GDAX exchange reimburses customers affected by Ethereum price crash
A large sale order on the GDAX exchange earlier this week caused the price of Ethereum to crash massively for a brief period of time. The second most-valuable cryptocurrency dropped to as low as $0.10 in trading before bouncing back to over $300, after the sale triggered a domino effect which saw around 800 advanced orders being filled.
The customers who placed those orders -- stop loss and margin call -- have lost big as a result. However, even though it has found that "all trades this week were executed properly," GDAX says that it will reimburse the affected accounts, in what I believe is a brilliant move on its behalf.
"We will establish a process to credit customer accounts which experienced a margin call or stop loss order executed on the GDAX ETH-USD order book as a direct result of the rapid price movement at 12.30pm PT on June 21, 2017. This process will allow affected customers to restore the value of their ETH-USD account to the equivalent value of their ETH-USD account at the moment prior to the rapid price movement," says the exchange.
GDAX will not interfere with any of the successful orders filled during the crash, which means that everyone who purchased Ethereum at a low price will get to keep the coins. This also means that they can sell them now and make a huge profit as a result, as Ethereum is currently trading for over $300. But why exactly is GDAX doing this and what does it stand to gain?
The reason is simple. GDAX may be one of the largest cryptocurrency exchanges, but it is still a small fish in the sea in the grand scheme of things. By compensating customers who have lost money during the narrow trading window, the exchange is telling investors that it can be relied upon even when things take an unexpected turn, which gives it -- and the cryptocurrency market -- more credibility.
Its rules say that it does not have to do this, but the market can stand to benefit if it does. After all, if the price can crash this much in a matter of minutes, doesn't this leave owners vulnerable at all times? It is a feeling no one really wants to have, as this kind of uncertainty could make investors pull out of an exchange or the market altogether. Ethereum does not stand to benefit from this, and neither do other cryptocurrencies.
As GDAX says, "Our long-term ambition, however, is to be a leader among all exchange platforms and we are committed to serving as the most trusted provider to the world’s largest institutions and professional traders." This is a good opportunity to stand out and stabilize the Ethereum market, and GDAX is clever to take it.
For more background on the crash, the initial sale order had the price drop from $317.81 to $224.48. In turn, it caused those advanced orders to be triggered. That likely happened because the traders didn't foresee such a large drop in price in such a narrow time frame, otherwise they would have placed a much, much lower trigger price -- which would have avoided this mess altogether.