Baradwaj, a former employee who started revealing the secrets of Sam Bankman-Fried’s FTX, claims that the problem behind the temporary drop of over 87% in the price of Bitcoin (BTC) in 2021 was caused by FTX subsidiary Alameda Research.
On October 21, 2021, while other Bitcoin markets were operating normally, Bitcoin investors on the US branch of the cryptocurrency exchange Binance, Binance.US, were left in a difficult situation after the largest cryptocurrency suddenly dropped within minutes for no apparent reason. During that time, the price of Bitcoin on Binance.US dropped from approximately $65,760 to $8,200 and then quickly returned to almost the previous levels.
A spokesperson for Binance.US stated to CoinDesk that the problem originated from an error in the trading systems of an institutional trader. Although the real identity of the institutional trader has remained a secret so far, the disclosures made by a former Alameda Research employee reveal that the trading company Alameda Research, a subsidiary of FTX, was behind the price drop.
Baradwaj mentioned that most of Alameda Research’s transactions were carried out using algorithms, but traders could manually place orders or take advantage of profit opportunities during times of high market volatility. The drop was seemingly a result of manual order entry.
Baradwaj tweeted, “The investor was trying to sell some BTC in response to the news and sent the order through our manual trading system. While executing this trade, they entered the decimal part with a few missing spaces. So instead of selling BTC at the current market price, they sold it for a few cents in US dollars.”
Although arbitrage traders quickly took advantage of the mispricing and returned Bitcoin’s price to normal levels, Alameda Research suffered millions of dollars in losses due to the error. Baradwaj commented on this loss:
The losses in thick finger trading at Alameda Research were surprising; they were around millions of dollars. However, since it was an honest mistake, there was not much to do other than implementing additional controls on manual trading.