Bitcoin"s Growing Price Gap Between Exchanges Creates Potential Headaches For Futures Trading

On Thursday, as the Bitcoin price made record high after record high, spiking to somewhere between $16,000-19,500, it was one of the top stories across mainstream media outlets, never mind Reuters, Bloomberg and the FT.

However, what exactly was the all-time high for Bitcoin? Because of Bitcoin"s growing "price gap", it depended where you looked. But a price gap of more than $3,000…really? Actually yes, as Bloomberg explains.

Bitcoin traded above $19,000 on Thursday, but you may have missed it. As it was reaching $19,500 just after 11 a.m. on the GDAX exchange, which is run by the popular bitcoin brokerage firm Coinbase, bitcoin was still stuck in the high $15,000"s on other trading platforms. Similarly, most U.S. traders woke up on Thursday to news that bitcoin was above $15,000, unless they were following it on Bitfinex, where it didn"t cross $15,000 until soon before 10 a.m.

This is nothing new. Bitcoin trades on dozens of exchanges, and the prices get out of whack at times. But as the price of bitcoin rises more rapidly into the tens of thousands, the gap seems to be getting worse. It was particularly bad on Thursday, when for several hours in the morning the difference between the price of bitcoin on the exchanges remained thousands of dollars, more than the total price of bitcoin just a few months ago.

The chart below compares the price of Bitcoin on two separate exchanges, GDAX and BitStamp, from 12.00am to 5.00pm yesterday.

To some extent, this might not seem to matter, Bloomberg suggests. So what if you could sell at a higher price on GDAX, it’s likely that you paid a higher price in the first place. As we discussed yesterday, GDAX is Coinbase’s exchange and the higher price probably reflects  Coinbase being the easiest way for new Bitcoin investors to participate. And…let’s face it, most investors in Bitcoin have been making money. Furthermore, yesterday was an unusual day as the whole world seem to be momentarily gripped by Bitcoin mania. Congestion problems on the Gemini exchange, for example, forced it to suspend redemptions for several hours.

While people might not care about the price divergence right now, they might do in the next few days. As we know only too well, Bitcoin trading is about to change dramatically, with the launch of the CBOE and CME Bitcoin futures contracts. The former starts trading on Sunday after which investors will be able to buy, sell and short the Bitcoin price without having to buy the digital currency itself. Unlike the current Bitcoin exchanges, the futures exchanges are heavily regulated (except when it comes to trading gold and silver, of course).

The intersection of trading on "wild west" Bitcoin exchanges with conventional futures exchanges is a potentially dangerous mix. While the CEO of ICE, which owns the NYSE, has lamented that the CBOE and CME have beaten him in launching Bitcoin products. He also said this week that his organisation wouldn’t be offering futures contracts soon due to the lack of transparency and structural integrity in existing Bitcoin markets. Those cautionary words are looking prescient all of a sudden. As Bloomberg notes.

The price gap creates some structural problems for the futures market. Consider hedging. The Cboe and the CME contracts will reference prices on different exchanges. So if investors are trying to hedge a bitcoin purchase, they will have to make sure they buy bitcoins on an exchange that matches up most closely with a particular contract.

But the bigger problem is that the price gap gives some credence to Sprecher"s argument. Large price spreads indicate liquidity problems and a lack of active professional dealers or traders who would normally arbitrage these differences away rapidly. Less liquidity suggests prices will drop more quickly when they inevitability do, though not everyone agrees.

Paul Puey, the CEO of Airbitz, a bitcoin wallet company, told me on Thursday that bitcoin"s fractured market was a feature, not a bug. If a large trade were to start a tumble in one exchange, the prices would be safe elsewhere, the thinking goes, though I"m not sure I believe that the bitcoin whales wouldn"t rush in to sell on a sustained plunge.

On balance, Bloomberg comes down favourably on the introduction of Bitcoin futures trading, expecting it to reduce volatility. However, any conviction is lacking as Bloomberg Gadfly analyst, Stephen Gandel, acknowledges that he might be wrong and it could have the opposite effect.

And more liquidity by way of the futures market should make bitcoin prices less volatile. But it could go the other way, too. A drop in the price could send futures traders heading for the exits, stoking more fears in the traditional bitcoin exchanges. That could create negative feedback loops, like the ones in mortgage markets during the financial crisis. What"s more, if there is some pent-up demand to short bitcoin, a rush of traders could cause futures to plunge when they start trading, pushing down the price of bitcoins.

Exactly.

As the clock running down to futures trading, we are waiting to see whether big banks and “official” interventionists launch a pre-emptive strike in a desperate effort to cool the Bitcoin bull market. Whether or not that happens, we aren’t convinced that Bitcoin’s volatility, or its price, will be tamed for long.

America"s Biggest Bitcoin Exchange Just Broke As Prices Tumbled $4,500 From Highs

Mike Novogratz is on the wires calling Bitcoin a "cultural revolution."

GDAX just broke...

Additionally, Bitfinex says it is under a significant denial of service attack.

As Bitcoin tumbled $4,500 from its highs...

 

And now the giveback...Bitcoin is down $3000 from its $19,600 highs...but is still up 30% on the day

 

Bwuahahaha... $19k...on GDAX

After tagging $19,697, Bitcoin prices tumbled to $17,900...

Prices are varying dramatically across exchanges with $2000 differences.

For those keeping track, this is how long it has taken the cryptocurrency to cross the key psychological levels:

• $0000 - $1000: 1789 days


• $1000- $2000: 1271 days


• $2000- $3000: 23 days


• $3000- $4000: 62 days


• $4000- $5000: 61 days


• $5000- $6000: 8 days


• $6000- $7000: 13 days


• $7000- $8000: 14 days


• $8000- $9000: 9 days


• $9000-$10000: 2 days


• $10000-$11000: 1 day


• $11000-$12000: 6 days


• $12000-$13000: 17 hours


• $13000-$14000: 4 hours


• $14000-$15000: 10 hours


• $15000-$16000: 5 hours


• $16000-$17000: 2 hours


• $17000-$18000: 10 minutes


• $18000-$19000: 3 minutes

Coinbase is struggling to keep up...

We are currently experiencing record high traffic. This is resulting in some customers having slow performance or issues logging into their https://t.co/bCG11KveHS accounts. We are actively working to resolve this as quickly as possible.

— Coinbase (@coinbase) December 7, 2017

*  *  *

 

Update: $18,000, that is all!

*  *  *

Update: WTF! $17,000...

We do note that GDAX pricing appears to be at a significant premium to several other exchanges.

*  *  *

Update: Bitcoin just surpased $16,000... speechless...

*  *  *

In the last 36 hours, Bitcoin has blasted through $12,000, $13,000, $14,000, and now $15,000 levels in an unprecedented 28% surge...

With a market cap of around $250 billion, Bitcoin is bigger than Proctor & Gamble and approaching the size of Wal-Mart as the 12 biggest "company" in the S&P 500.

As CoinTelegraqph reports, the price is likely being driven by news of the imminent launch of Bitcoin futures trading. CBOE will be launching their futures market this coming Sunday, December 10, with CME Group following on December 18. Nasdaq plans to launch futures trading in the summer of 2018 and Japan’s Tokyo Financial Exchange is preparing to launch futures trading as well.

Bloomberg has announced that brokerage firms TD Ameritrade and Ally Invest will be offering Bitcoin futures trades to their clients. Even J.P. Morgan Chase may follow suit, despite CEO Jamie Dimon’s infamous views on the digital currency.

GDAX, Coinbase’s digital currency exchange, has been leading the rally all day. The price on GDAX is currently about $500 ahead of other Western Bitcoin exchanges. The likeliest - and most bullish - explanation is that Coinbase is the easiest way for new Bitcoin investors to get involved. Consequently, when GDAX leads the charge as it has today, it probably means new “retail” investors are fueling the rally.

Meanwhile, as CoinDesk reports, Ron Paul wants to know: would you take $10,000 in bitcoin, cash or something else?

The former U.S. Congressman from Texas is currently holding a poll on his official Twitter account that asks in which form they would take $10,000 from a "wealthy person". The catch: you can"t get rid of it for 10 years.

Paul – who earlier this year called for the U.S. government to "stay out" of bitcoin – put the question to his more than 650,000 followers, asking if they would take $10,000 in the form of bitcoin, dollars, gold or 10-year U.S. Treasury Bonds. The result thus far – one hour remains in the poll at press time – indicate that of the more than 70,000 responses, 54 percent expressed support for bitcoin.

Gold took the second-highest amount with 36 percent, followed by a mere 8 percent for the 10-year bonds. Just 2 percent indicated that they would take the Federal Reserve Notes if offered.

A wealthy person wants to gift you $10,000. You get to choose in which form you"ll take the gift. But there"s a catch: You must keep the gift in the form that you choose, and you can"t touch it for 10 years.

In which form would you take the gift?

— Ron Paul (@RonPaul) December 5, 2017

Speaking with TheStreet in October, Paul conceded that he"s no expert on cryptocurrencies (back in 2014, he argued that bitcoin wasn"t "true money"). That said, he voiced his support for cryptocurrency in the most recent interview, arguing that it lends credence to the emergence of alternative currencies against the U.S. dollar.

And while Bitcoin"s eye-popping price movements have some observers saying the market is in bubble territory, Naval Ravikant, the co-founder of AngelList, while he"s not ruling it out entirely, holds a less alarmist view.

"Money is a bubble that never pops," he said at yesterday"s Token Summit II in San Francisco.

He told attendees:

"It"s a consensus hallucination."

And speaking to the newfound attention to bitcoin, Ravikant said people are interested in growing the wealth that they have. With most savings accounts returning zero these days – as central banks conduct what Ravikant called their "grand money printing experiment" – the general public is looking for alternative places to store their money and watch it grow.

Bitcoin and other protocols seem to offer that, as even the less-developed cryptocurrencies are showing substantial returns.

"I think people are looking to solve their money problems," he said.

Additionally, Coindesk notes that the former chairman of the U.S. Federal Reserve, Alan Greenspan, has joined the many financial luminaries to recently criticize bitcoin"s value.

Speaking to CNBC, Greenspan compared bitcoin to that of an early American form of money called "Continental currency" that came into use in 1775 and had become worthless by 1782. The paper-based legal tender was used at the time of the American Revolution and was not backed by a commodity such as gold.

Noting that bitcoin will likely suffer similar fate, Greenspan said that a "significant share" of  Continental currency was still used to create "real goods and services," even though it had no ultimate worth.

He continued:

"Bitcoin is really a fascinating example of how human beings create value, and is not always rational ... It is not a rational currency in that case."

Greenspan"s comments come as the value of a bitcoin is soaring beyond most expectations, having gained thousands of dollars in value in the last two days.

And in response to that...

pic.twitter.com/TDN2XQoubQ

— Fer Ortega [#HODL] (@Panteraswift) December 7, 2017

And finally, for those calling this a "bubble" - we would humbly suggest you ain"t seen nothing yet...

 

Five Ways To Short Bitcoin

Looking to put bitcoin’s rise in context? How about this: Over the last five years, the world’s most valuable digital currency has risen an astonishing 11,000,000%. Furthermore, since Jan. 1, it has climbed 950%, compared with a total return of 18% for the S&P 500.

Given the torrid pace of bitcoin’s climb, one would imagine that there are few traders left who possess the wherewithal to short the digital currency. And until recently, the options to short bitcoin were mostly offered through unregulated exchanges, and very risky given bitcoin’s volatility.

But increasingly, mainstream exchanges have begun offering bitcoin-based derivatives that could make it easier for retail traders to short the digital currency. CME Group has said it will introduce a suite of bitcoin-linked products by the end of the year, and LedgerX, the first CFTC-approved Swap Execution Facility (or SEF), traded more than $1 million in bitcoin swaps and options during its first week.

In Switzerland, one exchange has introduced options that make it easier for investors to profit if the bitcoin price drops. But other more creative ways to short the digital currency have existed for a while now – in some cases, for years.

“All the options to short in common markets are becoming available in the bitcoin market,” said Charles Hayter, co-founder of market tracker CryptoCompare. “There’s pretty good liquidity for shorting bitcoin. The main difference with shorting the Nasdaq for example, is it will be a lot more volatile, so there’s a lot more risk. The rate to borrow will also be a bit higher."

With bitcoin on the cusp of breaking above $10,000 for the first time, here’s a list of popular options for shorting bitcoin, per Bloomberg.

Contracts for Difference

"One of the most popular ways to short bitcoin is through CFDs, a derivative that mirrors the movements of the asset. It’s a contract between the client and the broker, where the buyer and seller of the CFD agree to settle any rise or drop in prices in cash on the contract date.

"CFD is currently a great market if you want to short bitcoin, especially ahead of that milestone 10K mark, which we think will bring some retracement," said Naeem Aslam, a chief market analyst at TF Global Markets in London, which offers the contracts. "The break could push the price well above $10,100 and it would be in that area when we could see some retracement.""

Margin Trading

"Another common way to short bitcoin is through margin trading, which allows investors to borrow the cryptocurrency from a broker to make the trade. The trade goes both ways; a trader can also increase their long or short position through leverage. Depending on the funds kept as collateral to pay back the debt, this option increases the already risky bitcoin trade. Bitfinex, one of the biggest cryptocurrency exchanges, requires initial equity of 30 percent of the position.

Short-margin trading positions on Bitfinex were at around 19,188 bitcoins on Monday, versus 23,931 long positions, according to bfxdata.com, which tracks data on the bourse."

Borrow to Short Bitcoin

"Most of the brokerages that allow margin trading will also let clients borrow bitcoin to short with no leverage. This will be a less risky way to bet bitcoin price will fall."

Futures Contracts

"The futures market isn’t as widely developed as CFDs and margin trading, but it’s still possible to make bearish bets on bitcoin with options. For now, LedgerX is the only regulated exchange and clearing agent for cryptocurrency options in the U.S. The CME Group Inc. and the Chicago Board Options Exchange have both asked for approval to list bitcoin futures, so that may open up the market to more investors."

Shorting Bitcoin ETNs

"Investors can also indirectly bet against bitcoin by shorting exchange traded notes with exposure to the cryptocurrency, like Stockholm-based Bitcoin Tracker One, and Grayscale Investments LLC’s Bitcoin Investment Trust. The risk is that these notes don’t always trade in line with bitcoin, so the exposure won’t be perfect."

* * *

Yesterday, Citadel’s Ken Griffin opined that he believes bitcoin is a bubble that will end in tears, joining a list of finance luminaries who have all expressed reservations about the digital currency’s epic rally.

As a reminder:

$0000 - $1000: 1789 days
$1000- $2000: 1271 days
$2000- $3000: 23 days
$3000- $4000: 62 days
$4000- $5000: 61 days
$5000- $6000: 8 days
$6000- $7000: 13 days
$7000- $8000: 14 days
$8000- $9000: 9 days
$9000-$10000: ?

The rise is even making some central bankers nervous. “The problem with bitcoin is that it could easily blow up and central banks could then be accused of not doing anything,” European Central Bank policymaker Ewald Nowotny told Reuters.

But in his confirmation hearing earlier today, incoming Fed Chairman Jerome Powell said bitcoin is still too small to pose a real threat.

"They don’t really matter today," Mr. Powell said. "They’re just not big enough."

South Korea Overtakes China As Bitcoin's Third-Largest Market

China-based digital currency exchanges have until the end of September to cease operations after Chinese authorities, spooked by the ICO craze, decided earlier this month to crack down on all exchange-based digital currency trading.

Trading volume in China has fallen dramatically since the country’s exchanges briefly halted withdrawals earlier this year as they implemented new AML controls. Now, it appears that at least some of those displaced by China’s crackdown have migrated to South Korea, which today overtook China as the third-largest market for bitcoin trading by volume.

Today, South Korea surpassed China in #bitcoin trading volume. South Korea"s Bithumb processes more volume than Bitfinex + Bittrex. pic.twitter.com/10fiT4YzJg

— Joseph Young (@iamjosephyoung) September 21, 2017

Japan remains the largest market, followed by the US.

According to CoinTelegraph, the shift suggests that traders have moved to South Korea in response to the Chinese government’s decision to kill the exchanges. The largest exchange in South Korea is processing more transactions than Hong Kong-based Bitfinex and US-based Bittrex combined.

“The change in the processing of transactions indicates that traders have moved to South Korea. The largest exchange in South Korea has processed more transactions than Bitfinex and Bittrex.

The shift represents a substantial movement of the Bitcoin community away from China, where regulators have confirmed that all Chinese exchanges will be closed shortly.

The shift toward South Korea indicates a response to the legalization of Bitcoin in the country in recent months.  A general move away from China has generally occurred, even as the country has begun to tighten its grip on the cryptocurrency market.”

While China’s crackdown triggered the largest selloff in months as investors worried that it could inspire other governments to try and suppress digital currency trading, the shift to South Korea demonstrates bitcoin’s durability. Instead of destroying a portion of the market, shuttering local exchanges simply forced traders to move elsewhere.
 

If Jamie Dimon Hates It So Much, Why Is JPMorgan Buying Bitcoin In Europe?

Unless you have been living under a rock for the past week, you will be well aware of JPMorgan CEO Jamie Dimon"s panicked outburst with regard the "fraud" that Bitcoin"s "tulip-like" bubble is. To paraphrase:

"It’s a fraud. It’s making stupid people, such as my daughter, feel like they’re geniuses. It’s going to get somebody killed. I’ll fire anyone who touches it."

Anecdotally, the post-Dimon collapse in crypto prices seems to confirm his view (though of course this is much more due to China concerns than a vested interest fearmonger), which makes us wonder... why is JPMorgan buying Bitcoin ETFs on European exchanges?

Nasdaq Stockholm has an actively traded Bitcoin ETN...

"Bitcoin Tracker One - SEK" is an open-end Exchange Traded Note incorporated in Sweden. The ETN is denominated in SEK and provides investors with access to the returns of the underlying asset, US Dollar per bitcoin, less investor fees.  The average USD exchange rate of bitcoin from the exchanges:- Bitfinex, Bitstamp and GDAX provides the underlying reference price which is converted into SEK.

In the last few days - as the underlying price collapsed - the ETN has remained bid, with heavy inflows, and now trades at around 20% premium to Net Asset Value...

And guess who has been buying?

JPMorgan Securities was the 4th biggest buyer...

h/t @IamNomad

Which suggest two scenarios... Either

i) JPMorgan is buying for its own account at Dimon-manipulated-lower prices (remember Dimon said any trader who bought Bitcoin would be fored for being "stupid"), or

ii) JPMorgan is buying for clients, seemingly offering no sense of fiduciary care amid Dimon"s warning to the world that the cryptocurrency is a fraud (is JPMorgan Securities knowingly allowing clients to buy securities it believes are a fraud?)

Which is it Jamie?

Mysterious Trader With "Nearly Unlimited Bankroll" Said To Manipulate, Dominate Price Of Bitcoin

It was over three years ago, back in May 2014, when we wrote "How Bots Manipulated The Price Of Bitcoin Through "Massive Fraudulent Trading Activity" At MtGox" in which we first demonstrated one of the more striking observed "bot-driven" bitcoin manipulation schemes, in this case related to the infamous collapse of the now defunct Mt.Gox bitcoin exchnage.

As we wrote at the time, a number of traders began noticing suspicious behavior on Mt. Gox. Basically, a random number between 10 and 20 bitcoin would be bought every 5-10 minutes, non-stop, for at least a month on end until the end of January, by what appeared to be two algos, named later as "Willy" and "Markis." Each time, (1) an account was created, (2) the account spent some very exact amount of USD to market-buy coins ($2.5mm was most common), (3) a new account was created very shortly after. Repeat. In total, a staggering ~$112 million was spent to buy close to 270,000 BTC – the bulk of which was bought in November.

"So if you were wondering how Bitcoin suddenly appreciated in value by a factor of 10 within the span of one month, well, this is why. Not Chinese investors, not the Silkroad bust – these events may have contributed, but they certainly were not the main reason. But who did it? and why?"

Of course, in the end this alleged manipulation did not help Mt.Gox which eventually collapsed in what has been the biggest case of cryptocoin fraud in history.

We bring up this particular blast from the past, because in the latest case of bitcoin market abuse - with Bitcoin trading at all time highs above $3,000 - Cointelegraph reports of rumors swirling about a trader "with nearly unlimited funds who is manipulating the Bitcoin markets." This trader, nicknamed "Spoofy," received his "nom de guerre" because of his efforts to “spoof” the market, primarily on Bitfinex.

Of course, spoofing is what Navinder Sarao pled guilty of last year, when regulators inexplicably changed their story, and instead of blaming a Waddell and Reed sell order for the May 2010 flash crash, decided to scapegoat the young trader who allegedly crashed the market due to his relentless spoofing of E-mini futures (and also making $40 million in the process of spoofing stock futures for over five years).

It now appears that a spoofer has once again emerged, only this time in Bitcoin.

For those unfamiliar, spoofing is simple: it is the illegal practice of placing a large buy order just below other buy orders, or a large sell order just above other sell orders, then cancelling if it appears that the order is about to be hit or lifted. The idea is to make traders think that somebody with deep pockets is getting ready to buy or sell, in hopes of moving the market. If traders see a sell order of 2000 Bitcoin they may rush to panic sell before the whale crashes the price. And vice versa on the bid-side.

As an example of Spoofy"s trading pattern, here is a breakdown of a typical "trade" by the mysterious entity as noted by BitCrypto"ed who first spotted the irregular activity: Spoofy is a regular trader (or a group of traders) who engages in the following practices:

• Places large bids ($2 million and up) for Bitcoin, usually just under a smaller bid order, only to remove them once someone starts to sell. These orders usually have a lifetime of minutes, or sometimes as short as 5–10 seconds to manipulate the price up (more common)


• Places large asks ($2 million and up), for Bitcoin when he wants the price to go down, or stop going up (less common)


• Occasionally ‘Spoofy’ will allow orders deep in the orderbooks to remain for a few hours, usually $50–$100 below the current price. For example, during the recovery above $2,000, he had roughly 4,000 BTC of false orders in the $1,900 range that were unlikely to execute, and ultimately were never executed.

As noted above, spoofing is actually illegal - as ultimately the trader has no intention of ever executing the publicized trade - but as Bitcoin markets are largely unregulated, it’s a very common practice.

What is unusual in this case is the nearly unlimited bankroll that Spoofy has at his disposal: He regularly places orders approaching $60 million.

Even more unusual is that, as cointelegraph reports, most of Spoofy’s activity occurs on a single exchange: Bitfinex. This exchange came under fire earlier this spring when Wells Fargo cut off their banking ties. As a result, it’s virtually impossible to deposit fiat on Bitfinex without going through intermediaries.

Yet unlike most Bitfinex traders, Spoofy appears to have special privileges, and has massive sums of both fiat and Bitcoin at his disposal on that exchange, likely one of the only traders who does.

* * *

In addition to spoofing, "Spoofy" also engages in wash trading, or effectively trading with himself. As BitCrypto’ed points out in a recent blog post:

“Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin, of course, to pull it off, and with impunity on Bitfinex.”

The BitCrypto’ed blog also describes Spoofy’s wash trades, when he trades with himself by either selling into his own buy orders or vice versa. Wash trading at high volumes can induce a frenzy of buying or selling, as other traders respond to the high trading volume. Spoofy can execute wash trades at very low cost, about $1,000 per million dollars of volume.

A single entity (entity could be a trader, or a group of traders), single handedly wash traded 24,000 Bitcoins in shorts. In order to do this, you would need to have at least 24,000 BTC on Bitfinex and the USD to buy them with.

When Bitfinex announced its plan to distribute Bitcoin Cash, it initially planned to distribute Bitcoin Cash to holders of short positions. Immediately following that announcement, a single trader short sold tens of thousands of Bitcoin all at once. It’s likely this trader was Spoofy himself, hoping to acquire as much Bitcoin Cash as possible.

The large number of shorts on Bitfinex also led many to believe that an epic short squeeze was coming, and many Bitcoin traders purchase coins in expectation of this. Suddenly, he “claimed” all of his own shorts, closing them using his own Bitcoin. The number of shorts dropped drastically, yet without affecting the price at all.

Bifinex itself admitted the manipulation on August 2, one day after the fork:

“After the methodology announcement on July 27th, several accounts began large-scale manipulation tactics in an attempt to obtain BCH tokens at the expense of exchange longs and lenders on the platform, causing the distribution coefficient to artificially plummet.

We have determined that this kind of manipulation?—?including wash trading and self-funding shorts?—?is in violation of Bitfinex’s terms of service. Those who intended to take unfair advantage of the circumstances surrounding the BCH distribution at the expense of other users have been sanctioned accordingly.”

Interestingly, BitCrypto"ed claims that Spoofy isn’t limited to just Bitcoin, and that shortly after this ‘trader’ was ‘sanctioned’ by Bitfinex, another interesting thing happened: ETCBTC shorts immediately disappeared on August 1.

Here we can see how the ETCBTC shorts simply vanished, from 60,000 ETC short, to a low of 93 ETC. But let’s not just look at ETCBTC, what about ETCUSD?

 

A giant middle finger. Notice the dramatic increase and decrease in longs with no effect on price.

I"m not sure what to make of these, but it calls into question the legitimacy of this data. The point I’m trying to make by showing the ETCBTC/ETCUSD margin pairs also engaging in very funny business at the same exact time, how are we supposed to know that the BTCUSD longs on Bitfinex are not also subject to this manipulation?

ETCBTC Shorts = Clear evidence of manipulation
ETCUSD Longs =Clear evidence of manipulation
BTCUSD Shorts = Clear evidence of manipulation (and admitted by Bitfinex)
BTCUSD Longs = BTCUSD Longs in terms of USD, has never been higher in Bitfinex’s history. See the green line.

It"s not just Bitfinex: Spoofy’s activity also drives crypto prices on other exchanges, as arbitrage takes place. Because BItcoin is so thinly traded, a single large “whale” can potentially move the entire market.

Just like in US stock markets where HFTs find instant price arbitrage opportunities, with the help of extensive spoofing, the same takes place in bitcoin exchange.

People underestimate how much exchanges follow each other. Manipulation on one exchange will affect prices on other exchanges. You have traders that watch all of the exchanges and if one exchange starts to pull ahead, they too buy on cheaper exchanges.

You don’t just have people, but you also have bots that will do the same thing, so price reactions can be immediate.

Just like equities. And while Spoofy is certainly exercising outsized control over the Bitcoin price, it is uncertain how much of an affect this is having across all the markets. The price is currently rising, having finally surmounted the $3,000 barrier. The only problem? Nobody knows how much of this increase is organic and sustainable, and how much is due to the market manipulation of Spoofy and others.

Finally, nobody knows who he is:  The identity of Spoofy remains a mystery. He may be i) a single trader, ii) a large OTC trading firm or group of colluding traders, iii) or even the Bitfinex management themselves. He sometimes seeks to drop Bitcoin price, and sometimes acts to increase it. One thing is certain: one single trader seems to have a "central bank"-like impact on the entire crypto market.