The Setup
For the past ten days or so, if you had your ear to the markets at all, you certainly would have heard people ringing the alarm for an imminent short squeeze on Bitcoin. For those who may not know, a short squeeze happens when a quick price hike puts pressure on short sellers. The hikes cause stop losses to hit or even worse, for the overleveraged to be liquidated. During this period, Bitcoin had established a trading range between $6,200-6,600 which is noticeably less volatile than the typical 2 week period over the past year. In addition, BTC/USD shorts were nearing all-time high levels. The levels were near an area of support that has endured the duration of the bear market. It was safe to assume a storm was brewing.
The Opportunity
A couple of days ago, on August 22nd at 02:00 AM (UTC), the crypto exchange with the highest trading volume, Bitcoin Mercantile Exchange (Bitmex), performed an advertised “System Maintenance.” During this scheduled period no one could execute a trade for approximately 1 hour. In the days leading up to the maintenance, large amounts of Tether were spotted flying into Bitfinex wallets. After the fact, I realize this was preparation for the move. On cue, as maintenance started, sizeable long Bitcoin positions opened using market orders. The market orders increased the price from $6460 to $7148 in the first five minutes. Once trading resumed on Bitmex, the new prices caused short liquidations and stop-losses to get popped left and right.
Now, as expected, traders are upset. They are calling this “market manipulation.” There are even rumblings that situations like this are the reason ETF’s weren’t approved (HA!) and the crypto market is still not mature.
Of course, hindsight is 20/20. The makings of a massive short squeeze were right in front of everyone’s face. If this caught you off guard causing your portfolio harm you were either 1) using too much leverage or 2) had a terrible entry. Contrary to message boards, circumstances lead me to believe that Arthur Hayes did not purposefully go hunting for the shorts.
The Consequences
Here’s the trouble that could accompany this scenario. It’s widely known that the SEC has recently denied applications for ETFs on the basis that the market has not yet matured and is highly susceptible to market manipulation.To someone who has actively traded the crypto markets recently this sudden price hike may not be perceived as manipulation. However, the only perception that matters in this case is the powers that lead the SEC.
In conclusion, the act was probably not blatant manipulation, but with the SEC’s ETF decision looming, this is not a great impression for crypto holders clinging onto hope for swift approval.
