Huobi introduces circuit breakers

Huobi has become the first cryptocurrency exchange to introduce stock market esque circuit breakers onto their futures trading platform

The stock market in the US has seen unprecedented volatility in the past week. Many times circuit breakers have been triggered due to shares falling too steeply in price, similarly cryptocurrencies had a volatile week. This has led Huobi to introduce circuit breakers onto their futures trading platform.

Traditional markets

A circuit break on the US stock market has three levels, each one relating to a certain percentage fall during the day. For example, should the S&P 500 fall by 7% then the circuit breaker is triggered and all trading halts for 15 minutes. The next level is 13% which causes another 15 minute break in trading before finally a 20% drop halts trading for the day.

These circuit breakers were introduced by regulators after Black Monday in 1987. They attempt to provide relief for traders and curb panic selling.

Bitcoin’s 50% drop reignites conversation

Last week, Bitcoin saw one of it’s most volatile days in many years dropping 50% in value. However, unlike the traditional stock market there are no circuit breakers to stop the plummeting price. This has led many to question whether there should be.

Asian exchange Huobi is the first to introduce circuit breakers on their futures trading platform. The system will gradually reduce a traders position and also enact a circuit break should there be an extreme price movement.

Opinion within the cryptocurrency community is split over introducing such measures. Many traders have grown accustomed to the wild price swings in Bitcoin, especially if they have been trading for many years.

They perceive these circuit breakers as an artificial construct that can restrict the true free market of Bitcoin. There are also traders from traditional markets who view circuit breakers negatively due to their artificial methods.

Whether any other large exchanges decide to follow Huobi remains to be seen. However, it is unlikely they will be welcomed by the Libertarian community and those old school Bitcoin traders who have become accustomed to the wild Bitcoin price ride.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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