Bitcoin JUST Fell 80% in 1 Minute | The Flash Crash.

hey everyone me kevin here holy smokes

binance just had a flash crash in the

price of bitcoin all the way down to a

price of eight thousand two hundred

dollars you can't make this up right

here is the candlestick eight thousand

two hundred dollars is now the 24 hour

low for btc on the binance dot us

platform now it's very important to know

that binance us is the as you might

guess united states version of the

binance company

binance has an international trading

platform as well however the

international version's not available in

the united states thanks to different

regulations now

take a look at this eight thousand two

hundred dollars in a one-minute

candlestick that is an 87

drop

on a candle stick or wick that went all

the way down

why would this happen

well here's exactly why something like

this happens and what you can do to

prevent getting screwed in scenarios

like this and perhaps what you could do

to try to profit in scenarios like this

because some people are calling this

potentially a scam wick and there are

ways to prevent yourself from getting

scammed ways to protect yourself and

potentially take advantage of these

sorts of opportunities that come up okay

so

here's how this works

let's make an example

that you are

a bitcoin stock exchange you are the

exchange and so that is let's say you

have a house and your house is the

exchange uh see you got a nice little

window up here okay great uh over here

you have a table of buyers and over here

you have a table of sellers

and uh you're you're the the happy

middle person over here who's going to

help take the orders okay great and

you're wearing a scarf perfect

uh that doesn't look right so let's

let's go with something else you know

what whatever it's a scarf okay so

now let's say that usually

you have oh i don't know do we have a

volume here yeah we have a 24-hour

volume we've got volume right now

jumping around these are moving averages

okay so we got a 24-hour volume over

here at about 165 million usd but that

could be wide let's let's keep it simple

let's just say you have buyer volume

usually of five million dollars that

comes in and you have seller volume of

five million dollars that comes in well

usually these trades are going to get

placed around what the market price for

crypto is at any given time so plus or

minus 64 000 and depending on if at one

point maybe you have 5.2 million sellers

and 4.8 over here

binance can kind of even some of this

out to make sure that the spreads don't

go wild because see here you have a

seller in balance a seller in balance on

this exchange is usually going to lead

the price to go down but let's say the

price of bitcoin on the market is

actually 64 000 but you have the seller

imbalance the price on your platform

might actually look artificially lower

than what it should be so let's say the

actual market price for bitcoin in the

world is 64 000 but on your platform

it's 63 900

well this happens regularly especially

at exchanges with lower levels of

liquidity because they can't step in

they don't have enough cash to come in

and say hey no worries no worries i'll

make sure the price doesn't go below the

actual broader market price out here in

the world of 64 000 by coming in and

buying bitcoin by filling those orders

of the people who are selling so if this

extra you know four hundred thousand

dollars comes in finance could say no

problem we'll buy it at the market price

so that way when we get uh more actual

buyers who come in and want to buy

bitcoin at the actual price we could

just transfer it over to them well what

ha this happens regularly in exchanges

in fact it happens so much there are

actually uh hedge funds or institutions

potentially both

that uh play arbitrage like this like

they'll see oh look on binance bitcoin's

selling for 63 900 but on coinbase maybe

they have the opposite problem and it's

at 64 100. so they'll go buy here and

sell over here that's like making an

instant 200 profit now this is called

arbitrage because it's an inefficiency

in the marketplace they're essentially

taking something that's worth 64.

getting it for a discount and selling it

at a premium premium somewhere else this

is very commonly done by them doing this

they're actually creating more buyer

demand right they're bringing this back

to five

and uh the seller demand or maybe 5.2

and they're matching that 5.2 5.2 right

so arbitragers actually help create a

market they provide liquidity in fact if

you ever look at things like tether usd

you'll oftentimes see these things trade

in like uh you know increments of

pennies like a tenth or a hundredth of a

penny and that's because every time it

goes above a dollar people are selling

it every time it goes below a dollar

people are buying it and they're trying

to keep it at a dollar because it's

supposed to be a stable coin

so that works the same way

except in the early days like if you

look at the early days of tether for

example let's see if we can get a tether

chart here tether

let's go to here we'll go to coin market

cap look at tether if you go far back to

the early days of some of these coins or

you know what we'll go to the usd coin

because it's just conveniently right

here you'll see a lot more volatility

see this massive volatility oh wait you

can't there we go now you can see this

massive volatility you have over here

the reason you have these crazy ups and

these crazy downs like a flash crash is

because you don't have enough people

doing arbitrage to provide liquidity and

the exchange doesn't have enough money

to provide that liquidity to make that

or to minimize the need for arbitrage by

keeping the price stable which should be

at a dollar right stable coins and note

this range is really only like four

pennies here in either direction but

it's the same thing and the more

liquidity there is and the more stable

things become the less of this

volatility you get

the less likelihood of a crazy flash

crash you get so

why did we get this kind of flash crash

over here at binance well it's probably

because of something like this we'll go

back to this little chart right here

rather than a simple example like what i

just explained let's go extreme let's

say the market price for bitcoin is 64

000

and all of a sudden a whale comes in

here and says i'm selling a hundred

million dollars

and over here on the buy side they only

have five million dollars of buyers well

now what's going to happen is the

computers are going to automatically go

down what's known as an order book

and they're going to say okay we've got

somebody who wants to sell it a 100

million dollars worth of bitcoin let's

sell 5 million of it at 64.

uh then let's uh now we've blown all of

our buyers at that price right so to get

to the next pool of buyers let's find oh

look here we got five million dollars

worth of buyers who have set limit

orders for sixty thousand okay let's

sell five million to them and then you

basically you just keep going down the

order book uh uh you know at various

different prices essentially until

you've sold the person's entire 100

million dollar position now the only way

to prevent the price from flash crashing

is if the middle person in this case

finance us can come in and say whoa whoa

whoa this is this is where we need to

come in and prevent the price from flash

crashing

we'll post the hundred million dollars

and then we'll just slowly trickle it

out to buyers as they come in to make

sure our market price is similar in our

exchange prices similar to what the

broader market is doing

but if binance u.s

which according to a person familiar

with binance dot us

um

this is exactly what happened finance

u.s did not have enough liquidity to

facilitate that kind of sale

to prevent a flash crash and so what do

you get boom you get flash crash price

goes all the way down to 8 200 as the

order book gets extinguished basically

people bye bye bye bye bye

and the loser here is whoever the whale

is

who is setting this massive sell order

and anybody who has stop losses or set

up on their account or trailing stop

losses so a stop loss just to give you

an example of this might mean hey i've

made good money on bitcoin if bitcoin

ever falls below 60 000

sell my bitcoin so now and this is where

problems can actually get exacerbated

now you go down this order book and all

of a sudden let's say you get people who

set a bunch of stop losses at sixty

thousand so if bitcoin goes below sixty

thousand put in a market order to sell

let's say ten million dollars worth of

bitcoin so now you have even more cells

that you've gotta fill in that order

book this is why it's so important that

an exchange provider have proper or

enough liquidity to sort of prevent

situations like this from happening

otherwise like you see here you get a a

temporary collapse

which then obviously as the price falls

you get arbitragers who quickly buy high

frequency traders who quickly buy or

people who have low purchase limits set

get to go shopping so how do you protect

yourself in this kind of situation oops

well you protect yourself in a situation

like this ignore this little facebook

crypto thing here

you protect yourself in a situation like

this by being very very careful

with stop losses stop losses in my

opinion are something that you generally

don't want to have going all the time

especially on something as volatile as

crypto because of exactly this reason i

would rather try my best to pay

attention to crypto but it's tough

because sometimes crypto plummets in the

middle of the night so

this is where you have to ask yourself

do you want stop losses for a portion of

your portfolio sort of limiting your

potential exposure to these stop losses

they are rare

but if you set stop losses and you get a

flash crash you get screwed

the other thing that you can do is you

can set limit buys

the problem is most of us forget when we

have limit buy set so all of a sudden

you could start seeing something like

let's say crypto falls from 65 to 60 to

50 to 40 and you have a limit buy set at

50

50 000 but it's uh on a massive

downtrend it's gonna go down to 30. well

now you just bought it 50 and and you

could have bought it at 30 if you

manually did it right that's an extreme

example obviously but uh limit buys

can uh can be risky but in a flash crash

the way to protect yourself if there's

gonna be a flash crash is do not have

stop losses you don't want those this

you do not want but you do want

limit buys

so that way you're part of the order

book that's that gets executed so this

is good this is bad in a flash crash

but there are also downsides if the

market starts falling more broadly this

has pain

if there's no flash crash this the

stop-loss can help you minimize pain now

if you like the way i explain things

consider checking out my programs on

building your wealth link down below

especially the stocks and psychology of

money group where i talk about this sort

of stuff so check that out there's a 41

off coupon code that does expire october

29th so check that out i'd love to have

you part of the group the prices do go

up every time a coupon code expires

and uh i do add content regularly in

fact there's a new content drop coming

later in the day on october 24th which

i'm super excited about releasing

and that's totally for free so if you

buy now before or after it doesn't

matter there's no extra charge for

future content check out those programs

on building your wealth link down below

really appreciate it thank you so much

for watching and folks

finance flash crash

exchange liquidity crisis hopefully now

you understand a little bit more by the

way binance does not use margin finance

us does not use margin so this was not a

liquidation jesse liquidations issue

all right folks thanks again bye

[Music]