Ethereum Flash Crashes as Major Indian Exchanges Announces Banking Issues
Ethereum (ETH) was among the worst hit cryptocurrencies when India’s Zebpay exchange experienced a flash crash.
Bitcoin’s prices also fell sharply in the aftermath of a notification by the exchange to all its users.
Ethereum prices fell by over 16%, in seconds. Its value dropped from just under $520 to about $459.
The flash crash didn’t affect the rest of the market though, as it was largely restricted to exchanges operating within the country.
A document titled “Prohibition of dealing in Virtual Currencies”; the crypto exchange platform informed users that it wouldn’t allow any withdrawals in the local currency.
It alluded to a lack of support from any of the banks in the country. Zebpay is just one among a growing list of crypto exchanges that are finding working conditions stifling in the country.
Government’s tough stance on cryptocurrency
The troubles afflicting crypto exchanges in India have been gathering momentum over the whole of 2018.
In December 2017, the Indian government issued an alert to all institutions regulated by central bodies to avoid dealing with cryptocurrencies.
Their statement also warned the general public over the same, likening cryptocurrency to a Ponzi scheme. It had issued a statement saying:
“There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money.”
It went on to state that consumers needed to be on high alert and maintain extreme caution. The aim was to help reduce chances of suffering losses involving Ponzi schemes.
Reserve Bank of India (RBI) Prohibits Banks
The RBI issued a notice prohibiting banks from engaging in any activities that relate to cryptocurrencies in India.
The regulatory body has banned all financial institutions under its purview from dealing with cryptocurrencies.
The banks were given 90 days to comply, a timeframe that comes to an end on July 5.
The decision by the RBI has been challenged at the Supreme Court, but the hearing will be heard on July 20.
The RBI’s statement reads in part:
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies.”
The outcome of the impending withdrawal of all services by the banks has led to panic within the crypto community.
The prospect of Rupee withdrawals being stopped has investors worried about losing their money. Many are selling off their crypto assets at very low prices.
Apart from Ethereum, Bitcoin also saw its value drop by 13.8%. Bitcoin Cash dropped by 17.5%, while Litecoin, saw a slight drop of just over 5%.
It remains to be seen what the highest court in India will decide. It could lift the ban, uphold it or postpone it. Whatever the case, crypto exchanges will likely face it rough after July 5.
On the positive side, the ban could help open the market, especially if the Supreme Court lifts it.
What’s a flash crash?
A flash crash is a sharp and rapid, often volatile price decline that occurs within a very short time, usually minutes.
Most often, it results in the loss and recovery of millions within seconds.
One of the truly shocking Ethereum flash crashes occurred on June 22, 2017. On that day, the price of ether dropped to almost nothing within minutes.
Investors were horrified to see prices fall from a high of more than $300 to a shattering low of $0.10.
The crash took place on Coinbase’s GDAX exchange. It was suspected that it was caused by either market manipulation or a possible takeover of an account.
However, after investigations, it was concluded that the flash crash was a result of a selling order worth million dollars. It had led to the sharp decline in prices on the exchange, from $317 to about $224.
As a result, it triggered a flurry of activity with a flood of about 800 orders for stop-losses and margin-funding liquidation. That’s what led to the market crash