Do you need a cure for blackouts? Bitcoin Price Volatility Challenges Crypt Currency Exchanges

No one can really predict the volatility of the Bitcoin price (BTC). But one thing becomes painfully predictable when the price of Bitcoin suddenly wobbles in one direction or another: One or more of the major cryptomoney exchanges simply goes offline. This leaves users powerless to prevent losses from skyrocketing, as they cannot trade or buy more positions as hedge.

These interruptions have occurred over and over again. More recently, when the price of Bitcoin began to rise toward the $10,000 mark, Coinbase went offline. At the time it occurred, Cointelegraph reported that this is the fourth time in the last three months that Coinbase has been shut down during major movements in the BTC price. Additionally, Twitter user CryptoWhale noted that there have been no fewer than 11 Coinbase outages in the past 12 months, each at a time when the price of Bitcoin had moved more than the equivalent of $500.

The Silicon Valley-based exchange subsequently issued a statement on its blog, clarifying that the June 3 disruptions were due to a problem with its API, which was seeing five times more traffic than usual. Without directly addressing the frequency of outages, the blog post stated that Coinbase is „working on reducing the impact of price-related traffic spikes through prescale and caching. Meanwhile, the exchange had users withdrawing BTC en masse, after the incident.

Coinbase exchange went offline due to a 5-fold traffic peak during the Bitcoin upload

A wider problem?
During Black Thursday in March, BitMEX was offline for 25 minutes, subsequently blaming two distributed denial of service attacks. However, Twitter users, including the CEO of rival FTX exchange Sam Bankman-Fried and the lowstrife trader, said it was foul play.

BitMEX denied the accusations, but this is not the first time the Seychelles exchange has been accused of playing dirty. Blogger Hasu expressed his suspicions that the company will „use server problems as a weapon“ in 2018. This is also clearly stated in the allegations in the class action lawsuit currently pending against BitMEX, which states: „BitMEX routinely freezes its servers – BitMEX blames technical failures and limitations – to take advantage of high volatility.

A month after Black Thursday, the company saw a 38 percent drop in its holdings in Bitcoin. It is not clear whether the fall is due to a loss of user confidence in the platform or to general market sentiment, where an abnormally high amount of BTC is being withdrawn from the exchanges. Meanwhile, Bitcoin Compass has struggled to regain the open interest it lost in March, which means it may be losing market share to smaller rivals such as Bybit and FTX.

Coinbase and BitMEX are the two platforms that have been most often criticized for downtime in the volatile markets. However, the data provider Kaiko conducted an in-depth analysis of the minute-by-minute trading data of 12 and 13 March, covering seven spot and six derivative exchanges. Five of the spot exchanges and four of the derivatives platforms were found to have experienced some kind of problem during peak volatility.

Of the cash platforms in question, only Binance and Bitstamp remained, although Binance CEO Changpeng Zhao acknowledged some „peripheral system failures“ on a tweet. As for derivatives, Binance Futures and Huobi DM managed to ensure uninterrupted trading.