A flash crash is one of the most frightening phenomena in the markets – the price plummets sharply within minutes, investors panic, algorithms go haywire... and then everything often quickly returns back.
And even though it sounds like sci-fi, it happens in the crypto space more often than anywhere else.
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What is a flash crash?
A short, extreme, and unexpected price drop caused by a combination of:
low liquidity,
a large market sell order,
rapid algorithmic reactions,
and retail panic.
The price can drop by 10–40% in just a few seconds, but it can also quickly rebound.
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The most famous flash crashes in crypto
1️⃣ Ethereum – 'Fat finger' drop (2017)
On the GDAX exchange, ETH dropped from 319 USD to 0.10 USD due to one massive market sell.
Liquidations triggered a domino effect → the price dropped to almost zero for a few seconds.
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2️⃣ Bitcoin – mini flash crashes with poor liquidity
On smaller exchanges, BTC occasionally drops by tens of percent because someone sells 'everything at once' regardless of the order book.
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3️⃣ DeFi liquidations
In protocols like Aave or Maker, a significant price drop can trigger automatic liquidations → even greater pressure on the price → quick crash.
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Why does this happen mainly in crypto?
some tokens have negligible liquidity,
exchanges are not interconnected like stock markets,
the market is 24/7 → algorithms react continuously,
retail often panics and copies the movement.
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How to survive a flash crash?
✔ do not use high leverage
✔ understand the liquidity of the given token
✔ do not panic – flash crashes often bounce back up
✔ use limit orders, not market
✔ diversify
