The data does not infer that Bitfinex shorts are driving Bitcoin price down

One of the most common mistakes traders make when analyzing the cryptocurrency market is setting an exchange’s bid and asking for dates and trading volumes at face value. In performing this type of analysis, traders need to exclude trading venues mentioned in many reports of “fake trading volume” such as the March 2019 report published by Bitwise.

There’s really no way to know if the top exchanges have increased their volume by granting special access and not charging market makers.

Even exchanges themselves have no way of knowing whether a group of users are related or are entering into multiple transactions with one another to increase price or volume. There are hundreds, if not thousands, of influencers pumping and selling chat rooms, trading apps, and the like.

As a result, not every wash or transaction between affiliates through exchanges or crypto projects with platforms or marketing teams is envisaged.

As Philip Gradwell, Chief Economist at Chainalysis, explains:

“If you are serious about making money with crypto, you need to build their conviction that there are indeed good places to trade. […] If you’re an exchange and you have good incentives to report real volume, you can actually get funds from the institution, but if you don’t have those incentives they’ll stay away. “

Investors often speculate that these unethical practices only occur on exchanges on remote islands. However, the US Commodity Futures Trading Commission fined Coinbase after an employee “traded” to create the illusion of volume and demand for Litecoin (LTC) prior to September 2018.

In case you are wondering, decentralized exchanges (DEXs) have also been used for “wash trading” as there are hardly any obstacles other than grid gas fees.

Notice how Bitfinex’s short-term 22,000 Bitcoin rally began when the price fell below $ 34,000 and stayed at a constant pace as Bitcoin continued to plunge.

The hourly price candle on Coinbase shows a descending pattern that fits perfectly with Bitfinex’s margin short selling. It is worth noting, however, that Bitcoin’s $ 2.5 billion monthly option expiration occurred at 8 a.m. UTC, about an hour before the aforementioned price action.

Additionally, the expiration date of the CME futures is 3:00 p.m. UTC, likely related to the $ 12.6,000 bitcoin contract valued at $ 412 million. However, there is no reason to believe that expiring derivatives are directly related to Bitfinex margin short-term gains.

One needs to analyze the spot trading volume to understand whether Bitfinex will play a significant role in the Bitcoin price correction from the early hours of June 25th.

The hourly volume candles for the past four days clearly show a significant increase in Bitfinex’s market share from 9 a.m. UTC on June 25th.

Traders may also have been startled by a similar move earlier this month, when Bitfinex margin shorts rose to BTC 25,000 just before the price began its week-long plunge to $ 28,800 on June 22nd.

Such events can lead to profitable trades for the bears that often leave a strong impression on traders. After all, not everyone has the margin required to sell $ 726 million worth of bitcoins.

In short, there is a clear indication that the market downturn has little to do with the phasing out of derivatives, as Bitfinex’s spot volume increases with the surge in shorts fund signing. However, once the pressure subsides, Bitcoin could rebound to the $ 32,000 support, which may be enough to spur buyers on.

Weekends are typically lower in volume so it will be interesting to see how cautious investors are in the face of this massive short seller.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.