Bitcoin’s $24K drop was caused by a brief issue on an illiquid trading pair. The BTC/USDT market remained unaffected.
On Christmas Day, rumors spread that Bitcoin had crashed to $24,000. However, this “crash” was a result of a temporary issue on a single Binance trading pair, not a widespread market collapse.
The panic was caused by a brief, illiquid price movement on BTC/USD1. The actual Bitcoin market remained largely unaffected by this short-term event.
The incident occurred on the BTC/USD1 pair, which had low liquidity compared to other Bitcoin trading pairs. The price of Bitcoin briefly dropped by 72% to $24,111, but only for about three seconds.
During the same period, the BTC/USDT pair, where most Bitcoin trading happens, remained stable above $86,400. This price drop was isolated to a specific pair, not the broader market.
The main cause of the price drop was the lack of liquidity on the BTC/USD1 pair. Traders rushed to swap USDT for USD1 to take advantage of a promotional offer for 20% APY on deposits.
This drained the liquidity on the sell-side of the BTC/USD1 pair. As a result, when a large market sell order occurred, it caused the price to fall sharply for a brief moment.
Related Reading: Binance’s Bitcoin Price Drop and Recovery on Christmas Day
Once the price collapsed, arbitrage bots moved in quickly to restore equilibrium. These bots capitalized on the price difference, buying at the lower price and selling at the higher one.
The price bounced back to its previous level within seconds, closing the gap. This type of price recovery is common when liquidity is low and large orders hit the market.
This behavior is not unique to this event. A similar pattern occurred on December 10th, when the BTC/USD1 pair dropped from $96K to $76K. In both cases, the price swings were short-lived and did not reflect the broader Bitcoin market.
The situation also highlighted the risks associated with new stablecoin pairs, such as USD1.
These new pairs can experience sudden price movements due to low liquidity, especially during promotional campaigns. The 20% APY promotion on USD1 deposits caused a predictable liquidity vacuum in the BTC/USD1 pair, which contributed to the price drop.
The USD1 stablecoin backing the pair is issued by Trump’s World Liberty Financial. The stablecoin has recently surpassed a $3 billion market cap and may continue to influence market behavior.
Traders should be cautious when engaging with new stablecoin pairs, as they can lead to significant price fluctuations when liquidity is drained.
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