The volatile nature of cryptocurrency is regarded as part-and-parcel of the market. For those who have managed to make a method of the madness, volatility in cryptocurrency has proven to be a profitable aspect of the business.
Crypto exchanges that have no minimum requirements for trade orders are susceptible to spam attacks that clog up their networks with hundreds of micro-trades, often committed by bots. These kinds of attacks cause the price of the cryptocurrencies that they target to artificially spike or shrink, which can in turn cause users to buy or sell coins en masse. The owners of the bots can then sell their coins at the higher price, or swoop in and scoop up lots of coins at a discount.
This poses an obvious problem, one that most exchanges have not had the tools or the wherewithal to deal with properly. However, Bittrex, which is the third-largest cryptocurrency exchange in the world (after Bitfinex and Bithumb, according to CoinMarketCap), has recently taken steps to prevent this kind of price manipulation and reduce volatility. The changes were announced in an email to Bittrex users late last week.
What Lies Ahead for a British Fintech Industry Outside the EUGo to article >>
Higher Trade Minimums and Time Limits on Orders
Bittrex’s first order of business will be to raise the bottom of its trading amount requirements. The minimum will increase from 50,000 Satoshi (1 Satoshi=1/100,000,000 BTC), which is roughly $4, to 100,000 Satoshi, or about $8. While the increase is certainly a step in the right direction, there is some question as to whether it will be enough to truly deter trading bots from doing their bad business.
In addition to the increase, Bittrex has announced that it will be removing ‘stale’ orders from its platform; anything older than 28 days will be tossed. In the email, Bittrex wrote: “Many of these orders have no reasonable expectation of being filled and clog the order books.” While in theory, it is still perfectly possible that hopeful market manipulators could faithfully place spam orders once every four weeks, the change certainly makes the process more of a hassle.
Lastly, Bittrex announced that it would be changing the way that minimum tick sizes are calculated to keep up with market prices. Previously, the minimum tick size was 1 Satoshi; now, it will be .1% of the current price of any given cryptocurrency. “For example, Ethereum trades at 0.0577 Bitcoin. Bids and asks can only be placed in 0.0001 increments. So the next levels allowable levels on the order book will be 0.0576 and 0.0578,” Bittrex wrote in its announcement.
While the changes will undoubtedly be frustrating to some users who are used to having completely free rein to send micro-trades as they please, it is certainly a positive sign for many that one of the more high-profile exchanges is taking care to shield its users from manipulative tactics. Bittrex’s announced changes come roughly one week after the $31 million Tether hack; Tether’s close connections with Bitfinex has left many users disillusioned with Bitfinex’s desire and ability to sufficiently protect its users.