What started off as just another day in the crypto space got derailed unexpectedly, and the culprit was the best-known U.S.-based cryptocurrency exchange, Coinbase.
At approximately 4:12 p.m. PST, some eagle-eyed traders noticed a mysterious “BCH/USD” pair showing up in the dropdown menu of Coinbase’s sister company GDAX.
There was no price data or charts showing, but it appeared that the GDAX team was perhaps updating their system to include support for Bitcoin Cash trading. Rumors had swirled for several days that Coinbase was about to add support for BCH after some technicians reported seeing unusual references in the API keys used by website owners to support crypto payments that indicated Coinbase was about to do an unannounced roll-out of Bitcoin Cash on their exchange.
The potential of Bitcoin Cash suddenly becoming tradeable on the best-known crypto exchange was viewed as a bullish sign to traders. Sure enough, within minutes of this, BCH began to rise on other exchanges (mostly foreign ones) that already supported Bitcoin Cash trading. 12 minutes later, at 4:25 p.m.
Coinbase sent out a mass email to its client base confirming that Bitcoin Cash Trading was now available on their sister site GDAX.
By then, the displayed pricing had already begun to rise and that’s when all hell broke loose.
As traders flocked to the website to purchase, timeouts and other errors began appearing. Within minutes the listed price began surging, first to $4,000, then $5,500, then up over $6,000 within the first 10 minutes of the announcement.
As the price kept marching skyward, and traders flocked to fill their buy orders, the error messages intensified, with many people getting a “Post Only Mode” error on market and limit orders. As the price continued to march upwards past $9,500 (a 384% gain in less than 18 minutes) more and more buy orders went unfilled, despite being limit orders listed at much lower prices than the GDAX system was showing.
Traders attempting to cash in on their already-held Bitcoin Cash holdings were likewise disappointed, as almost no orders were completing at any of the prices shown above $4,200.
Meanwhile, the Bitcoin Cash option also appeared on the main Coinbase site, with the graph showing an immediate spike to over $8,500 in value of the currency in a period of less than a minute.
Similar to the problems that were plaguing GDAX at the same time, attempted trades on the Coinbase site also failed, with buyers and sellers getting the same “Bitcoin Cash purchases are not available at this time” message. Frantic Sellers attempting to quickly cash in on the currency’s rise of over 320% in less than hour were disappointed to see their Sell orders go unfilled.
With angry traders, on both the buy and sell side, complaining loudly, Coinbase made the unusual decision to halt all trading until 9:00 a.m. the next day (December 20th). The price chart that had shown the rapid rise of over 300% was deleted, and then replaced with a new historical price chart showing a more moderate range of $3,200-$3,620.
A follow-up email from Coinbase apologized for the inconvenience, but many remained unconvinced that it might have just been a pump and dump scheme by employees or associates high up in Coinbase, a rumor that Coinbase immediately denied via Twitter.
If true, it appears that insiders with advance knowledge may have been able to make trades on other exchanges after the announcement, during the chaos that prevented trades from executing on Coinbase and GDAX. Since that time, Coinbase has deleted or cancelled all pending buy and sell orders with cryptic instructions that trading would return the following day. Meanwhile the price of Bitcoin itself plunged over 18% before recovering part of its losses as investors flooded out of bitcoin during the period of confusion.
It remains to be seen how Bitcoin Cash will trade when it opens up again in the morning. Many investors who were already bullish on Bitcoin Cash due to its usability advantages over Bitcoin will undoubtedly scoop it up in expectation of a rise.
Others who are angry about the mishandling of the roll-out by Coinbase may elect to take their business elsewhere, to different exchanges that have not had the catastrophic mishandling of the Bitcoin Cash rollout that Coinbase had.
Any users that held Bitcoin on the Coinbase exchange prior to August 1st will see their accounts there credited Bitcoin Cash from the hard-fork, and may elect to sell immediately their newfound coins.
In the longer term, some have already called for more regulation of the cryptocurrency space, and exchanges like Coinbase, and this fiasco may further serve to strengthen their claims that cryptocurrency should be regulated.
Whatever the end result is, expect another wild ride to begin at 9:00 a.m. PST when Bitcoin Cash trading once again opens for business on Coinbase.