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Why Cryptocurrency Market Hard Crashed?

why cryptocurrency market crashed yesterday

A South Korean cryptocurrency exchange Bithumb is constantly in the headlines due to its insane cryptocurrency prices. The exchange offers crypto coins at a much higher rate as compared to other exchanges.

A bitcoin that currently trades at about $15,000 on other exchanges is priced at $22,800 on Bithumb, about $7,800 higher. This dramatic price difference is truly an arbitrage dream, a term used when traders buy cryptocurrencies from one exchange and sell it on another, just to profit from the difference in prices. However, this isn’t happening at all.

Traditionally the price difference between different exchanges is just of few percentage points and people profit accordingly. However, in this case, the profit is mouthwatering.

You can buy a bitcoin for $15k from let’s say Bitstamp and then simply sell it on Bithumb for $22k, Tada! You get $7,800 worth of profit. But…but things aren’t as simple as they look. Arbitrage is NOT possible on Bithumb because of the strict South Korean money transfer rules that make it very hard for a person to take money out of the country. The only choice left is to purchase any other coin and send it out, exactly what people are doing.

Now, due to the frequent buying of altcoins like BCC, LTC and others, prices of these crypto coins have also surged, as much as that of Bitcoin, leaving not the slightest of possibilities for arbitrage.

“Cryptocurrency ripple falls over 30% in one day”

One of the many reasons behind Bithumb’s inflated prices is that the exchange might be undergoing some internal issues. Like there wouldn’t be a free flow of money in and out of the exchange, thus resulting in an imbalance. A similar kind of problem that happened with MtGox that collapsed back in 2014, after filing for bankruptcy.

Due to an unsteady flow of money, prices on MtGox became skewed and people started accusing it of being a fraud. (There are a lot of side details related to the matter however, we just discussed the one resembling the situation under discussion).

Now, we don’t mean that Bithumb is a fraud or something, we are just saying that situations like these happen with exchanges, which result in skewed prices that further affect the whole market.

Also Read: 7 Reasons Why Bitcoin and Other Cryptocurrency Hard Crashed

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