Algorithmic trading firms have been identified as the main cause of recent outages at major centralized cryptocurrency exchanges, according to Ivo Crnkovic-Rubsamen, the chief strategy officer and technical lead for trading at the dydx exchange. The surge in retail interest and rapid price movements has led algorithmic trading firms to significantly increase the number of order placements and cancellations they send to the matching engine to maintain their positions. It is not uncommon for a trading firm to send 20 times the usual volume of orders and cancels during busy periods.
Prominent exchanges such as Binance, Coinbase, Kraken, and Bybit experienced technical issues in the past week, coinciding with Bitcoin’s surge above $60,000 for the first time in over two years on February 28. Crnkovic-Rubsamen noted that these issues are common during bull markets or when there is concentrated retail interest and significant price movements.
Following the temporary outage, investment research firm Citron recommended a short sale on Coinbase stock. The stock rose by over 11.36% in the 24 hours leading up to 12:25 pm UTC, reaching a trading price of $229.15, according to Google Finance data.
Crnkovic-Rubsamen explained that centralized exchanges, unlike decentralized exchanges (DEXs), can establish custom trading limits for individual market makers based on trust assumptions. This contributes to the increased workload experienced during bull market conditions. However, during peak bull market loads, DEXs are considered more reliable than centralized exchanges, as the rate limit on DEXs is set by the protocol and not influenced by direct relationships with market makers. While centralized matching engines are highly efficient and optimized for performance, their reliability becomes a concern when they experience downtime.
In related news, the market cap of Bitcoin recently reached a new high, briefly surpassing that of silver.
Algorithmic trading firms behind Binance and Coinbase crashes, reveals dYdX executive.