Bitcoin has been struggling to hold above $90,000 in recent weeks and briefly plunged to around $24,000 for a few seconds on Christmas Eve, triggering panic after screenshots spread across social media.
The drop, however, was not market-wide. On Dec. 24, only the BTC/USD1 trading pair on Binance showed a sudden dip to $24,111 before quickly rebounding to roughly $87,000. No other Bitcoin pairs experienced a similar move, and the incident was isolated to USD1.
The flash crash was caused by extremely thin liquidity. Lesser-traded stablecoin pairs already have low volume, and holiday trading made liquidity even weaker. With few active traders, the order book became so shallow that a single large sell order overwhelmed available bids.
The situation may have been amplified by Binance recently offering up to 20% interest on USD1, attracting traders who bought the stablecoin using Bitcoin-linked collateral. This drained sell-side liquidity on the BTC/USD1 pair. When a large Bitcoin sale hit the market, prices dropped sharply to fill the order.
Arbitrage traders quickly stepped in, buying Bitcoin at the discounted price and selling it elsewhere, restoring the price within seconds.
Binance founder Changpeng “CZ” Zhao said the exchange itself was not involved, explaining that low liquidity on new pairs can cause brief price spikes, but arbitrage corrected the move and no liquidations occurred.
USD1 is a stablecoin launched by World Liberty Financial, a DeFi platform linked to the Trump family. It has ties to Binance, as Abu Dhabi–backed fund MGX used USD1 to settle its $2 billion investment in the exchange.