The price of bitcoin is on the move again, as the popular cryptocurrency saw its value dip to a session low of $7,290.02 early Friday, bringing the loss to roughly 10 percent of market value this week alone. In an article published by MarketWatch, reporter Aaron Hankin attributed the latest move to the work of one large bitcoin holder and an “enormous” losing bet on bitcoin futures.
According to Hong Kong-based exchange OKEx, noted as the second-largest exchange in terms of volume by CoinMarketCap, a trader initiated an unusually large long position order of more than four million contracts, worth about $416 million, on July 31. While OKEx says that it immediately contacted the unnamed client to request partial closure of the positions to reduce overall market risks, the efforts were ultimately ineffective.
“However, the client refused to cooperate, which lead to our decision of freezing the client’s account to prevent further positions increasing,” OKEx detailed in a statement. “Shortly after this preemptive action, unfortunately, the BTC price tumbled, causing the liquidation of the account.”
This price drop led to losses that the exchange’s insurance fund couldn’t cover, so the societal-loss-risk-management mechanism came into play. Through this mechanism, users holding short positions with OKEx will be required to foot the bill. According a report by CoinDesk, the total loss to investors is around 1,200 BTC (roughly $9 million), which will be “split proportionately by all profited traders’ realized + unrealized gains.”
“When the insurance fund cannot cover the total margin call losses, a full account clawback occurs. In such case, only users who have a net profit across all three contracts for the week will be subject to the clawback,” OKEx added.
Analysts note that, while customers agreed to the clawback policy when signing up for the exchange, an event of this magnitude threatens confidence in one of the world’s largest cryptocurrency exchanges and highlights the looming risks of trading there.
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