Reason for the inability to stop the decline? Willy Woo: Not due to leverage effect, but because of selling in the spot market and Coinbase unable to process buy orders.

Bitcoin has seen a dramatic drop since January 10th, falling below $40,000 and continuing to slide by over 10,000 points before recovering to the $34,000 level at the time of publication. In the early hours of the 12th, well-known Bitcoin analyst Willy Woo, who has a long-term positive outlook on Bitcoin, stated that he believes the main reasons for the drop are selling in the spot market and issues with Coinbase.

Willy Woo: It's Not a Deleveraging Effect

Willy Woo believes that the recent crash was triggered by selling in the spot market, not a deleveraging effect in the futures market. He stated:

"This is different from the cascading liquidation due to excessive leverage two years ago; this time it was driven by the spot market. In addition, a partial malfunction of a single exchange magnified the effect, and it did not shut down for the good of the ecosystem."

Spot market sell off started around $38k, then Coinbase partially failed, not registering buys, causing its price to go $350 lower than others, this pulled down the index price that futures exchanges use to calculate leverage funding, wrecking bearish havoc on speculative markets

— Willy Woo (@woonomic) January 11, 2021

Willy Woo feels that Coinbase should take a significant responsibility. When the spot market started selling off from $38,000, Coinbase had issues handling buy orders, causing its price to be $350 lower than other exchanges, affecting the mark price for contracts on other exchanges, leading to destructive downward speculation.

He also suggested that contract exchanges should remove Coinbase's price index in such situations.

Willy Woo is likely implying that Coinbase should act like BitMEX's rumored "pulling the plug to save the coin price" in March 2020 and hopes other contract exchanges will directly abandon the Coinbase index in similar events.

Did Coinbase Outage Cause Trouble?

If Willy Woo's inference is correct, the timing does indeed coincide. Around 5 a.m. on the 11th, Bitcoin had dropped to the $38,000 level, and Coinbase issued a notice of abnormal delays, which was resolved within two hours.

We’re currently investigating delayed transfers and customers seeing error messages on Coinbase and Coinbase Pro, on web and mobile apps. Our team is working to fix this, and we’ll provide an update soon as it’s resolved. https://t.co/DrzsIaqPdv

— Coinbase Support (@CoinbaseSupport) January 10, 2021

Shortly after midnight on the 12th, Coinbase experienced problems again. Apart from delays, the platform also reported issues with some buy orders not being completed, advising users not to resubmit to avoid duplicate executions. It took nearly four hours from the problem occurrence to resolution.

We’re investigating an issue impacting transactions on https://t.co/ohqDivCZYw and the mobile apps. The record of a recently initiated transaction may be delayed in showing up in your Coinbase account. There may also be some issues with some buys completing on the platform.

— Coinbase Support (@CoinbaseSupport) January 11, 2021

We cannot confirm whether Willy Woo's inference is correct, but when the coin price fluctuates significantly, major exchanges experiencing system anomalies are hard to escape scrutiny from observers.

In November last year, there was another incident where Coinbase's price caused trouble. Collateral assets in DeFi were liquidated today, totaling $111 million, with up to 93% coming from Compound. The speculated reason for the liquidation was a oracle attack, where the token price used by Compound was manipulated, leading to the liquidation.