ETH Flash Crashes on Kraken, Recovers $1,000 Within the Hour

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In Brief
  • Popular crypto exchange Kraken saw ETH prices flash crash to $700 on Monday Feb 22.

  • One reason for this may be leveraged traders getting washed out.

  • No other exchange saw such a fall, leaving questions as to the real reason for the drop.

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Crypto markets are in turmoil on Monday, thanks to some heavy liquidations. The ethereum (ETH) price appeared to plunge dramatically more on the Kraken exchange compared to its peers.



Bitcoin (BTC) and ETH have paired back gains from impressive rallies the previous week. However, sellers were out in force to start the new week, pushing the top two cryptocurrencies by market cap into the red by more than 15% at one point.

When BTC falls, it tends to drag down the entire market with it, but should it cause ETH to drop by some $1,000? Probably not. Several influencers observed the so-called flash crash on Kraken, including Defiant News author Camila Russo.



Leveraged Traders Getting Washed Out

Funding rates for leveraged traders appeared high at the time of the selloff. Traders wanting to cash in on crypto’s volatility will often borrow funds to build up bigger positions. Consequently, interest rates will rise as more traders borrow, creating the potential for massive liquidations.

Funding rate data from ViewBase shows that following the selloff, traders have dramatically reduced their leverage as both BTC and ETH recover. At press time, ETH had recovered to $1,760, creating an enormous weekly candle in the process, resembling a similar one to the 2017 bull market.

Data Error or Panic ETH Selling?

It’s unclear yet what caused the deviation on Kraken. Leverage, as explained above, may be one cause. Kraken offers leveraged trading of up to 5x for its users, which is actually lower than many other platforms.

ETH flash crashes to $700 on Kraken | Source: TradingView

During heavy liquidations, many exchanges experience technical issues. Binance, for example, was embroiled in controversy on Feb 19 when it temporarily suspended ETH withdrawals due to “congestion.”

In this case, Kraken was no exception as it confirmed via Twitter that it was having some technical issues.

One astute observer notes the lower liquidity issues on Kraken:

“Less liquidity than on Binance! With so many leverage position that got liquidated in a few minutes we get that air drop but the less liquid the market is the deeper the hole!”

One absurd but totally plausible reason could be a panicked seller typing an incorrect figure into Kraken’s trading platform. If that were the case, trading bots would likely pick up the trade instantly, scoring a massive return in the process.

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Ryan was BiC's U.S. Time Zone Editor until the end of Feb 2021. He is fascinated with the history and evolution of money and the role that crypto plays in fixing a broken financial system. When not meticulously looking over the charts, he can be found jamming some board games or running the trails in his local nature reserve.

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