Algorithmic trading firms are primarily responsible for the recent outages experienced by major centralized cryptocurrency exchanges, according to Ivo Crnkovic-Rubsamen, the chief strategy officer and technical lead for trading at the dydx exchange. He explained that these firms increase the rate of order placements and cancellations during periods of high retail interest and rapid price movements, which puts a significant strain on the exchanges’ matching engines. This phenomenon is commonly observed during bull markets or when there is a concentrated retail interest in cryptocurrencies.
Last week, prominent exchanges such as Binance, Coinbase, Kraken, and Bybit encountered technical issues shortly after Bitcoin surpassed the $60,000 mark for the first time in over two years. Crnkovic-Rubsamen stated that this kind of situation is expected during bull markets and periods of intense retail interest.
Following the temporary outage, Citron, an investment research firm, recommended a short sale on Coinbase stock. In response, the shares of Coinbase rose by over 11.36% in the 24-hour period leading up to 12:25 pm UTC, trading at $229.15, as per Google Finance data.
Crnkovic-Rubsamen highlighted a key difference between decentralized exchanges (DEXs) and centralized exchanges. He noted that some centralized exchanges have the ability to set custom trading limits for individual market makers based on trust assumptions. However, this feature adds to their workload during bull market conditions. On the other hand, DEXs rely on protocol-defined rate limits since they do not have direct relationships with market makers. While centralized exchanges are highly reliable during normal trading, they may be less reliable than DEXs during peak bull market loads.
Crnkovic-Rubsamen concluded that centralized matching engines are efficient and optimized for performance but lack reliability when they experience downtime. Despite this trade-off, centralized exchanges continue to play a vital role in the cryptocurrency market.
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