Changpeng Zhao, Binance’s CEO, and often also known more simply as CZ, tweeted cautioning people to expect extremely high volatility over the next few months, in the price of cryptocurrencies.
Bitcoin, after ascending unprecedented highs recently, dropped precipitously by over 90% on the US arm of Binance. It, however, soon snapped back. The bitcoin price originally at $65,000, dropped very briefly to $10,000 – before bouncing back. This had a knock on effect on the bitcoin price on the other exchanges. The unexpected and steep drop also affected ethereum’s price rally. Ethereum’s price dropped by around $2000 from just over $4000 per ether. When the flash crash occurred, on Binance US, bitcoin trading volume was pegged at approximately $40 million.
What is causing the volatility?
Analysts attribute the flash crash to a bug in an institutional trader’s trading algorithm. It is understood that the trader has, since then, fixed the bug and the issue has been resolved. The listing on NYSE of the US bitcoin futures ETF, also helped fuel the crypto and bitcoin hype. Bullish investors expect that money will continue to flow into the crypto market.
Apert from Binance CZ, who warned of extreme volatility, former Pimco CEO Mohammad El-Erian also cautioned of expected volatility. Both also linked the volatility to the US Federal Reserve announcement that it would very soon be cutting back on the pandemic stimulus measures.
Pimco’s CEO cautioned that the extended period of low volatility was unusual. He advised investors to understand that the huge liquidity wave was courtesy of the Fed. He said that waves tend to break sooner rather than later, and that it would pay to remain careful and attentive to the warning signs.