Two companies specializing in the sale of crypto have recorded technical blockages during the sudden devaluation of cryptocurrencies and the race for crypto. Will it be a technological problem or just the effect of over-leveraging crypto.
In cryptocurrencies, the past week is hardly out of the memory of investors: from 12 to 13 March, the value of bitcoins recorded losses of 40% - the highest ever recorded in the last seven years. But an evil never comes alone: “infected” by the effects of Covid-19, the investment products that are based on the expectations of appreciation of the various cryptocurrencies (Bitcoins and Ethereum, but there are many more) have collapsed. Despite the increase in the margins charged by the virtual exchange offices, which are known in the jargon as “exchanges”, there was a rush to raise these financial products. Result: according to CryptoCompare's monitoring, more than 30 billion dollars will have been withdrawn from the largest exchanges in the world in the fateful 24 hours between 12 and 13 March. And the bad news didn't stop there.
With such volatility of values and multiple investors eager to raise the money invested in financial products to minimize losses or to, as is typical, buy the same products again, but at lower prices to temporarily escape depreciation, the platforms of the “ exchanges ”have started to show that they may not be robust enough to support a global scale business.
Gemini, a virtual exchange office based in New York, is said to have been one of the first to show signs of technological blockade: according to Reuters, the American “exchange” was inoperative and without supporting transactions for more than 90 minutes. The same Reuters also reports that BitMex, which is based in the Seychelles islands, had no better luck: two 45-minute stops.
"It is important to see the evolution that the value of gold will have. If that value goes up, and that of crypto assets does not rise then we can conclude that crypto assets have no strength as refuge assets "FRED ANTUNES, APBC CHAIRMAN
The Gemini representatives justified the stop with a precautionary measure that allowed them to solve technical problems before returning to the activity. BitMex's justifications are capable of generating more alarm: according to this “exchange”, the failures in operation were due to blocks generated by cyberattacks, which use denial of service (DDoS) methods, which made the transmission of purchase orders unfeasible or sale of assets associated with cryptocurrencies.
Coincidence or not, the alleged cyberattacks on Bitmex occurred at the time of the greatest influx of asset purchase and sale orders - which raised the question regarding the resilience of the infrastructures and platforms used by the exchanges, which operate all over the world. , eventually, without the technical requirements that are required of stock markets or conventional brokers. This, in the opinion of some analysts, makes it difficult to standardize prices and to direct transactions among the millions of investors scattered around the world.
Fred Antunes, president of the Portuguese Association of Blockchain and Cryptocurrencies (APBC), recalls that also in the traditional markets there have been major breaks and devaluations and relates the plummeting of bitcoins, as well as crypto and cryptocurrencies in general, with the impact generated by Covid-19 in the world economy. "People started to sell everything they had and in crypto too", says the cryptocurrency expert.
The devaluation in parallel with the fall registered in traditional markets may have revealed a new facet of cryptocurrencies and financial products that result from them: unlike what happened in other financial crises, this time, bitcoins and the like did not function as a “safe asset”, which makes it possible to keep capital on hold while the crisis affects the values of traditional financial products.
A week after devaluing 40% and starting to be traded at just over $4000, Bitcoins have already recovered beyond $5000. Fred Antunes reiterates that crypto assets are recovering faster than financial products in traditional markets.
“It is important to see the evolution that the value of gold will have. If that value goes up, and that of crypto assets does not rise, then we can conclude that crypto assets have no strength as refuge assets”, says the president of APBC, noting that the average recovery of value in assets, in general, has not exceeded both by percent, while that of crypto assets is already around 12%, as it involves smaller volumes.
Fred Antunes relativizes the alleged technical limitations of the infrastructures that support cryptocurrencies - and links the abrupt devaluation of the last few weeks to the conjuncture that may have been aggravated not only by Covid-19, but also by the failure of Chinese investment programs in cryptocurrencies.
“The market“ crashed ”in its entirety. Each crypto can have a different infrastructure, but they all had the same behavior, which ended up infecting investors who were led to selling to buy later”, analyzes the cryptocurrency and blockchain expert.
Regarding the blockages registered in BitMex and Gemini exchanges, Fred Antunes admits that this is a situation in which the market tries to get rid of situations that are not always the healthiest, such as the leverage of 300% to 400% that they are carried out by the financial products created by some “exchanges”.
“I'm glad BitMex stopped. Eventually, it might even be good for exchanges like BitMex to close”, he concludes.