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Is Circuit Breaker Necessary to Crypto Market?

From 12:00 a.m. on March 12 to 12:00 a.m. on March 13, 2020, bitcoin dumped from $760, first to $5500 in just 24 hours. In the following years, the market value of the company was down to $3600 and lost $55 billion market value.

BitMEX is suspected of finally stopping the avalanche of price and sentiment, as the platform broke down for a short time (it is said the “DDoS attack”) during the 24 minutes from 10:16 a.m. to 10:40 a.m. on the March 13. After the resumption of trading, the BTC futures price of the platform rebounded from $3614.5, which became a key turning point for the price and sentiment rebound of the whole market.

CEO of FTX, a derivatives trading platform, doubted that BitMEX might deliberately close transactions to prevent further dump. There is even speculation that if the platform is not offline due to “hardware failure”, the price of bitcoin may dump to zero.

BitMEX has an irreplaceable and decisive influence in the futures as well as in the leverage market. Because of its historical first-mover advantage, it occupies a large market share. BTC margin is used for each currency transaction pair on BitMEX, which makes it impossible to count the margin share when the futures other than BTC are profitable and settled in the corresponding currency. However, in case of loss and stop loss, it can only rely on the BTC transfer on the chain to add margin, that is to say, the liquidity recovery requires time buffer.

All kinds of factors determine that the operation of BitMEX has been able to directly affect the whole market trend.

Will the crypto market gradually establish a “circuit breaker mechanism”?

Circuit breaker, also known as ‘automatic stop trading mechanism’, originated in the United States. It refers to the trading platform’s measures to stop trading for risk control when the wave amplitude of the stock index reaches the specified fuse point. In this liquidity crisis, the crypto market, which had the advantage of 7×24-hour continuous trading, fell 50% in a day of emotional stampede, making many investors begin to consider the necessity of “circuit breaker mechanism” in the crypto market.

“Circuit breakers can only be used on a fully monopolistic exchange. Free market doesn’t work that way. Bitcoin is traded on many exchanges.”

CZ, Founder of Binance believes that Circuit breaker is inaccessible in crypto market. Although the trading platform has not yet made action, DeFi has begun to introduce the concept of circuit breaker. After clearing millions of dollars recently, MarkerDao announced that in order to effectively deal with the zero bidding risk in the process of collateral auction, it decided to introduce the circuit breaker mechanism to further reduce the auction risk, so that when the market fluctuated violently again, the liquidators could have a longer time to raise capital and participate in the bidding liquidation of collateral.

For the cryptocurrency market with a smaller scale, the risks exposed at least will gradually enhance the system’s anti-risk ability. As this unprecedented market crash, it has broken many investors’ dream of halving, but also caused enough suspicion and thinking in the market, especially in the liquidity trap.

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