- Massive demand for bitcoin cash sent prices spiking on December 19, the first day the popular exchange Coinbase let its users trade the new cryptocurrency, according to the company.
- Some 90% of requests on the exchange were from people looking to buy, according to Coinbase, which meant demand for bitcoin cash far outstripped supply.
- Coinbase was highly criticised following its launch of bitcoin cash trading, with some users speculating that insider trading sent the price flying.
Coinbase says extreme user demand is to blame for the huge spike in the price of bitcoin cash seen on its marketplace when the company opened up trading in the new cryptocurrency last month.
When the company first launched support for bitcoin cash on its GDAX exchange December 19, the price of the currency jumped from less than $US2000 to $US9,500, even as its price hovered around $US3,600 on other exchanges.
That price surge occurred because 90% of the requests were from people looking to buy the newly added currency, Adam White, GDAX’s general manager, said in a blog post published Tuesday. There simply wasn’t enough bitcoin cash for sale for the amount of demand.
“Despite our best efforts to create a fair and orderly market, the launch did not go as expected, and we understand why many of our customers and members of the community are upset,” White said.
In the post, White shared a detailed timeline of what went wrong. Coinbase kept trading in the currency open for a total of 2 minutes and 40 seconds on December 19 before cancelling all purchases until the next day. Around $US15.5 million in trades were made, and 4,443 orders were placed, according to White, though most of the orders were cancelled by Coinbase because there wasn’t enough bitcoin cash being sold.
Coinbase reopened trading in bitcoin cash on the GDAX exchange on December 20 and has allowed it since.
Coinbase is still looking into whether insider trading occurred
Price gains in the hours before Coinbase’s official announcement, along with the subsequent halt in sales on the GDAX, led some users to accuse the company of insider trading and manipulating the exchange for its own benefit.
The company quickly responded to the criticism and launched its own investigation into the matter, though it has not made any results public.
“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter,” Coinbase CEO Brian Armstrong said at the time. “If we find evidence of any employee or contractor violating our policies - directly or indirectly - I will not hesitate to terminate the employee immediately and take appropriate legal action.”
Bitcoin cash is a relatively new cryptocurrency. It’s a clone of bitcoin that operates separately and follows different technological protocols from the original. It was created on August 1 via a so-called hard fork in the original bitcoin blockchain.
Because of a longtime policy of supporting only established and vetted cryptocurrencies, Coinbase didn’t support bitcoin cash when it launched. But after online uproar and a user exodus that jammed up its exchange, the company announced in August it would add support for the new cryptocurrency before the end of the year.