Automatic trading shutdown in the crypto industry – pros and cons

24 NOV 2020 06:19

The main task of the circuit breakers is to block the mechanisms of the falling market and organize a “break” in order to avoid the consequences of panic selling. At this time, some players can think over their decisions again, while other participants can saturate the markets with liquidity. We are talking about the formation of support orders, with the help of which the situation in the market can be balanced, and the downtrend can stop. Despite the obvious benefits of this practice, according to some crypto experts, there are certain disadvantages.

This is problematic to implement

In a crypto market where there is no regulation, but there are hundreds of exchanges, it is not easy to find a way that would easily stop the crash at the flick of a switch. He drew attention to the fact that today there is no single regulator, and in many jurisdictions there is no regulation at all, there is no single protocol, as well as a general stable data flow. So, if one exchange stops trading, then how will the other exchange know about it and for what reason it should take the same actions if its task is to maintain activity and attract new customers. In addition, clients can easily transfer funds from one site to another and continue trading – complex stock trading excludes this possibility.

This is contrary to the principles of decentralization

In addition, many representatives of the crypto industry believe that the use by exchanges of a tool to stop trading is a manifestation of injustice to crypto holders and a violation of the principles of the free market. In addition, if the leading trading platforms can nevertheless join forces and develop a single mechanism for stopping trade, then we will talk about centralization.

It is ineffective

The third argument is that automatic blocking of trade is ineffective and can only exacerbate volatility. At a time when the market is dominated by negative sentiment, "stock" decisions to stop trading will not be effective. Moreover, their use can only exacerbate volatility, since after the resumption of trading, users are likely to start selling even more actively. In any case, the circuit breakers are only a temporary solution, short-term results will not help solve the problem of Bitcoin volatility.

On the one hand, such solutions could possibly allow avoiding the consequences of sharp collapses in the crypto market. On the other hand, the use of circuit breakers is against free market rules and can also exacerbate volatility.

Meanwhile, who have already implemented support for automatic trading shutdown, believe that they can become an example for other participants in the crypto industry, and this will benefit all its representatives. The question of the large-scale implementation of "stock" technologies to combat the consequences of volatility among crypto-exchanges remains open, much also depends on the opinion of the crypto-community.