When the global market is facing a meltdown, crypto assets, which were beginning to be considered as safe haven for investors are fell steeply in March amid the CoViD-19 crisis. The security market has plunged, creating a deficit of more than $3 trillion.
Circuit breakers have been activated many times in exchanges all over the world. As far as crypto markets are concerned, there is no concept of a crypto circuit breaker as of now.
A circuit breaker in the securities market is a measure to halt trading when people start panic selling due to any crisis. As per the US Securities and Exchange Commission, the market temporarily halts at 7%, 13% and 20% plunge in a single day. However, a section of the crypto sphere has been demanding for a similar crypto circuit breaker for the crypto market.
Crypto circuit breaker- Does it beat the idea of decentralization?
First, crypto trading never stops in 24 hours. If one exchange is down, which happens quite frequently, people turn to a different exchange. Second, there is no centralized authority that can authorize a crypto circuit breaker. If there is a central authority, that completely beats the idea of cryptocurrency-decentralization.
The proposals for a crypto circuit breaker increased after the crypto market plunged by 15% within just half an hour thrice. Had it been a securities market, the circuit breaker would have halted the trading at 7% itself. People believe that this plunge has already scared away a lot of potential crypto investors.
Unintentional circuit breaker
BitMEX halted its trading at that time citing the risk of a DDOS attack. People believe that if it were not for that unintentional circuit breaker, Bitcoin’s price today would have been $0.
Granted that a circuit breaker is needed but it is practically not possible to introduce it in the crypto market. There are so many ways to exchange a cryptocurrency which makes having a circuit breaker useless in the case of crypto markets.
One recalls a few days ago, Huobi had contemplated a similar mechanism to prevent the crypto exchange market from plummeting. As part of its crypto derivatives marketplace, the proposed mechanism can stop mass liquidations during panic sell-offs.
Circuit breakers are considered controversial in the crypto community, as they definitely interfere with a “free” cryptocurrency market. With sudden market swings causing extensive user losses, will the dominant opinion change?