BITMEX AND PRICE MANIPULATION
What happened on Bitmex 22nd of August during downtime?
After trading sideways for a week, 22nd of August BTC volatility came back roaring with a 6 percent move, adding $5 billion to the total market cap in about 20 minutes.
In the world of crypto, 5-6 percent moves in minutes are the norm, although it’s not often that one can point to a specific catalyst for pumps. 22nd of August, there was possible evidence of manipulation, as large traders (or a single trader) pushed up the price of BTC during BitMEX’s downtime. BitMEX is one of the largest exchanges.
The Evidence
This particular move has raised red flags due to the seemingly planned nature of the pump, as well as the subsequent outcry from the community about the unfair and manipulated nature of the markets.
The timing of the pump is definitely suspect, as it started at the exact second BitMEX shut down for maintenance. While it’s unclear where this buy volume came from, it’s clear that it was either a single player or a group of deep-pocketed traders.
The Motivation
People have been piling on shorts in the past couple of days in anticipation of a market overreaction to the ETF denial, which was released Aug. 22. Most shorts opened are now underwater, and many people that were shorting the market on BitMEX also set market stop-losses to protect themselves in case of a pump. The situation was primed for a “short squeeze.”
What is a Short Squeeze?
When the market moves up rapidly against the expectation of those shorting, something called a “short squeeze” occurs. Due to a rapid rise in price, people shorting the market are automatically forced to close out all of their positions, and the market buys coin to cover their short positions. This creates a feedback loop and further pushes up the price.
Often, whales will attempt to trigger a short squeeze, as one can profit immensely from it. For example, if you push the price from $6,500 to $6,700, shorts with an entry point of $6,600 will be forced to close their positions, which means the market buying BTC (or liquidation). This will push the price even higher and allow whales to exit at a profit.
It’s clear from the chart that the majority of shorts opened were already underwater, and that a few hundred dollars of price action would drive massive amounts of liquidations and push the price upward.
Over the past few months, liquidity has significantly declined, allowing people with large amounts of capital the opportunity to take advantage of moments like this, where traders are unable to tend to their positions.
The Effects
When BitMEX came back online, many people who had short positions were immediately liquidated at sky-high prices due to huge price movement during the pump. In the minutes after re-opening, BitMEX saw prices briefly hit $7,100, just seconds after trading at $6,450. People lose thousands millions.
Is this Manipulation?
The suspicion comes from the following pieces:
- No news catalyst.
- Huge volume originating on one exchange, which was only followed by other exchanges after a delay. This indicates one big buyer or a group of buyers colluding.
- Immediate retracement down less than 24 hours later to almost the exact same price as before, indicating price movement was artificial.
If there was any collusion, this is definitely manipulation. Even if there wasn’t, it is illegal to artificially inflate the price of an asset to cause liquidations or entice other traders to enter the market.
Thanks to Bitmex, many people lose their money.
Is there an alternative?
Margin trading available just in a few exchanges. Traders prefer Bitmex for its usability, friendly interface and x100 leverage. But the systematic failures and unclear conditions of liquidation are real problems of this platform.
Bitfinex and Poloneix are more safe and stable. But they offer only x3 leverage. Also there are several brokers, which allow to trade crypto. Probably the best broker is LH Crypto: up to x500 leverage, all markets in 1 window (crypto, forex, stock, commodity etc), reasonable fees, bonus system and professional trading software.