What Is a Flash Crash?

A flash crash is a market condition where an asset’s price falls very rapidly within a very brief time interval, then rebounds back to previous levels in an equally short time. In the cryptocurrency space, a flash crash can take place within hours or even minutes. High-frequency trading is among the leading causes of such catastrophes in the crypto market.

The volatility of digital currencies naturally includes extreme downward price movements. In turn, gripping selling pressures lead to rapid shifts in crypto prices, which result in flash crashes in many cases.

Flash crashes also happen in other industries, such as the stock and foreign exchange markets. Some notable hits in the stock market include the July 2015 flash where an impact on the New York Stock Exchange (NYSE) halted trading for over three hours. Other examples include the 2014 bond flash crash, which was caused by algorithm-focused trading programs, and the spoofing-ignited 2010 Dow crash. 

The crypto landscape triggers flash crashes differently. For example, in 2021, Bitcoin experienced a flash crash where roughly $310 billion was wiped off the digital currency market, triggering $10 billion worth of BTC liquidations. 

The crash was a result of the blackouts that occurred in the Xinjiang region in China, where some of the largest Bitcoin mining farms in the world sit. Further analyses indicated power blackouts in its cities caused nearly half of Bitcoin’s network to go offline, dipping from 215 to 120 exahash per second, which caused a massive selloff.