Bitcoin Price Fluctuation- Coincidence or Manipulative Pattern?

The Bitcoin price has been fluctuating greatly over the last few months, I have been following the fluctuations and I started seeing a trend of suspicious patterns in Bitcoin prices.

I started conducting extensive research. The reason for researching was to analyze my assumption that the Crypto trading space is effected by manipulators who try to impact the price of the digital asset and to make money from this. Another purpose was to find solutions for preventing these manipulative patterns in order to allow for an increase in trust and adoption of this important asset by institutionals and retail.

Research and Analysis

I collected volume data on BTC prices from Tier 1 exchanges regulated and unregulated and also Futures from different exchanges.

The research is current and includes the impact of the selloff which took place last week when the Bitcoin price declined from the $12,000 level to the $10,000 level, which was part of the manipulation patterns I analyzed.

In the last 6 months, I analyzed cases in which Bitcoin was down or up at least 2.5% within minutes on high volumes. The price change ranges from 2.5% to 24% and I have analyzed 33 cases since the beginning of March this year.

I must emphasize that I don’t suspect that any of the exchanges that I collected the data from participated directly in the price manipulative patterns. The Futures data was collected from one of the leading Future exchanges.

Below are the suspicious cases, I found, from the beginning of March until September:

Findings

1. SPOT volumes- In all cases thousands of Bitcoin were bought or sold within minutes although there was not enough liquidity in the exchanges to contain such volumes.

The SPOT volumes in each pump or dump was higher by up to 10 times than the average volume in the exchange, as such, the outcome was a sharp increase or decline in BTC price.

2. Open Interest and Long/Short Ratio- In many cases, the open interest and the long/short ratio increased or decreased (before the pump or the dump) toward the side that the Bitcoin later moved to, several hours later.

3. Futures volumes- In my analysis, I found that many times there was an increase in futures positions before the dump or the pump. It seems that there is a connection between the 3 assets (SPOT, Futures and options).

Due to the fact that many times there is an increase in futures positions before the dump or the pump, my guess is that traders sell the BTC SPOT at a loss but on the other hand, make huge profits in options (long put) and futures (short position). It is important to note that some exchanges allow leverage of up to 125 times.

Why would someone sell amounts that range from 5000–20000 BTC within minutes? Holders of such large amounts of BTC are very sophisticated and if these transactions were legit they would go to an OTC broker to buy or sell such significant amounts, the transaction would cost 10–50 bps depending on the amount and would be executed in a TWAP algorithm. Had it been done in such a manner, the transactions wouldn’t impact the market at the same magnitude

The fact that huge amounts of BTC are executed in exchanges that have a scarcity of liquidity already implies that a manipulation of the market is happening, leading to a quick profit. The manipulators exploit the fact that the order book is thin hence they sell massive amounts in the SPOT market and this has a huge impact on the underlying asset which fluctuates to the upside (if the manipulator buys huge amounts) or to the downside (if the manipulator sells huge amounts)

Exceptional flash crash case

On 12.3.2020 Bitcoin was down 17% within minutes and a few hours later was down by another 40% on very high volumes. A few days before the flash crash coins movement from private wallets to exchanges was exponentially higher than usual. This can be seen below:

In my opinion, the movement of the coins to the exchanges a few days before the flash crash reflects and evidences the advance preparations by these manipulators for the flash crash. By selling huge amounts of Bitcoin which they transferred deliberately into the exchanges to dump the price.

Coincidence? I Think NOT

I have detailed below 2 cases, which took place on 2.6.2020, where Bitcoin was up 7% and after several hours was down 8% with similar volumes in both cases.

As can be seen below, between 1:30AM-2:30AM UTC + 3, Bitcoin was up 7% and several hours later between 5:45PM-6:15PM Bitcoin was down 8% and the SPOT + Futures volumes were similar in the 2 cases.

In the chart below we can see the usual low volumes during the “regular trading hours” and then the spike in volumes during the pump/dump in some of the exchanges (the low bar represents the volumes)

Binance

Coinbase

The high volumes within minutes (higher by more than 10 times of the average) is aimed to impact the price by selling huge amounts. This reflects my assumption that this is done by manipulators

Conclusions:

1. As evidenced in the analysis there are many cases that can be suspected to be manipulative. It seems that the Bitcoin price is manipulated by sophisticated traders who use several exchanges (regulated and unregulated) in parallel to impact the Bitcoin price by buying or selling huge amounts of Bitcoin in the SPOT market. They use this manipulative activity to make huge profits in the derivatives markets — Futures or Options.

2. The Crypto markets are more mature than it was several years ago and there are more sophisticated products today such as leveraged SPOT and derivatives- Futures and Options.

Leveraged products can exaggerate price increase or decrease and traders can use them for manipulation impacting the price even more significantly.

3. Exchanges need to implement strict internal processes to prevent such manipulative activities. When they detect suspicious activity (such as sales of big amounts of Bitcoin) they must conduct a deep review of the specific activity and ask participants questions similar to questions asked by regulators in the traditional markets (although there are differences between their structures).

If a Crypto exchange finds evidence that a specific trade or trades were manipulative they should close the trader account and ban him from any future trade within the exchange.

One way to do this is by building a blacklist on Blockchain and initiating a unified authority that will consist of representatives from all exchanges (I’m sure that this will not be easy). Any trader participating in manipulative activity would then be added to the blacklist and could not open a new account with other Crypto exchanges. This requires partnerships between the exchanges

4. Preventing manipulative patterns will increase trust in the crypto space and will increase adoption, of this important asset by institutionals and retail. Preventing those activities will also have the potential to pave the way for gaining approval for ETFs by U.S regulators.

Such manipulative patterns should be prevented and this requires additional surveillance and governance.