Binance Mistake Triggers Bitcoin Price Volatility

Bitcoin experienced a brief bout of volatility on Wednesday after Binance, the world’s largest cryptocurrency exchange, revealed that it had mistakenly closed some derivatives positions of Australian users.

In a tweet, Binance said that it had identified a small number of Australian accounts that were incorrectly classified as “Wholesale Investors”, a category of investors who are exempt from certain regulatory requirements and can trade derivatives on its platform.

Binance said that it was required by Australian regulation to forcibly close the positions of these accounts and that it had already contacted the impacted users and intended to fully compensate them for any losses they may have incurred while trading derivatives on Binance.

The news caused a stir in the crypto market, as bitcoin’s price dropped from around $24,500 to below $24,000 in a matter of minutes. However, the price quickly recovered and climbed back above $24,500 shortly after.

Data from Coinglass, a crypto data provider, shows that over $20 million worth of bitcoin positions were liquidated in four hours following Binance’s announcement, mostly longs. This indicates that some traders were betting on bitcoin’s price to rise and were caught off guard by the sudden drop.

Binance has been facing regulatory pressure and customer backlash in recent months due to its lack of compliance and transparency in various jurisdictions. The exchange has been banned or restricted in several countries, including the UK, Japan, Germany and Canada.

Binance has also seen its market share decline as competitors like Coinbase and FTX have gained popularity and legitimacy among institutional and retail investors. According to data from CryptoCompare, Binance’s spot trading volume fell by 35% in January compared to December 2022.