Benzinga - A former Alameda Research employee recently discussed how an event lead to a dramatic 87% drop in Bitcoin's (CRYPTO: BTC) value back in October 2021 — less than a year before Alameda and FTX went bankrupt.
The plunge, which saw Bitcoin plummet from $65,000 to a mind-numbing $8,000 on certain platforms, was attributed to a simple human error: a misplaced decimal point.
Benzinga is gearing up for its Future of Digital Assets conference on Nov. 14. The event promises to bring together some of the brightest minds in the crypto and blockchain sectors, offering insights and discussions on the latest trends, challenges, and innovations. It's anticipated that the recent revelations about Alameda Research might be a topic of discussion, given the significant impact such events have on the broader digital asset landscape.
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The ex-employee, who claimed to have joined Alameda just weeks before the incident, provided an inside look into the firm's trading operations.
Alameda primarily relied on semi-systematic strategies, where traders adjusted model parameters to control a sophisticated automated trading system.
This system executed high-frequency trades based on the set parameters.
However, occasionally, traders would manually send trades, especially during market volatility or when arbitrage opportunities arose on platforms without automated trading.
While Alameda's automated systems had checks to ensure orders were in line with current market prices, manual trades lacked such safeguards.
On Oct. 21, 2021, an Alameda trader — intending to sell a block of BTC in response to a news report — mistakenly shifted the decimal point, selling Bitcoin for mere pennies on the dollar.
The crypto community was in turmoil as Bitcoin's price took a nosedive.
Binance.US, the central hub of this flash crash, attributed the incident to a "bug in their trading algorithm" from one of their "institutional traders."
The financial repercussions for Alameda were immense, with losses estimated in the tens of millions. In response, the firm implemented additional checks for manual trades to prevent such mishaps in the future.
The ex-employee noted that Alameda fixed issues as they arose, but may have overlooked certain checks that traditional trading firms would deem essential.
Sam Bankman-Fried, the founder of Alameda and FTX, believed that the benefits of swift action outweighed setbacks, the ex-employee added.
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