There was a k-line spike in contract BTCUSD at 8am on Feb. 9. The price went to 51,758.5 at the highest and then dropped back to around 47,200 in about 5 minutes. With the concern of possible loss caused to our users, we have conducted an investigation into the cause and the consequence of the spike.
The investigation result shows that the spike was made by our major market makers. As the BTC price bumped quickly just before 8am, the trading programs of market makers decided to reduce its short position. Since they use a very aggressive (if not wrong) pricing strategy, buy orders with prices much higher than the index price are placed to take sell orders as much as possible. The strategy relies on external exchanges feeding spot prices and it is commonly used by almost all market makers.
At that time, unfortunately, there was an exchange reported abnormal high prices to market makers. Having been misguided by the abnormal spot prices, market makers’ programs set even higher prices to the best ask/bid offers. All the sell orders placed in advance between 47,000 and 51,758.5 were quickly filled by the buy orders from market makers. As a result, when the price went back to normal, market makers suffered a loss from reducing short positions at high prices. Some traders gained large profits from the accident and no liquidation and stop-loss orders were triggered by the spike. In other words, market makers made the spike unexpectedly and they have already paid for the aggressive pricing (if it was not a wrong pricing).