GDAX on Its Botched Bitcoin Cash Launch; “Heavy Buy Demand Resulted in Insufficient Liquidity”
On January 9, Adam White, the general manager of the GDAX exchange, a subsidiary of Coinbase, gave his “retrospective” on the recent and controversial bitcoin cash (BCH) launch on the platform. White details that despite the company’s best efforts things didn’t go as planned, and the executive gives a transparent timeline of events.
When GDAX Opened its Order Books, in Three Minutes Demand for BCH Sucked Up Liquidity
The day Coinbase and GDAX added bitcoin cash to the company’s two trading platforms things went haywire for a few hours. When the exchange actually opened the trading sessions, BCH prices jumped over 200 percent in just a short period of time. According to White, the exchange announced support for BCH trading on three new books: BCH-USD, BCH-EUR, and BCH-BTC. At 5:20 pm PST White details the BCH-USD book was opened, and three minutes later the books were temporarily closed.
“At 5:23 pm PST, we paused trading on the BCH-USD book due to significant volatility caused by heavy market buy demand that resulted in insufficient liquidity,” explains White’s retrospective.
$15.5Mn in USD Trade Volume Occurred Which Led to the 70 Percent Bitcoin Cash Price Increase
The GDAX general manager says that in the “2 minute and 40-second” period 4,443 orders were placed, 3,461 matches occurred, and 2,202 market orders got executed. The demand was significantly larger than usual, because within that short period of time “$15.5 million USD of trading volume occurred,” notes White. The GDAX executive states:
During this period, nearly 90% of all market orders were buy orders — This resulted in a thinning of liquidity and a rapid increase in price on the BCH-USD book.
Coinbase Denies Insider Trading Accusations
During this time many traders accused GDAX and its parent company Coinbase of insider trading. White responds to these accusations in his retrospective timeline, stating that employees were notified of the BCH listing on November 13th, 2017. All employees working for both Coinbase and GDAX were “explicitly prohibited from buying and selling bitcoin cash,” White emphasizes.
“All employees were also barred from sharing this information with anyone outside of Coinbase — This approach is modeled after best practices at other financial institutions and captured in our employee trading policy,” explains the GDAX general manager.
BCH Liquidity Issues Continued to Plague GDAX Order Books for a Few Days
On December 20, GDAX announced its intentions to open BCH books and trading pairs again in a ‘post-only’ mode. The team also adjusted liquidity minimums to match the previous day’s market behavior, White details. That day BCH market prices were 70 percent higher than the day before the Coinbase launch. White says the BCH-USD order books worked fine since the first adjustment, but later that day at 7:41 pm PST both BCH-EUR and BCH-BTC books failed to achieve liquidity minimums needed for trading. So the company moved the books to ‘cancel mode’ and tried again the next day, but liquidity still did not meet the requirements. Those books were put on hold until after the holidays.
White says both GDAX and Coinbase take the process of “supporting a new asset seriously,” especially when that asset was created by forking a token already supported by the company. Because of this, White says that in order to minimize problems, the way they released access to the fork asset was a good decision.
“This belief drove our decision to announce our support for BCH trading only once all customers had access to their BCH,” White concludes.
What do you think about the day GDAX and Coinbase launched BCH and the price shot up 200%? Let us know what you think about this event in the comments below.
Images via Shutterstock, GDAX, Bitcoin Cash, Youtube.
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