Dark Pools #1: Libra, ETH manipulation and our latest research report
“There is only one side of the market and it is not the bull side or the bear side, but the right side.” — Jesse Livermore
The smell of late 2017 is in the air with some insane volatility beginning to enter the market once again. Last week we saw Bitcoin prices swing up to 30% from high to low, a trading opportunity for some, a nightmare for many others.
More interestingly to observe however, is the illiquidity, or as some would say ‘manipulation’ in Ethereum prices this week.
Traders are making a killing on thin exchanges
Around a month ago, a savvy trader figured out a way to move the entire ETH market through one target — Bitstamp.
Bitstamp is a decent exchange, but that’s not to say it competes with the majors. Average trading volume of Ethereum on Bitstamp is a mere $22m daily, modest in comparison to Binance which puts through around $150m every day.
So why does this matter?
It matters because the most highly speculative derivatives platform, Bitmex, marks its instruments according to the Bitstamp prevailing price. So theoretically, a batch sale of $10-$15 million in ETH can have a drastic impact on the market, which subsequently flows to Bitmex, causing a ripple effect of liquidations.
Well, earlier this week, we saw traders annihilate the order book once again through the same tactic.
In a timeframe of only 15-minutes, Ethereum crashed 30% from $262 to $192 with only $4 million traded.
This sell-order cascaded through Bitmex, and further reached to other exchanges within minutes (to varying degrees).
Theoretically (but unproven) a savvy trader could simultaneously sell this $4 million on Bitstamp while also shorting (leveraged) a perpetual ETH contract on Bitmex to scoop up huge returns in literally minutes before closing out the positions.
This scenario is becoming more commonplace and begs the question as to why Bitmex prices such instruments based on one relatively illiquid exchange.
Some would call it manipulation, but is it simply just some smart traders uncovering the inefficiencies of pricing in this fragmented market?
I will let you decide.
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All eyes on Libra
While the ‘long-time’ crypto community shrugs its shoulders at Facebooks Libra initiative as a centralized and bastardized version of ‘crypto’, this hasn’t stopped the rest of the world from following the ongoing debacle and pushback from regulators in the US.
A Senate hearing was conducted last night with some relatively negative comments about the social media giants product.
The best are below:
- Senator Sherrod Brown: “[the company has showed that] through scandal after scandal that it doesn’t deserve our trust” and “we’d be crazy to give them a chance to let them experiment with people’s bank accounts”
- Republican Martha Sally: “i don’t trust you guys” and “instead of cleaning up your house you are launching into a new business model”
Representatives from Facebook that were before the hearing are claiming that the initiative will completely separate social data from financial, however convincing the generally public and regulators of this won’t be easy.
In our view, this is going to be a long journey for Facebook and we don’t see Libra having a particularly negative effect on the cryptocurrency ecosystem. Much to our surprise, most of representatives from various US regulators can actually tell the fundamental difference between Bitcoin and Libra.
This is a huge step forward in the learning curve and we see this ongoing saga only benefitting major currencies in the long-term.
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Latest Research: Elrond Network (ERD) Technical Code Review
Our internal research team (Picolo Research) has compiled a full institutional-grade report on the latest Binance IEO, Elrond Network. The research has been prepared by our analysts and covers both the fundamental and technical case for the project. Elrond is trading above 9x from listing.
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The Roadblocks for Security Tokens
The team also writes weekly commentary to a very underserved market, Security Tokens. For an unbiased and independent view of the STO world, read here.
Until next time,
Matthew Dibb | CIO
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About Astronaut Capital
Since 2017, Astronaut Capital has been one of the leading asset-managers for cryptocurrencies and digital assets. Utilizing its internal research team at Picolo Research and STO Rating, Astronaut operates long/short strategies to navigate the market on behalf of investors.
For subscription information about our funds, visit www.astronaut.capital or follow us on twitter.
