Massive Bitcoin Short Margin on Bitfinex won’t let BTC price drop, data shows
The sharp rise in Bitfinex shorts is attributed to the current downturn in Bitcoin.
One of the most common mistakes traders make when analyzing the cryptocurrency market is taking bid / ask price data from the exchange as well as trading volume by value. . This type of analysis requires traders to exclude venues mentioned in “fake volume” reports like the one published by Bitwise in March 2019.
There’s really no way to know if the top exchanges have increased their volume by granting special access and not charging market makers.
Also, the exchanges themselves have no way of knowing whether a group of users are connected to each other or are conducting multiple transactions with each other to increase price or trade volume. There are hundreds, if not thousands, of influencers promoting crypto in groups, trading apps, etc.
As a result, not every laundry trade or transaction between affiliates is considered by exchanges or crypto projects with foundations or marketing teams.
As Philip Gradwell, Chief Economist at Chainalysis, explains:
“If you are serious about making money with crypto, you have to believe that there are indeed good places to trade. If you have an exchange and are reporting real volume that can attract large amounts of institutional capital, but if you don’t have one, they’re going to look elsewhere. “
Investors often deceive themselves that these unethical practices only occur on exchanges on remote islands. However, the US Commodity Futures Trading Commission (CFTC) fined Coinbase after an employee “traded” to create the illusion of volume and demand for Litecoin (LTC) prior to September 2018.
Decentralized Exchanges (DEXs) have also been used for wash trading as there are almost no barriers other than gas fees.
Bitcoin price at Coinbase (left) vs. Bitcoin margin shorts at Bitfinex (right) | Source: TradingView
Let’s see how the 22,000 Bitcoin Margin Short rally started at Bitfinex when the price fell below $ 34,000 and stayed at a constant pace as Bitcoin continued to plummet.
The hourly price candle on Coinbase shows a descending pattern that fits perfectly with Bitfinex’s margin short activity. It is worth noting, however, that Bitcoin’s $ 2.5 billion monthly option expiration occurs about an hour before the aforementioned price action (15:00 GMT).
Additionally, the CME futures contract expired at 10:00 p.m. KST, likely related to the $ 12,600 bitcoin contract valued at $ 412 million. However, there is no reason to believe that the expiration of the derivatives market is directly related to Bitfinex’s increase in margin short.
Next, we need to analyze the spot trading volume to know what role Bitfinex played in the Bitcoin price correction that began on June 25th.
Total Bitcoin trading volume on spot exchanges | Source: Coinalyze
The hourly trading volume of the last four days shows a significant increase in Bitfinex’s market share from June 25th at 4 p.m. The movement lasted seven hours, but mostly evaporated shortly afterwards.
Traders may also have been startled by a similar move earlier this month, when the Bitfinex Margin Short rose to Bitcoin 25,000 just before the price began its weeklong slump to $ 28,800 on June 22nd.
Such events may or may not result in a profitable trade for the bears, but often leave a bad impression on traders. After all, not everyone has the margin required to buy 22,000 bitcoin ($ 726 million) short.
In short, there is a clear indication that the phasing out of the derivatives market has little to do with the market downturn, as Bitfinex’s spot trading volumes increase with the rise in margin shorts. However, once the pressure subsides, Bitcoin could rebound to the $ 32,000 support, which may be enough to spur buyers on.
Weekends typically have lower trading volumes so it will be interesting to watch investors trade cautiously on these massive shorts.
According to Cointelegraph