunctioning stop-loss orders, preventing them from managing their risk.

Empty Order Books and Vanishing Market Makers

Beyond the pressure from liquidations, some analysts suggest that the withdrawal of major market makers from Binance played a crucial role. It’s believed that firms like Wintermute may have pulled liquidity from the exchange in response to the extreme volatility and system delays. The absence of these large-scale traders left order books thin and vulnerable, creating a vacuum where prices could fall to zero without sufficient buy orders to support them.

A sudden spike in transaction volume on Binance triggered a technical issue that caused buy orders for several altcoins to momentarily disappear from the market. With no active buyers, the system automatically displayed a price of zero for tokens including ATOM, IOTX, and ENJ. Although prices quickly returned to normal, the incident highlighted the potential fragility of trading platforms under extreme conditions and briefly shook confidence in the world’s largest crypto exchange.

This event is reminiscent of the 2017 Ethereum flash crash on the GDAX exchange, now known as Coinbase Pro. In that incident, a massive sell order caused ETH’s price to plummet to just $0.10 in seconds before recovering. While the price bounced back, many traders suffered significant losses due to automatic liquidations triggered by the brief, extreme price drop.

Binance Pledges Compensation and System Upgrades

In response, Binance co-founder and Chief Customer Service Officer Yi He issued an official apology. She acknowledged that some users faced transaction problems because of the extreme market volatility and a surge in system traffic.

Binance CEO Richard Teng echoed this sentiment, stating that the exchange wasn’t making excuses and was committed to listening, learning, and improving its systems. Binance confirmed it will compensate users who suffered direct financial losses due to the system failure. However, the exchange clarified that losses from standard market price fluctuations are not eligible for compensation.

Looking forward, Binance has promised to conduct a thorough technical audit. The exchange also plans to strengthen its mass liquidation prevention systems to prevent a similar incident from happening again.