Ex-alameda Employee Reveals Firm’s Role in 87% Bitcoin Plunge on Binance.us in 2021
In a surprising revelation, former Alameda Research engineer Aditya Baradwaj claimed that the trading firm was responsible for the sudden 87% drop in Bitcoin (BTC) prices on Binance.US in 2021. This disclosure came to light on Thursday, indicating that an error by an Alameda trader led to a significant price drop.
On October 21, 2021, Bitcoin traders on Binance.US were left scrambling as the asset's price plummeted within minutes from around $65,760 to a low of $8,200 at 11:34 UTC (7:34 a.m. ET). The sharp fall was quickly corrected, with the cryptocurrency bouncing back to its previous levels. At the time, a Binance.US spokesperson attributed the crash to a bug in the trading systems of one of their institutional traders. The identity of this trader remained undisclosed until now.
According to Baradwaj, most of Alameda's trades were executed using algorithms. However, during times of market volatility or when profit opportunities arose, traders could manually send orders. It was during one such instance that an Alameda trader attempted to sell a block of BTC via their manual trading system. Due to a misplaced decimal point, the trader sold the BTC for pennies on the dollar rather than at the current market price.
This error resulted in arbitrage traders quickly capitalizing on the mispricing and restoring Bitcoin to normal levels. Meanwhile, Alameda Research suffered substantial losses amounting to tens of millions of dollars due to this mishap. Following this incident, additional sanity checks were implemented for manual trades at Alameda.
Baradwaj further explained that this incident was a consequence of a work philosophy established by Alameda’s co-founder Sam Bankman-Fried. According to this philosophy, moving fast and capitalizing on opportunities outweighed the occasional costs due to a poor risk management system. However, this incident prompted changes in the firm's approach to manual trades.
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