A significant surge in Bitfinex short contracts is being attributed to Bitcoin’s current downturn but there are other major factors at play.
One of the most common errors traders make when analyzing cryptocurrency markets is taking an exchanges’ bid and ask data and traded volumes at face value. When doing this type of analysis, the trader has to exclude the trading venues mentioned on multiple ‘fake trading volumes’ reports, like the one Bitwise published in March 2019.
There’s really no way to know if the top exchanges inflate their volumes by granting special access and zero fees for market makers.
Even the exchanges themselves have no way to know if a group of users are related or conducting multiple transactions among themselves to inflate prices or volumes. There are hundreds, if not thousands of influencers, pump and dump chat rooms, trading apps, and the like.
Therefore, not every wash trade or transaction between related entities has been brainstormed by the exchange or the crypto projects with a foundation or marketing team.
As Philip Gradwell, chief economist of Chainalysis, explained:
“If you want to get serious money into crypto, you have got to build up their confidence that there are actually good trading venues […] If you’re an exchange and you have good incentives to report real volume, you may actually get institutional money coming in, but if you don’t have those incentives, they’ll stay away.”
Investors usually speculate that these unethical practices happen only at exchanges located on remote islands. However, the U.S. Commodity Futures Trading Commission fined Coinbase after an employee “self-traded” to create the illusion of volume and demand for Litecoin (LTC) before Sept. 2018.
In case you’re wondering, decentralized exchanges (DEX) have also been used for ‘wash trading’ activity as there are barely any impediments, apart from network gas fees.
Take notice how the 22,000 Bitcoin margin short increase at Bitfinex initiated as the price dropped below $34,000 and remained at a steady pace while Bitcoin continued to plunge.
The hourly price candles at Coinbase show a descending pattern that perfectly matches Bitfinex’s margin short activity. However, it is worth noting that Bitcoin’s $2.5 billion monthly options expiry took place at 8 am UTC, roughly one hour before the price action highlighted above.
Furthermore, the CME futures expiry occurred at 3 pm UTC, potentially involving 12.6k Bitcoin contracts worth $412 million. However, there is no reason to believe that derivatives expiries directly relate to the Bitfinex margin short increase.
One must analyze spot exchanges’ volumes to understand whether Bitfinex played a significant role in the Bitcoin price correction initiated in the early hours of June 25.
Hourly volume candles from the past four days clearly show a significant hike in Bitfinex’s market share starting at 9 am UTC on June 25. The movement lasted for seven hours but mostly dissipated shortly afterward.
Traders might as well have been spooked by a similar move earlier this month, when Bitfinex margin shorts increased to 25,000 BTC, right before the price initiated a one-week plunge down to a $28,800 low on June 22.
Such events may or may not result in a profitable trade for bears, usually making a heavy impression on traders. After all, not everyone has the margin required to short 22,000 Bitcoin, worth $726 million.
In short, there is a clear indication that the market downturn had little relation to derivatives expiry, as the Bitfinex spot volumes spike coincided with the margin shorts increase. However, once the pressure disappeared, Bitcoin could recover the $32,000 support, which might be enough to motivate buyers.
Weekends usually display lower volumes so it will be interesting to see how cautious investors are in the face of this mammoth short seller.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
The price of Bitcoin suddenly dropped below $60,000 days after the Coinbase public listing.
The price of Bitcoin (BTC) declined below $60,000 on April 17 after a strong rally throughout the past week in anticipation of the Coinbase public listing on Nasdaq.
However, after the COIN listing, which is the ticker of the Coinbase stock, the cryptocurrency market started to correct.
An expected Bitcoin sell-the-news drop
Coinbase’s public listing brought significant attention to the cryptocurrency market. It marked the first public listing of a major cryptocurrency exchange, leading to high institutional demand.
As a result, the cryptocurrency market rallied leading up to the listing with BTC price hitting new all-time highs above $64,00. However, it was almost expected to see Bitcoin and Ether (ETH) drop after the fact, considering the tendency of cryptocurrencies to sell off after a major event.
Another major factor that contributed to the drop in price was the relatively high funding rates for longing Bitcoin. This, alongside strong technical resistance at $64,000-$65,000 were the likely reasons that BTC tested $60,000 support after the hype around Coinase’s listing began to fade.
Meanwhile, the $60,000 level is an important price point for Bitcoin because it took roughly a month for BTC to break out above it.
Hence, it is important for Bitcoin to hold the $60,000 area to maintain the bullish market structure heading into next week.
Traders predict what would likely come next
At the same time, cryptocurrency traders are mixed regarding where Bitcoin will go with its new weekly candle.
For instance, Cantering Clark, a popular cryptocurrency derivatives trader, said that the market isn’t necessarily bullish nor bearish, based on options data.
Instead, Clark noted that the options market trend shows that Bitcoin would likely see sideways actions, which would mean consolidation at around $60,000. He wrote:
“50k and 80k strikes highest contract/notional for $BTC I think these writers will be happy and I am still in the same opinion that the end of April – May begins the shift that makes Bitcoin a less favorable long. No breakout, just range and rotation.”
In the long term, traders are still optimistic about Bitcoin. A pseudonymous trader known as “Crypto Capo” noted that based on historical trends, Bitcoin has broken out of a range that goes back 1,000 days.
The trader emphasized:
“Now some $BTC technical analysis. Bitcoin has broken out of an accumulation range of over 1000 days. This usually results in long extensions. Currently, the increase over the previous ATH is only 200%.”