How BSV puts Binance customers at risk
Bitcoin SV pumped 66% today while being the 6th most traded crypto asset in terms of volume. Impressive for a coin that isn’t even widely listed yet? On further inspection, the real reason might be an irresponsible business decision by the largest altcoin exchange.
Over the last days, BSV made up 19% of all volume on Binance, only second to BTC/USDT at 28% volume. So how you can join the fun? Well, you can’t. Unlike Poloniex and Bitfinex, Binance has disabled both deposits and withdrawals, citing concerns that the BSV blockchain was “not stable” enough.
The only people who own BSV on Binance are those who held BCH on Binance, before the fork. That creates a situation where a tiny number of people has any BSV to sell, while a large number of people can buy it. Binance prevents most of the existing supply from entering the market, creating temporary and artificial scarcity.
My theory is that some entity held a lot of BCH on Binance pre-fork and is now in control of most of the supply. That allows them to perform a professional Pump and Dump, where they first wash trade the price up by selling BSV to themselves back and forth, at increasingly higher prices. Further motivated by coverage on social media, retail investors FOMO into the pump. At the height of the pump, the original holders distribute the coin to retail and liquidate their position.
Usually, such PnD (or market cornering) events have the risk of a sudden supply shock. A good example is “ Black Friday” of 1869, where two speculators tried to corner the gold market and brought the price from $133 to $160 per ounce. But their plans were thwarted when the US Treasury, another key holder of gold, sold their supply into the market, which dumped the price back down to $138 and left the culprits in debt.
On Binance, however, new supply is prevented from entering the market. Whoever controls the limited amount of BSV can wash trade it up without risk. When Binance finally enables deposits, the price is guaranteed to collapse back down and leave retail holding the bags.
Implications for the wider market
When will Binance consider the BSV chain “stable enough”? I don’t know, but you could speculate further that this situation creates an incentive for BSV insiders to keep the chain “unstable” (for example by performing another chain reorganization “attack” on themselves) until all Binance insiders have successfully dumped their bags on the Binance customers.
The heightened (artificial) activity on Binance also has implications on the market at large. As the largest exchange, it distorts the price on all other exchanges, because people adjust their price expectations based on the perceived demand (“Why should I sell for less than I could on Binance?”). That allows BSV holders to deposit their coins with Poloniex or Bitfinex, further selling them into the market. As a result, BSV trades at a 14% premium on Binance — or a 12% discount on the “real” exchanges, depending on how you look at it.
The logical conclusion is that Binance is irresponsible to allow trading for an asset that cannot be deposited or withdrawn and where only a tiny amount of the supply is available. I recommend Binance either enables deposits or halts trading immediately. In their naive attempt to protect retail customers from the BSV “instability” Binance has created a situation that creates more risk and potential for abuse than it contains.