Bullish reversal? Traders debate whether $37K BTC price is a trend reversal

A stream of bullish Bitcoin adoption news helped to push BTC price back above $37,000 but traders are unsure if the 20% move confirms a trend reversal.

The cryptocurrency market flashed bullish on June 9 as Bitcoin (BTC) price reversed course and rallied 20% to $37,500. 

For the past few weeks, analysts had been debating whether or not BTC was entering a long-term bear trend and the argument has been further complicated by a mixture of positive and negative headlines including the adoption of Bitcoin (BTC) as legal tender in El Salvador and authorities in China ordering Chinese search engines to block results for searches related to the top crypto exchanges in the country. 

Data from Cointelegraph Markets Pro and TradingView shows that the price of Bitcoin has surged 20% from a low at $31,000 late on June 8 to an intraday high at $37,450 as bulls look to take control of the trend.

BTC/USDT 4-hour chart. Source: TradingView

The move higher is seen as a bullish development for many including Mike McGlone, senior commodity strategist at Bloomberg Intelligence, who now feels that BTC is more likely to reach $40,000 than collapse down to $20,000. On the other hand, traders like Rekt Capital believe that BTC needs to have a weekly close above $32,000 to avoid further downside. 

The coming days will determine the fate of the bull run

The steady flow of positive announcements combined with the renewed regulatory crackdown in China has led some traders to ponder whether a bullish reversal is at hand or if the current price action is nothing more than a bull trap. 

According to Delphi Digital, the clear head and shoulders pattern seen on the BTC chart is a potential bearish indicator. 

Bitcoin head and shoulders pattern. Source: Delphi Digital

Despite this bearish pattern, the analysts also noted that a bullish RSI divergence has also formed, indicating the possibility of a trend reversal in the near future.

Bitcoin price and a bullish divergence on the RSI.  Source: Delphi Digital

According to Élie Le Rest, partner at digital asset management firm ExoAlpha, “the thesis for Bitcoin as a store of value is stronger than ever” but he feels that the top cryptocurrency “needs to increase its dominance” in order for the current bull run to continue.

Le Rest pointed to the news that El Salvador would recognize BTC as legal tender as “a huge step forward toward Bitcoin adoption” and he expects other countries to follow suit in the coming months and years.

Regarding Bitcoin’s future prospects, Le Rest mentioned that following the lower level retest of the $30,000 to $40,000 range over the past few days, a break above $40,000 “could resume the bull run that took place a month ago.”

Le Rest said:

“Traders still have some doubts on where the market is heading, so leverage has remained relatively low as forced liquidations have been painful since May. Breaking $40,000 could give the boost in traders confidence to leverage again their book to power new highs of the crypto market.”

Traders have also been keeping a close eye on Ether (ETH) and Le Rest pointed to the “massive ETH outflow” seen on June 8 as “a positive sign that the ETH bull run is not over yet,” but he cautioned that alternative chains like the Binance Smart Chain, Solana, and Avalanche “are putting a lot of efforts to take their DeFi market share.”

Altcoins rally alongside Bitcoin

Daily cryptocurrency market performance. Source: Coin360

Bitcoin’s rally to $37,500 also provided a boost to many altcoins. 

Ether saw its price rally 14% from a low at $2,300 on June 8 to an intraday high near $2,630, and Delphi Digital pointed out that the price of Ether is being supported by a decline in the circulating supply of Ether as 23% of its supply is now locked up smart contracts.

Ether supply locked in smart contracts vs. price. Source: Delphi Digital

Other notable performances include a 23% gain in the price of Kusama (KSM) to an intraday high at $486 following the launch of the Kusama parachain auctions and an 18% gain in the price of the Curve DAO Token (CRV) to $2.50.

The overall cryptocurrency market cap now stands at $1.63 trillion and Bitcoin’s dominance rate is 43%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Top 5 cryptocurrencies to watch this week: BTC, XRP, DOT, XLM, SOL

Bitcoin price remains under pressure but select altcoins like XRP, DOT, XLM and SOL are showing signs of resuming their uptrend.

Bitcoin (BTC) has been struggling to rise above the $50,000 mark, which could have resulted in traders dumping their Bitcoin positions to invest in altcoins. Glassnode data suggests that whale addresses owning more than 1,000 BTC have reduced from about 2,500 in February to 2,100.

If large investors continue to sell, Bitcoin could witness a sharp correction until institutional investors step in and buy at lower levels. While MicroStrategy announced the purchase of 271 Bitcoin on May 13, other existing institutional investors appear to be adopting a wait and watch approach.

Crypto market data daily view. Source: Coin360

In an interview with Financial NewsSquare, Square chief financial officer Amrita Ahuja said, at this point, the firm does not have any plans to add Bitcoin to its existing haul of roughly 8,027 Bitcoin purchased in October 2020 and February of this year.

If other institutions also stay away from buying at current levels, Bitcoin’s price is likely to slide further. However, Fundstrat Global Advisors managing partner Tom Lee believes Bitcoin’s rally still has legs. Lee has increased his year-end Bitcoin target from $100,000 to $125,000.

With action becoming coin specific, let’s look at the top-5 cryptocurrencies that may lead the charge in the next few days.

BTC/USDT

The bulls again purchased the dip to the neckline of the head and shoulders pattern today but the long wick on the candlestick suggests profit-booking at higher levels. Bitcoin’s sentiment seems to have changed from buy on dips to sell on rallies.

BTC/USDT daily chart. Source: TradingView

If the bears sink and sustain the price below the neckline, the H&S pattern will complete. This setup has a target objective at $31,653.73. The downsloping 20-day exponential moving average ($53,297) and the relative strength index (RSI) below 36 indicate the bears are in control.

However, the bulls are unlikely to give up easily. They will try to stall the decline in the $43,000 to $40,000 support zone but if they fail, the decline could be sharp.

Contrary to this assumption, if the price turns up from the current level and rises above $51,550, the BTC/USDT pair may rally to the 20-day EMA. A breakout and close above the $60,000 resistance will suggest the bulls are back in the game.

BTC/USDT 4-hour chart. Source: TradingView

The rebound from $46,435.02 fizzled out at the 20-EMA. This suggests the sentiment is negative and traders are selling on rallies to the 20-EMA. If the bears sink the price below the neckline, the selling could intensify.

However, if the bulls again defend the neckline, the pair may attempt to rise above the 20-EMA. If that happens, the rally could extend to $51,538.22 where the bulls are likely to encounter stiff resistance.

If the price turns down from this resistance, the pair may consolidate between $46,000 and $51,500 for a few days.

XRP/USDT

XRP is currently trading inside a symmetrical triangle, which usually acts as a continuation pattern. If the bulls can drive the price above the resistance line of the triangle, the altcoin could retest the 52-week high at $1.96.

XRP/USDT daily chart. Source: TradingView

A breakout and close above $1.96 could start the next leg of the uptrend that may reach $2.68. The RSI has risen into the positive territory but the 20-day EMA ($1.43) is yet to turn up, which suggests that bears are likely to defend the resistance line aggressively.

If the price turns down from the resistance line, the XRP/USDT pair could extend its stay inside the range for a few more days. The pair could turn negative if the bears sink and sustain the price below the triangle. Such a move may pull the price down to $0.88.

XRP/USDT 4-hour chart. Source: TradingView

The price has dipped to the moving averages on the 4-hour chart. If the pair rebounds off the current levels with strength, it will suggest buying on dips. The bulls will then try to push the price above the triangle.

Alternatively, if the bears sink and sustain the price below the moving averages, the pair could drop to $1.35 and then to the support line of the triangle. A break below this support could signal advantage to the bears.

DOT/USDT

Polkadot (DOT) broke out and closed above the overhead resistance at $44 on May 14. The bulls continued the momentum and pushed the price to a new all-time high at $49.78 on May 15 but could not sustain the higher levels. Profit-booking has pulled the price back below the breakout level at $44.

DOT/USDT daily chart. Source: TradingView

If the bulls do not give up much ground from the current levels, it will suggest buying on dips. The DOT/USDT pair could then make one more attempt to rise above the psychological level at $50.

If that happens, the pair could start the next leg of the uptrend that may reach $63.68. The marginally upsloping 20-day EMA ($39.54) and the RSI in the positive territory suggest the path of least resistance is to the upside.

Contrary to this assumption, if the price sustains below $44, the pair could drop to the moving averages. A break below this support could pull the price down to $32.50.

DOT/USDT 4-hour chart. Source: TradingView

The 4-hour chart shows the bears pulled the price below the 20-EMA but the bulls are attempting to reclaim the support. The buyers will have to push the price above $47 to regain the advantage. If they succeed, a retest of $50 is likely.

On the other hand, if the price fails to climb above the 20-EMA, it will suggest a lack of buying support. That could pull the price down to the 50-simple moving average. The flattening 20-EMA and the RSI near 50 suggest a balance between supply and demand.

XLM/USDT

Stellar Lumens (XLM) is attempting to start a new uptrend. The bulls purchased the dip to the 20-day EMA ($0.61) on May 13 and pushed the price to a new 52-week high at $0.79 today. However, the long wick on the day’s candlestick indicates profit-booking at higher levels.

XLM/USDT daily chart. Source: TradingView

If buyers can sustain the price above $0.73, the XLM/USDT pair could rally to $0.85 and then to $1. The upsloping moving averages and the RSI above 63 indicate that bulls have the upper hand.

Contrary to this assumption, if the price sustains below $0.73, the pair could drop to the 20-day EMA. A strong rebound off this support will suggest the sentiment remains positive. The bulls will then make one more attempt to resume the uptrend.

This positive view will invalidate if the price breaks below the 20-day EMA. Such a move will suggest that traders are closing their positions in a hurry and not buying the dips. That could result in a drop to the 50-day SMA ($0.53).

XLM/USDT 4-hour chart. Source: TradingView

The 4-hour chart shows the formation of an inverse head and shoulders pattern. This bullish setup has a target objective at $0.90. The upsloping 20-EMA and the RSI in the positive territory suggest that bulls are in command.

During strong uptrends, corrections are likely to be shallow. Therefore, the current dip may find support at $0.72. A strong bounce off this level could increase the possibility of the resumption of the uptrend.

This bullish view will invalidate if the price dips and closes below the neckline. Such a move could trap the bulls, resulting in long liquidation. The pair may then decline to $0.55.

SOL/USDT

Solana (SOL) had been range-bound between $40 and $49.99 for the past few days. A tight consolidation near the high is a positive sign as it shows that traders are not booking profits in a hurry.

SOL/USDT daily chart. Source: TradingView

The 20-day EMA ($42.86) is sloping up and the RSI has risen above 65, indicating the path of least resistance is to the upside.

If the bulls can sustain the price above the psychological level at $50, the SOL/USDT pair may resume its uptrend. The next target objective on the upside is $60 and then $69.

On the contrary, if the price fails to sustain above $50, the pair may re-enter the range and extend its consolidation for a few more days. This positive view will invalidate if the pair breaks below $40.

SOL/USDT 4-hour chart. Source: TradingView

The 4-hour chart shows the bulls pushed the price to a new all-time high at $52.60 today but the long wick on the candlestick indicates profit-booking at higher levels. The price has dipped back below $50 but it may find strong support at $46.

A strong rebound off this level will suggest that traders are buying on dips. The bulls will then again try to resume the uptrend. The rising 20-EMA and the RSI near the overbought zone suggest advantage to the bulls.

Contrary to this assumption, if the bears sink the price below $46, the pair may drop to the 20-EMA. Such a move will suggest aggressive selling above $50 and that could keep the pair range-bound for a few more days.

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.

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Price analysis 4/16: BTC, ETH, BNB, XRP, DOGE, ADA, DOT, LTC, UNI, LINK

Bitcoin’s weakness and Dogecoin’s epic pump are signals that the market could be overheating and in need of a short-term correction.

Dogecoin’s (DOGE) massive rally to $0.45 propelled it to a market capitalization of over $54 billion to make it the fifth most valuable cryptocurrency by market cap.

This lofty market cap comes as a surprise to many since the project has no active developers and is only a meme coin, thus the current rally brings back memories of the excesses seen during the ICO boom in 2017.

Rallies like the one seen in Dogecoin indicate that several traders have entered the fray and are looking to get rich overnight. The only positive sign is that the mania has not spread to other coins. If it does, then the crypto markets are likely to witness a sharp correction in order to shake out the weak hands.

CNBC host Jim Cramer has become one of the first well-known people to reveal that he closed half of his Bitcoin (BTC) position. While Cramer’s selling is an isolated event, it does warn that not all professional investors who have recently turned Bitcoin believers are going to be long-term HODLers.

Daily cryptocurrency market performance. Source: Coin360

If the institutional investors rush to the exit, it could cause a huge correction in several cryptocurrencies. Traders should be mindful of irrational exuberance and avoid being sucked into FOMO-driven trades as it’s better to stick to a trading plan and think long-term rather than dream of overnight riches.

Let’s study the charts of the top-10 cryptocurrencies to identify the critical support levels and outline various bullish and bearish scenarios.

BTC/USDT

The bulls could not capitalize and build upon the breakout of the overhead resistance zone at $60,000 to $61,825.84 on April 13. Bitcoin price turned down on April 14 after hitting an all-time high at $64,849.27 and the bulls are currently attempting to flip the $60,000 level to support.

BTC/USDT daily chart. Source: TradingView

If they manage to do that, the BTC/USDT pair may make one more attempt to resume the uptrend. A breakout of $64,849.27, could start the next leg of the uptrend that could reach $69,540 and then $79,566.

However, the negative divergence on the relative strength index (RSI) is warning of a possible correction. Interestingly, the price reversed direction when the RSI had reached close to the downtrend line.

If the price dips below the 20-day exponential moving average ($59,427), it will be the first sign that buyers may be losing their grip. The break below the 50-day simple moving average ($55,814) will further cement the view that a deeper correction is likely.

The bulls may attempt to arrest the decline near $50,460.02 but if this level cracks, the pair could drop to the critical support at $43,006.77.

ETH/USDT

Ether (ETH) extended its uptrend and hit an all-time high at $2,545.80 today. Profit-booking by traders pulled the price down to $2,300 but the long tail on the day’s candlestick suggests that bulls continue to buy on dips.

ETH/USDT daily chart. Source: TradingView

If the price recovers and the bulls push the price above $2,545.8, the ETH/USDT pair could start the next leg of the uptrend. The next target objective on the upside is $2,745 and then the psychological level at $3,000.

The upsloping 20-day EMA ($2,131) and the RSI near the overbought territory suggest the path of least resistance is to the upside. This bullish view will be invalidated if the price turns down and breaks below the 20-day EMA. Such a move could pull the price down to $1,925.10.

BNB/USDT

Binance Coin (BNB) formed a Doji candlestick pattern on April 14 and that was followed by an inside day candlestick pattern on April 15. Both these setups indicate indecision among the bulls and the bears. This uncertainty resolved to the downside today.

BNB/USDT daily chart. Source: TradingView

However, a minor positive is that the bulls are defending the 38.2% Fibonacci retracement level at $483.95, as seen from the long tail on the day’s candlestick. The bulls will now try to push the BNB/USDT pair above the all-time high at $638.56 and resume the uptrend.

Conversely, a break below $483.95 could pull the price down to the 20-day EMA ($437). A break below this support will suggest that the traders are rushing to the exit and that could result in a drop to the breakout level at $348.69.

XRP/USDT

XRP is currently correcting the sharp rally. The bulls are attempting to defend the first support at the 38.2% Fibonacci retracement level at $1.48, as seen from the long tail on the day’s candlestick.

XRP/USDT daily chart. Source: TradingView

The XRP/USDT pair may now consolidate between $1.48 and $1.96 for a few days before starting the next trending move.

A break above $1.96 could start the next leg of the uptrend that could reach $2.54. The rising moving averages and the RSI in the overbought zone suggest the bulls have the upper hand.

Contrary to this positive assumption, if the bears sink the price below the $1.48 support, the pair could drop to the 20-day EMA ($1.18). Such a move will suggest the bullish momentum has weakened and that could delay the next leg of the uptrend.

DOGE/USDT

Dogecoin’s momentum has been picking up since the past three days and that has resulted in the massive pump today. This shows that more and more traders are getting sucked into the trade due to FOMO.

DOGE/USDT daily chart. Source: TradingView

Usually, such buying frenzies end in a major top formation. After the last bull has purchased, the price reverses direction and the waterfall decline starts. It is difficult to predict a top during such a frenzy but the psychological $0.50 level may act as a hurdle.

The decline after the DOGE/USDT pair tops out is likely to be vicious. The usual 38.2% Fibonacci retracement level may not hold and the pair is likely to drop to the 61.8% Fibonacci retracement level at $0.20.

Traders should control the urge to get into such trades even at the risk of missing out on some profits.

ADA/USDT

Cardano (ADA) has been facing a tough battle between the bull and the bears near $1.48 for the past two days. Although the bulls managed to push the price above $1.48 today, the bears have been quick to pull the price back below the level.

ADA/USDT daily chart. Source: TradingView

After the third unsuccessful attempt to sustain the price above $1.48, the bulls seem to have dumped their positions today, resulting in the formation of an outside day candlestick pattern.

However, the long tail on today’s candlestick suggests the bulls bought the dips to the 20-day EMA ($1.28) aggressively. The bulls may now make one more attempt to drive the price above the $1.48 to $1.55 resistance zone.

If they manage to do that, the ADA/USDT pair could resume the uptrend and start the journey toward $2. Conversely, a break below the moving averages could offer the bears an opportunity to sink the price to $1.03.

DOT/USDT

The bulls pushed Polkadot (DOT) above the $42.28 level on April 13 but could not challenge the all-time high at $46.80. This shows a lack of demand at higher levels. The altcoin has dropped below $42.28 today and the bears will now try to sink the price below the 20-day EMA ($40).

DOT/USDT daily chart. Source: TradingView

If they succeed, the selling could pick up further as the bulls may rush to cover their positions. Such a move could sink the DOT/USDT pair to $32.50 and then to the critical support at $26.50.

Contrary to this assumption, if the price again rebounds off the 20-day EMA, it will suggest that bulls have not given up. They will make one more attempt to thrust the price above the $46.80 resistance and resume the uptrend.

LTC/USDT

Litecoin (LTC) is in a strong uptrend. The bears had tried to start a correction today but the bulls purchased the dips aggressively as seen from the long tail on the day’s candlestick. The reversal may have caught several aggressive bears on the wrong foot, which could be the reason for the pick-up in momentum.

LTC/USDT daily chart. Source: TradingView

The LTC/USDT pair has broken out of the target objective at $307.42, clearing the path for a rally to $374. However, the RSI above 76 signals caution because, in the past, the pair has repeatedly entered a correction when the RSI level reaches close to 80.

The critical support to watch on the downside is the 20-day EMA ($241). A break below this support will be the first sign that the bulls are tiring and a deeper correction is likely.

UNI/USDT

Uniswap (UNI) broke out to a new all-time high on April 15 but the bulls are struggling to sustain the higher levels. When the price fails to follow up higher after breaking out of a significant resistance, it indicates exhaustion.

UNI/USDT daily chart. Source: TradingView

However, the long tail on the day’s candlestick suggests the bulls continue to buy on dips. If the buyers can propel the price above the all-time high at $39.60, the UNI/USDT pair could rally to $43.43 and then $50.

On the other hand, if the price again turns down and breaks below the 20-day EMA ($32), several aggressive bulls who had purchased the breakout of $35.20 may bail out of their positions. The long liquidation could pull the price down to $27.97.

LINK/USDT

Chainlink (LINK) surged above the $36.93 overhead resistance on April 14, signaling the resumption of the uptrend. The altcoin hit an all-time high at $44.33 where profit-booking set in.

LINK/USDT daily chart. Source: TradingView

However, the long tail on the day’s candlestick suggests that the bulls aggressively purchased the dip to $38.52 today. This indicates that the sentiment remains positive and the bulls are buying at lower levels.

The buyers will now try to resume the uptrend by pushing the price above $44.33. If they succeed, the LINK/USDT pair could rally to $50.

Contrary to this assumption, if the price again turns down and breaks below the $36.93 support, the pair could drop to the 20-day EMA ($34). If this support cracks, the decline could extend to the 50-day SMA ($30).

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.

Market data is provided by HitBTC exchange.

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Our Man in Shanghai: Filecoin the talk of the town, Polkadot and NFTs gain attention

Retail investors are flocking to buy Filecoin on exchanges with predominately Chinese user bases and the head of the PBOC thinks the digital yuan has an uphill battle to take on Alipay and WeChat Pay.

Distributed storage network project Filecoin is the talk of the town as FIL was the most highly traded token on Huobi, OKEx and Gate on Thursday. These three exchanges have a predominantly Chinese user base and represent a large part of the Tier One trading volume for major pairs. On Thursday afternoon, Huobi trading volumes of FIL were more than three times that of BTC as the price reached a 7-day increase of 170%.

Filecoin has had strong success in capturing the attention of Chinese investors, including large investment groups such as Fenbushi Capital, SNZ Capital and Neo’s EcoFund. These three were part of a group that backed the $23 million Filecoin Ecosystem Fund, announced on March 25. The Filecoin Ecosystem Fund is intended to support projects and help development on the network. It could also give backers early access to new projects, which is a lucrative model for VCs in an increasingly crowded investment space. It remains to be seen which of these two consequences are a bigger priority for the funds involved.

On March 28, OKEx produced a video explaining the concepts behind Filecoin, which received around 600 shares and 3400 likes on Weibo. This shows a high level of attention from the Chinese retail audience, a demographic that is tough to obtain and hard to preserve over longer time-frames.

NFTs in Beijing, Polkadot in Hangzhou

Beijing-based BlockCreateArt hosted a major NFT art exhibition on March 26 supported by auction house Christie’s, Digital Finance Group and mining rig producer Bitmain. Interest in digital art has increased on some levels in China, but cultural and artistic differences have led to a more pragmatic approach towards leading digital artists such as Beeple. The exhibition will be stopping in Shanghai early in April.

Hangzhou was home to the Open Days blockchain exhibition sponsored by Candaq Fintech Group. The event had one hall dedicated to Polkadot projects, with speakers from Rarelink, Litenty and Phala, among others. The upcoming parachain auctions have become a topic of interest with so many local projects and projects with ties to the region being built on Polkadot.

Central bank head says digital yuan playing catch-up

The head of the Digital Currency Research Institute at the People’s Bank of China has recognized that private payment processors Alipay and WeChat Pay are in a dominant position in the Chinese payment space. During a panel appearance, Wang Changchun noted that the government-backed digital currency would be needed to maintain stability should something happen to the existing solutions. For the moment, WeChat Pay and Alipay don’t seem to be in any imminent danger of losing their market share, but that could change quickly if government-led incentives were put in place for those willing to convert.

In enterprise news, electric vehicles brand IM Motors, working with SAIC Motor and Alibaba, announced a blockchain powered service network that would incentivize customers to share data with the company. In order to achieve some level of traceability and resistance to tampering, on-chain points would be given to customers using the vehicle and related apps.

The blockchain network was announced as exclusive and private, so while it represents a slight normalization of blockchain technology, it will likely have much in common with more centralized storage networks.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industry’s most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

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99% gone in 60 seconds: How a Polkadot trader may have crashed DOT futures

Polkadot (DOT) futures at Binance flash-crashed by 99.5%, potentially generating an $8.3 million profit for the ‘trader’ if they used this clever strategy.

On March 5, Polkadot (DOT) experienced a flash crash at Binance perpetual futures which resulted in the contract trading as low at $0.20. While this could have been an honest fat-finger trading mistake, a number of indicators point to a planned-attack.

While no hard evidence will likely ever emerge, the open interest increase just 24 hours ahead of the event indicates that an attacker could have generated a $8.3 million profit by manipulating Binance’s matching engine.

DOT perpetual futures on Mar. 4, USD pricing. Source: Binance

As shown above, during the 3-minute candle, $20.4 million worth of DOT contracts traded. Although the swift downside move was a 99.5% flash crash, it did not result in cascading liquidations.

Futures contracts liquidations are calculated using the price of spot exchanges. Thus, a flash-crash exclusively on futures prices would not impact most traders. According to Binance:

“The Price Index is a bucket of prices from the major Spot Market Exchanges, weighted by their relative volume.”

As per Binance’s support website, Polkadot coin-margined futures index price is composed of Kraken (DOT/USD), Binance (DOT/USD), Binance (DOT/BTC), OKEx (DOT/BTC) and Huobi’s (DOT/BTC) market.

It is worth noting that this specific contract is coin-margined instead of the more liquid Tether-settled one. Cointelegraph recently analyzed those differences, stating that the Tether-based contract “doesn’t need an active hedge to protect collateral (margin) exposure, thus it’s a better choice for retail traders.”

Data uncovers the planned ‘attack’

For an attacker to set up this trade, the first step would be building a leveraged long position while simultaneously creating short exposure using another account.

To create a flash crash while risking the minimum amount possible, preferably, this event should take place not more than a couple of days ahead of the planned ‘attack’.

DOT/USD perpetual futures open interest. Source: Binance

As depicted above, DOT/USD perpetual futures open interest grew from 1.92 million DOT to 3.34 million some 30 hours ahead of the flash crash, equivalent to a $47 million increase.

To differentiate the attack from a regular leveraged-long, one should track the long-to-short ratio. To maximize gains from the flash crash, the attacker would have created a substantially higher short leveraged amount, thus impacting the long-to-short ratio.

DOT/USD perpetual futures long-to-short ratio. Source: Binance

The data above shows that the average 4.25 ratio favoring longs was severely impacted during the open interest increase. This would confirm the theory of a coordinated attack.

How the trade is executed

By holding a considerably larger net short position when both accounts are combined, the attacker would profit from a flash crash. All this entity needs to initiate the event is to market sell the net long position. This move would trigger a substantial sell order, crashing the futures contract. Meanwhile, the other account, previously net short, would score big.

762,000 DOT contracts traded during the 3-minute flash-crash candle at a $26.73 average price. Considering the change in the long-to-short ratio, the attack most likely created a $30 million long position. Meanwhile, the secondary account held a $10 million net short exposure.

Although far from the 99.5% price crash, this 19% drop from $33 likely generated a $9.5 million gain for the account holding the $10 million short exposure if 5x leverage was in play. On the other hand, the collateral lost for the $30 million long position amounts to $1.2 million is 25x leverage was deployed.

It is important to emphasize that holders of Binance DOT futures contracts were unlikely affected by the flash crash. Therefore, the attackers’ net long account should be holding a negative balance, which the Binance insurance fund will likely cover.

The above calculations are mere speculations based on exchange-provided data. As previously mentioned, it is unlikely that hard evidence of this attack will ever surface.

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.

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