bitfinex.com: Bitfinex - Bitcoin, Litecoin and Ethereum ...

How and why exchanges are manipulating the price in order to capitalize on the new market dynamics

The current market seems to be largely driven not by organic buying and selling, but by exchange driven manipulation of the spot market to exploit the current dynamics of leverage trading. We just saw it again now as they liquidated 3K longs but you can see this pattern of clear manipulation over and over in the last few weeks .
We have seen several forces set an incentive for exchanges to do this:
Some exchanges like Gemini have reacted to all of this by increasing their trading fees by 400%. Meanwhile Bitfinex specifically seems to be using its hefty weight to manipulate the price in order to capitalize on the record number of people using margin to bet.
Both longs and shorts are bets on the price moving up or down and they have a "liquidation price" at which they get liquidated by the exchange, essentially the exchange gets the entire stack they bet with and extracts a high market fee multiplied by the leverage. Since the exchanges know the characteristics of the outstanding shorts/longs, and since volume is low after these pumps or dumps leading to sideways drift, they can essentially engineer movements in price that create income in terms of liquidations. When there are lots of overleveraged shorts, an exchange can pump the price with bots briefly and collect the short position. Same with longs but in reverse, a quick burst of selling pressure.
You can see this in the most recent pumps too on Bitfinex, where 1K buy orders appear out of nowhere after long sideways movement only to be followed by either sideway movement or slow bleed on pathetic volume:
https://i.imgur.com/3YaWVBI.png
https://i.imgur.com/pvpcd7Z.png
Take a look at the most recent pump up to 7K, it instantanously liquidated about 700 short positions:
https://i.imgur.com/3sCLEB8.png
Now this last dump was a laddered 12.5K sell order on Bitfinex that liquidated around 3K long contracts
https://i.imgur.com/znYyUT8.png
Bitfinex tends to be where the big money traders move (their minimum deposit is 10K) so even if each long position was only 0.5 BTC on average they exchange would make a ton of money. If you look at the BitmexRekt twitter feed that shows a running list of Bitmex liquidations with humorous commetary, you will see many >$1 million dollar positions being liquidated during these moves.
This is what all the "Bart" formations we have seen stem from. Its not George Soros pumping Bitcoin for shits and giggles, nor is it the nebolous "whales". They have no incentive to try and pull off PnDs now that it only leads to either sideways movement or decline after the pump. A PnD only works if the delta between the top of the pump end point and dump initiation point is positive, while now it seems to be followed by sideways movement. Those who do want to bet on further upward movements seem to be doing it off the spot market, using margin with futures and perpetuity swaps on Bitmex. This makes the low volume spot market ripe for manipulation, exchanges like Bitfinex and Bitmex have every incentive right now to manipulate the price.
Looking back it seems almost inevitable that this would have happened, that traders would try to replicate the gains they saw by buying and selling on the spot market a few months ago by using increased leverage and derivatives. In December and January there were days where your holdings would increase by at least 20% no matter what you bought. Once you experience those 20% daily gains you don't want to go back to a market where it slowly bleeds down a few percent every week, so people jumped in on high leverage short positions to multiply their profit on those single percent moves down.
For the small time investor there really isn't much you can do to stop this. This is what being part of an unregulated market means, it means that things like wash trading and long/short liquidation hunting is allowed.
All you can really do if you're a trader is look at the current ratio of longs vs shorts on Bitfinex and be aware that once short contracts become too high its possible that an exchange may pump the price to profit on it, while if the longs become too dominant we may see a dump.
Edit: Bitfinex, not Bitfenix.
submitted by arsonbunny to CryptoCurrency [link] [comments]

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