Image by Pete Linforth from Pixabay
Price action of Bitcoin, of course we have seen is dashed crazy, recently BTC had gone from 30,000$ to 41,000$ in a matter of 3 days from 5th Jan to 8th Jan and then later in Jan 11th, BTC fell by almost 40% to 28,000$ , this just shows how unpredictable crypto is!! The concern here is that when these sort of huge crypto moves happen major crypto exchanges get overloaded and collapse.
BTC price volatility - from 30,000$ to 40,000$ and back!!
This means that when BTC is flying high and investors flood crypto exchanges to either buy or sell BTC, the crypto exchanges are likely to suffer a downtime, with them not being functional at a critical time period when the investor wants to book profits for instance.
Sudden exponential increases in crypto trading volumes difficult to handle by Crypto Exchanges
This scenario has played out several times, with the world’s best exchanges - Binance, Kraken, Coinbase, Gemini, becoming non-functional at times when huge spikes in prices of Bitcoin takes place. During crazy crypto raving bull times, trading activity spikes up to such exponential levels so quickly that the servers of crypto exchanges overload and collapse.
Recently, Coinbase experienced an outrage as BTC’s deep sell off happened. At that day, trading volumes in Coinbase was $9.56 billion, which was greater than the crypto exchange’s cumulative trading volume for the month of January 2020, and even greater than Coinbase’s cumulative trading volume for the whole Q1 of 2019!!
Binance’s CEO, Changpeng Zang sums up the reason for Binance Exchange’s degraded performance when BTC reached All Time HIghs of 40,000$ -
"Bitcoin ATH [all-time high] comes with ATH loads"
Crypto Exchanges can’t gear up with additional capacity in time to handle crypto volatility
Crypto Exchanges are not able to upgrade their servers to required higher capacities in time before these sudden exponential spikes in trading activity happen which is why these major crypto exchanges fail to function smoothly at crucial times during such rollercoaster rallies of Bitcoin.
Platforms like AmazonPrime and Netflix are able to anticipate when their servers can experience a huge spike in usage and activity and upgrade their servers in time. This is because it is found that sudden increase in viewership in these platforms happen at times when a new show is expected to get launched.
However, in Bitcoin, it is impossible for anyone to predict when and by how much the price of BTC can rise, and crypto exchanges are not able to prepare for this eventuality bringing about such sudden massive trading volumes in their platform.