A striking claim came from a former employee of Alameda Research, which declared its collapse along with FTX. At the center of the mentioned incident is a mistake made through Alameda Research.
In October 2021, on the cryptocurrency exchange Binance.US, the price of Bitcoin temporarily dropped by 87% within a few minutes. After the incident, there was widespread panic, but after a while, the prices of altcoins that fell along with Bitcoin had almost returned to their previous levels.
A Binance.US spokesperson had stated that this sudden drop resulted from a mistake in the trading systems of one of the “institutional traders,” but for a long time, it was unclear who this person was. That was until a former Alameda Research employee, Aditya Baradwaj, made some claims about the incident.
Claims of Aditya Baradwaj
According to Aditya Baradwaj’s tweets, the price drop was due to a mistake made by Alameda Research’s algorithms. Baradwaj claims that during manual trading, a trader entered a wrong decimal point, and this error led to a significant price drop. Because of the missing decimal point, the trader sold Bitcoin at a much lower price.
“This incident happened just a few weeks after I joined Alameda. I had just gotten a hang of our engineering workflows and was starting to wrap my head around our trading systems.” Baradwaj explained, narrating the incident as follows:
”At a high level, Alameda’s trading operated in two modes: The main one was our semi-systematic strategies, where traders set model parameters that control a complex automated trading system. However, sometimes manual operations are also necessary.
On October 21, 2021, there was a significant disruption in the market. A trader from Alameda tried to sell a block of BTC through our manual trading system. But they made a mistake during the input: By placing the comma in the wrong spot, they sold BTC far below the current market price, at just a few cents in dollar terms. Because of this error, the price of BTC on some exchanges plummeted from $65,000 to $8,000. Fortunately, arbitrators noticed this price difference quickly and acted swiftly to restore the price to normal.”Aditya Baradwaj.
Such mispricings created a great opportunity for arbitrage traders, who quickly acted and pulled the Bitcoin price back to normal levels. However, this incident resulted in a significant cost for Alameda Research. At that time, it was stated that the company’s loss was around tens of millions of dollars.