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2021 Bitcoin Price Collapse: Was Sam Bankman-Fried and Alameda the Cause of 87% Fall?

Published September 21, 2023 10:54 AM
Teuta Franjkovic
Published September 21, 2023 10:54 AM

Key Takeaways

  • An ex-Alameda employee said the trading firm was responsible for a 87% plunge in Bitcoin’s value in 2021.
  • On October 21, 2021, Bitcoin’s price on Binance.US plummeted from around $65,760 to $8,200.
  • Baradway stated that manual trading actions, not just algorithmic trading, played a role in the sharp price drop.

An ex-employee who has begun to disclose the inner workings of Sam Bankman-Fried’s companies claims  that disgraced trading firm Alameda Research was responsible for the blip that caused Bitcoin (BTC) 87% collapse in 2021.

Baradway and Binance.US did not immediately respond to a request for comment.

Bitcoin traders on Binance.US panicked on October 21, 2021, when the cryptocurrency’s price suddenly plummeted from around $65,760 to as low as $8,200 at 11:34 UTC (7:34 a.m. ET), before quickly rebounding. This abrupt drop had no apparent cause, while other bitcoin exchanges continued to operate as usual.

Recent tweets from a former Alameda Research employee suggest that the trading company may be responsible for the turmoil, though the investor’s true identity remains a mystery.

“I had my entire life savings stolen from me by my former boss: Sam Bankman-Fried,” said  the ex-employee, Aditya Baradway.

Although algorithms conducted the majority of trades at Alameda, Baradwaj noted that traders could occasionally manually place orders during volatile market conditions or to capitalize on opportunities. This manual intervention led to the incident in question.

According to Baradwaj’s tweet, the trader tried to sell a block of BTC in response to the news and sent out the order via our manual trading system. They failed to notice that the decimal point was wrong  by a couple of spaces. They sold BTC for pennies as opposed to the going rate on the market.

Arbitrage traders promptly noted the mispricing, then returning Bitcoin to its previous values. But Alameda suffered a significant financial loss.

Alameda incurred massive losses, in the tens of millions, due to the sincere fat-finger error. Baradwaj explained that, given its genuine nature, there were limited options other than implementing additional sanity checks for manual transactions.

“Binance US – which was the epicenter of the flash crash – released a statement claiming that it had been caused by one of their “institutional traders” who had a “bug in their trading algorithm” I guess Caroline had made some phone calls,” admitted Baradway mentioning Bakman-Fried’s girlfriend at the time.

Unlikely Market Crash from FTX Crypto Asset Sales

A prospective liquidation of FTX’s crypto holdings, according to  digital asset exchange Coinbase, won’t have a detrimental impact on the market.

This analysis  was conducted in response to widespread concerns that the sale of FTX digital assets to investors for more than $3.4 billion will result in a significant price decline based on the asset’s weekly transaction volumes.

Because of volume restrictions imposed at each stage of the liquidation, the company asserts that the sale won’t cause a significant market impact.

Contrary to the initial rumors of a $1.3 billion overnight sale, the liquidations will start with a weekly cap of $50 million and gradually increase to $100 million in the coming weeks.

Still, FTX debtors and their committees will need to approve a permanent $200 million per week.

“Strict controls in place for selling certain ‘insider-affiliated’ tokens that require 10 days advance notice to these same committees,” said  David Duong, the head of institutional research.

However, the business can sign contracts for hedging digital assets with a certified advisor under the provisions. This hedging agreement exclusively applies to Bitcoin and Ethereum, with the possibility of adding other coins subject to creditor approval.

The company is also required to provide periodic updates (weekly and monthly) on balances, transactions, sales, yields, market insights, and other revenue-generating sources.

According to a recent court judgement, the defunct exchange can now sell its cryptocurrency holdings to reimburse investors either directly or through investments.

Market Anxiety Sparked by Bankruptcy Proceedings

The collapse of FTX in November 2022 hit the market in a number of ways, from the immediate market decline that destroyed billions of dollars to the more current worries over the sale of its crypto holdings.

The exchange reportedly has $7 billion in assets, including Bahamian real estate, stocks, and cryptocurrency, according to a recent court filing.

The firm holds $560 million in BTC and $1.16 billion in Solana (SOL). The exchanges also own real estate valued at over $200 million and venture capital assets totaling over $4.5 billion in many businesses.

Experts’ predictions that the sale would have a large effect on the market last week prompted Tron’s Justin Sun to call for greater community support and to suggest that he would make a bid for some of the assets in order to lessen the effects on the market.

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