Mistakes in Algorithmic Trading of Cryptocurrencies

AuthorAlexander Loke
DOIhttp://doi.org/10.1111/1468-2230.12574
Published date01 November 2020
Date01 November 2020
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Modern Law Review
DOI:10.1111/1468-2230.12574
Mistakes in Algorithmic Trading of Cryptocurrencies
Alexander Loke
How should the doctrine of unilateral mistake apply when a programming error results in a
buyer’s algorithmic trading programme accepting an oer generated by the seller’s trading pro-
gramme to exchange cryptocurrencies at 250 times the current market rate? How should the
knowledge element be adapted given that algorithmic trading necessarily means that the traders’
minds werenot engaged at the moment the contract was for med? These novel issues came before
the Singapore Court of Appeal in Quoine Pte Ltd vB2C2 Ltd. The decision further cautions
customers of cryptocurrency exchanges not to assume that they have property rights in the
cryptocurrencies held by the exchange and to examine carefully the nature of asset holding
arrangement found in the documentation.
Singapore hosts a vibrant market in cryptocurrencies. Those seeking to trade
and invest in cryptocurrencies have a wide variety of cryptocurrency exchanges
to choose from.Add to this the widespread use of algorithms to put in buy and
sell oers, and we have a trading ecosystem pregnant with novel legal issues that
await resolution.It is therefore no surprise that Singapore courts should lead the
way in resolving some of the thorny legal issues that arise from cryptocurrency
trading. Quoine Pte Ltd vB2C2 Ltd1(B2C2), a decision of the Singapore Court
of Appeal, charts the path forward in how the doctrine of unilateral mistake
should be applied to contracts concluded by algorithmic trading. The decision
also usefully prompts us to look out for the legal risks that attend dealing on
cryptocurrency exchanges that are subject to minimal regulatory constraints in
structuring their relationship with customers.
In B2C2, the disputed trades in cryptocurrencies took place on a cryptocur-
rency exchange platform (Platform) operated by Quoine. In each transaction,
B2C2 sold Ethereum (ETH) and bought Bitcoin (BTC), while the Counter-
parties (Pulsar and Tomita) bought ETH and sold BTC. At the time of the
transaction, the going rate in the market was around 0.04 BTC for 1 ETH.
However,the disputed trades occurred at the rate of approximately 10 BTC for
1 ETH,which is about 250 times the market rate. The contracts werefor med by
B2C2’s algorithmic trading software putting into the order book oers to sell 1
ETH for 10 BTC; these were accepted by the Platform on behalf of the Coun-
terparties. The abnormal trades came about because Quoine’s own algorithmic
Professor, City University of Hong Kong and Director, Hong Kong Centre for Commercial &
Maritime Law.
1 [2020] SGCA (I) 02.
© 2020 The Author.The Modern Law Review © 2020 The Modern Law Review Limited. (2020) 83(6) MLR 1343–1353

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