This post is intended to be an analysis of the data points that are presented in the above title. The author of the title claims that “The evidence is clear: Bitfinex shorts are depressing Bitcoin’s price.” This claim is based on the analysis of daily Bitcoin price data. It is in the analysis that the author’s conclusion of the Bitfinex shorts depressing Bitcoin’s price is made.
Over the past few days, the Bitfinex “pump and dump” trade has been largely responsible for the fall in the price of Bitcoin. Bitfinex has been taking short positions on the price of Bitcoin, perhaps in order to profit from the subsequent rise.
The bitcoin price is the most important indicator for the price of other cryptocurrencies, and it’s often used as a benchmark to analyse the success of alternative cryptocurrencies. In recent months, however, certain key indicators have suddenly changed. Forex market analyst Dan McArdle has pinpointed one of the primary reasons why this is the case: the supposedly anonymous Bitfinex cryptocurrency exchange is known to have a loophole in its margin trading system that allows it to place large amounts of short positions on bitcoin. In doing so, it is simultaneously depressing the price of bitcoin in the short term, and boosting the price of the altcoins it’s selling on.. Read more about when was bitcoin at its lowest and let us know what you think.One of the most common mistakes traders make when analyzing cryptocurrency markets is to accept exchange data on bid and offer prices and trading volumes at face value. When performing this analysis, a trader should exclude trading venues that have been mentioned in many reports of incorrect trading volumes, such as. B. in the report published by Bitwise in March 2019.
There is really no way to know if the major exchanges are inflating their volumes by giving market makers special access and zero commissions.
The exchanges themselves have no way of knowing whether a group of users is connected or doing multiple transactions with each other to drive up prices or volumes. There are hundreds, if not thousands, of government agencies, pump and dump chat rooms, shopping apps, etc.
So not all money laundering or related entity transactions are invented by a crypto exchange or a project with a fund or a marketing team.
As Philip Gradwell, chief economist at Chainalysis, explains:
If you want to attract serious money into cryptocurrencies, you have to build their confidence that there are really good trading spaces […] If you are an exchange and you have good incentives to report real volume, you can get real institutional money, but if you don’t have those incentives, they will stay away.
Investors generally assume that these unethical practices only occur on exchanges located on remote islands. However, the US Commodity Futures Trading Commission fined Coinbase after an employee of the company acted independently to create the illusion of volume and demand for Litecoin (LTC) until September 2018.
In case you were wondering, decentralized exchanges (DEX) have also been used to launder money, as there are almost no barriers, aside from the cost of net gas.
Bitcoinprice on Coinbase, in USD (left) versus BTC margin short sale on Bitfinex (right). Source: TradingView
Note that the increase in the 22,000 bitcoin margin short position on Bitfinex began when the price fell below $34,000 and continued steadily as bitcoin continued to fall.
The hourly price candles on Coinbase show a downward trend that fits perfectly with Bitfinex’s marginal brokerage. However, it should be noted that the expiration of $2.5 billion in monthly bitcoin options occurred at 0800 GMT, about an hour before the price action described above.
In addition, CME futures expired at 15:00 GMT, potentially wiping out 12,600 bitcoin contracts worth $412 million. However, there is no reason to believe that the expiration of the derivatives is directly related to an increase in Bitfinex’s short margin position.
The volumes on the spot exchanges should be analyzed to see if Bitfinex played a significant role in the bitcoin price correction that took place in the early hours of the 25th. The month of June has begun.
Global bitcoin cash trading volume. Source: Coincide
The hourly volume candlesticks of the last four days clearly show a significant increase in Bitfinex’s market share, starting at 9am GMT on the 25th. June. The movement lasted seven hours, but largely disappeared soon after.
Traders may have been spooked by a similar move earlier this month, when short selling on margin on Bitfinex reached 25,000 BTC just before the price fell on the 22nd. June began a one-week decline to a low of $28,800.
These events may or may not result in a profitable trade for the bears, they usually leave a strong impression on traders. After all, not everyone has the margin to short 22,000 bitcoins worth $726 million.
In short, there is a clear indication that the market decline has little to do with the expiration of derivatives, as the increase in Bitfinex spot volume coincided with an increase in short selling on margin. However, once the pressure is off, bitcoin could regain support at $32,000, which could be enough to motivate buyers.
Weekend volumes are usually lower, so it will be interesting to see how cautious investors are with this huge short seller.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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