Bitcoin crashes to $24,111! Former Chinese billionaire CZ reveals the liquidity trap

On December 24th, Christmas Eve, the price of the Binance BTC/USD1 trading pair plummeted from $87,000 to $24,111 within seconds, a 70% drop, then quickly recovered, sparking market panic and questions about manipulation. CZ, the former Chinese billionaire and Binance CEO, responded swiftly: this was not a systemic crash, only a liquidity issue in a single trading pair, with no liquidation or forced closeouts. Arbitrage traders had already corrected the price, and since this trading pair was not part of any index system, no chain liquidation was triggered.

CZ Urgently Clarifies: Not a Systemic Crisis, Just Liquidity Shortage

(Source: Binance)

Faced with questions, CZ, the former Chinese billionaire and Binance founder, responded promptly on social platform X. He stated that the incident did not involve liquidation, forced closures, or systemic failure, and emphasized that this trading pair is not included in any index system, thus it would not trigger a chain liquidation mechanism. CZ wrote in the post: “The new trading pair has low liquidity, and a large market order can cause significant price swings, but arbitrageurs will quickly correct it. No liquidation occurred because this trading pair is not in any index.”

This explanation hits the core of the event. Bitcoin did not truly “crash,” but rather, a technical price distortion occurred in a single trading pair under extremely thin liquidity conditions. CZ’s quick response demonstrates Binance’s focus on managing public opinion and reflects the crisis handling capabilities of crypto exchanges when facing abnormal events. Such transparency is rare in traditional finance (TradFi), where official statements often take hours or days.

Market analysts point out that CZ’s explanation emphasizes key points: the chart looks alarming, but the actual impact is limited. The overall Bitcoin market structure remains stable, with no large-scale chain liquidations. On other major trading pairs, such as BTC/USDT and BTC/USDC, Bitcoin’s price did not fall below about $86,400, and the overall trend remained steady. Due to significant price gaps between different trading pairs, some market speculation arose about abnormal trading behavior, but most analyses suggest this event aligns more with a “classic but often overlooked” risk in crypto markets: localized price distortion caused by liquidity shortages.

After the event, arbitrage traders quickly intervened. Automated arbitrage bots bought Bitcoin at a “suppressed” price in BTC/USD1 and sold it on other trading pairs or platforms, rapidly closing the price gap and restoring BTC/USD1 to a reasonable level consistent with the broader market. This self-correcting process took only seconds, demonstrating the efficiency of crypto arbitrage mechanisms. This indicates that the so-called “Bitcoin crash” was more a momentary liquidity incident in a single trading pair rather than a market-wide structural failure.

The Unintended Side Effect of USD1 Promotion

The root cause of this flash crash is closely related to Binance’s USD1 promotional campaign. Prior to the incident, Binance launched a promotion offering a fixed 20% annual yield (APY) on USD1 deposits. This incentive attracted some funds to quickly convert into USD1, temporarily pushing its price above its peg of $1.

Reports indicate that some traders used Bitcoin-related collateralized methods at low cost to allocate funds into the USD1 promotion, boosting activity in USD1-related markets. However, this also drained liquidity from the BTC/USD1 trading pair’s sell side, making the order book more fragile. When a large market sell order appeared afterward, buy orders were rapidly consumed, ultimately causing Bitcoin to trade down to an extreme price of $24,111 in this isolated market.

Such mechanisms are not uncommon in financial markets. In traditional finance, similar events have occurred, such as the 2010 “Flash Crash,” when US stocks plunged nearly 10% within minutes before quickly recovering. Investigations showed that high-frequency trading algorithms interacting under low liquidity conditions amplified market volatility. Due to 24/7 trading and relatively lower regulation, crypto markets experience these events more frequently.

USD1 is a stablecoin supported by the Trump family’s World Liberty Financial, and is itself a relatively new asset. The high 20% APY is very attractive in the current market environment, but this aggressive promotional strategy also introduces unforeseen market structural risks. When large amounts of funds flow into USD1 deposits, liquidity in the BTC/USD1 trading pair is drained, making it extremely fragile.

Christmas Trading Lull Amplifies Abnormal Volatility

Reports suggest that BTC/USD1 is a relatively new trading pair with much lower trading volume compared to Binance’s main Bitcoin pairs. During the Christmas holiday, market activity declined, and some traders exited, causing order book depth to thin significantly. At this point, a large market sell order could instantly deplete buy-side orders, forcing the matching system to execute at increasingly lower prices, resulting in a “waterfall” decline.

Three Lessons from the Bitcoin Flash Crash

Avoid low-liquidity trading pairs: New or obscure trading pairs have very thin liquidity during holidays, and a single order can trigger extreme volatility.

Use limit orders cautiously: In low liquidity conditions, market orders carry high risk; it’s recommended to use limit orders to control execution prices.

High yields come with high risks: While USD1’s 20% APY is attractive, the fragility of related trading pairs cannot be ignored.

This explains why the trading pair experienced an extreme spike, while mainstream trading pairs did not crash simultaneously. During the holiday period, global traders significantly reduced activity, and market makers may have decreased quoting support for less popular pairs. In such environments, order book depth may be only 10-20% of normal, and any larger order can cause severe price swings.

Analysts believe this “flash crash blunder” again reminds traders: during holidays or periods of low liquidity, low-volume trading pairs are more prone to extreme fluctuations. When order book depth is insufficient, even a normal order can be amplified into abnormal price movements. For investors, new trading pairs often offer high yields or arbitrage opportunities, but also come with more fragile liquidity structures, making market orders more likely to act as “risk amplifiers.”

Industry insiders conclude: this was not a Bitcoin crash, but a momentary incident triggered by a single order in a low-liquidity trading pair, with the market nearly recovering instantly. This event highlights the dual nature of crypto markets: on one hand, highly efficient arbitrage mechanisms can restore price distortions within seconds; on the other hand, fragile liquidity structures can create panic in an instant. For traders holding leveraged long positions in this trading pair, this spike may have triggered forced liquidations, causing actual losses—even though the overall market did not crash.