Friday Inferno market analysis

Staring up from — what is hopefully — the bottom of the abyss, we can’t help but suppress a wry smile that bitcoin’s murky past continues to set the agenda from time to time.

Every now and again the crypto markets throw traders a curveball. This was one such week.

Analysts were broadly in agreement that the picture for bitcoin was looking rosier by the day. The major indicators were all flipping positive with the steady rally from the recent low of around $5,900 to over $7,400 — an impressive 25% uptick in just three weeks. MAs were converging and crossing, resistance levels turning to support, RSI climbing with the momentum — and then carnage. An initial crash briefly stabilised around the $7,000 mark, before a further $600 fall. In all, bitcoin’s price plummeted a thousand dollars in a matter of hours.

Mainstream news scrambled to find a reason, with many outlets citing Goldman Sachs’ decision to cancel their plans for a crypto trading desk. Perhaps that helped, but in reality it probably occasioned little more than a shrug from most genuine traders. In any case, earlier today Goldman’s CFO denied the bank had scrapped its plans, calling reports ‘Fake News’.

A far more plausible reason is the huge stash of bitcoins, somehow connected to the Silk Road, that was recently moved to Binance and Bitfinex.

Manipulation on a grand scale

Given that the blockchain is transparent but the identity of traders on exchanges is hidden from public view, it’s impossible to know for sure what’s going on here. It could have been lots of small traders panicking or our whale dumping lots of coins at once. There’s some circumstantial evidence that this was more than an early holder cashing out quickly and clumsily, so we’re going to take a shot at drawing some conclusions.

One thing to bear in mind is that a smart trader doesn’t dump a lot of coins onto the market at once. They trickle in sell orders, or set a sell wall, assuming they can’t get access to an OTC trade. That way, you don’t crash the price and get less USD than you otherwise would.

Another factor — possibly coincidental, but we’ve been in crypto long enough to keep the tinfoil hat on — is that DOGE saw a massive rise in volumes and value a few days before BTC crashed. That may be consistent with other insiders pumping it to offset losses just before BTC went south. DOGE always has been a favourite coin for pumpers to fleece the market. As we say, though, this may have been an unconnected manipulation. Binance doesn’t list DOGE, so the Silk Road whale himself probably didn’t do it.

Lastly, the holder sent 210 BTC to BitMEX. That’s a derivative exchange that offers very high leverage: up to 100x.

A whale with deep pockets could make an absolute killing by dumping BTC on one exchange, while going leveraged short on another.

In short, this episode looks like a deliberate manipulation that likely netted the perpetrator or perpetrators many tens of millions of dollars, if not more.

The big question, of course, is what happens next. Is there another BTC crash to come? Or will the whale reverse the pattern, go long and reset the market back to where it was a few days ago — pocketing enormous gains while maintaining or even increasing his BTC position?

We don’t know — and as ever in these circumstances, we would advise extreme caution if you’re trading. This kind of thing has become less frequent over the last couple of years, as the crypto markets become larger and more liquid, but bitcoin’s early legacy refuses to die.

Someone out there with access to a stash of over 100,000 BTC still wants to party like it’s 2014.

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