One of the most common mistakes traders make when analyzing the cryptocurrency market is to accept the exchange’s bid and inquiry data and transaction volume at face value.When doing this type of analysis, traders must exclude the trading venues mentioned above Multiple “false trading volume” reports, such as the report released by Bitwise in March 2019.
There is really no way to know whether top exchanges are exaggerating their trading volume by providing market makers with special access rights and zero fees.
Even the exchange itself has no way of knowing whether a group of users are related or making multiple transactions between them to increase prices or volume. There are hundreds, if not thousands of influencers, in chat rooms, trading applications, etc.
Therefore, not all wash trades or transactions between related entities have been brainstormed by exchanges or crypto projects and foundations or marketing teams.
As Philip Gradwell, Chief Economist, Chainalysis,explain:
“If you want to invest a lot of money in cryptocurrency, you have to build their confidence that there is indeed a good trading venue […] If you are an exchange and you have a good incentive to report real trading volume, you may actually get an inflow of institutional funds, but if you do not have these incentives, they will stay away. “
Investors usually speculate that these unethical behaviors only occur on exchanges located on remote islands. However, the U.S. Commodity Futures Trading Commission fined Coinbase after an employee “traded himself” to create an illusion of Litecoin’s trading volume and demand (LTC) Before September 2018.
If you want to know, Decentralized exchanges (DEX) are also used for “wash trading” activities Because there are almost no obstacles other than online gas fees.
Please note how Bitfinex’s 22,000 Bitcoin margin short increase started when the price fell below $34,000 and maintained a steady pace as Bitcoin continued to plummet.
Coinbase’s hourly price candles show a declining pattern, which perfectly matches Bitfinex’s margin short activity. However, it is worth noting that Bitcoin’s $2.5 billion monthly option expires at 8 am UTC, approximately one hour before the price movement highlighted above.
In addition, the expiry time of CME futures is 3 pm UTC, which may involve 12,600 Bitcoin contracts worth 412 million U.S. dollars. However, there is no reason to believe that the expiration of derivatives is directly related to the increase in Bitfinex’s margin short position.
It is necessary to analyze the trading volume of spot exchanges to understand whether Bitfinex played an important role in the Bitcoin price adjustment that started in the early morning of June 25.
The hourly volume candlestick chart for the past four days clearly shows that Bitfinex’s market share has risen significantly from June 25 at 9 a.m. UTC. This movement lasted for 7 hours, but it basically dissipated soon after.
Traders may have been frightened by similar actions earlier this month, when Bitfinex margin short position increased to 25,000 BTC, just before the price plunged to a low of $28,800 during the week that started on June 22.
Such events may or may not lead to profitable trades for short positions and usually leave a heavy impression on traders. After all, not everyone has the margin required to short 22,000 bitcoins worth $726 million.
In short, there are clear signs that the market downturn has little to do with the expiration of derivatives, because Bitfinex’s spot trading volume soared and margin short positions increased simultaneously. However, once the pressure disappears, Bitcoin may recover its support of $32,000, which may be enough to incentivize buyers.
Weekends usually have low trading volumes, so it will be interesting to see how cautious investors are in the face of this huge short seller.
The views and opinions expressed here only represent Author It does not necessarily reflect the views of Cointelegraph. Every investment and transaction involves risks. When making a decision, you should conduct your own research.