Or is it bungie jumping? Hopefully it's the latter. That was quite the drop, and I'm wondering what the exact reason was, if you have ideas please share in the comments. It was almost like a mini flash-crash. Phew! time to climb back up and stay on the path this time!
I believe the reason it dropped so drastically was due to bad (as in incompetent) market manipulation triggering liquidation in many long positions as well as causing stop losses.
My theory is that some big players out there are manipulating Bitcoin during quiet trading hours, they make a profit by using futures with high leverage.
For example, with 20x leverage, they only need to (or can only afford to) drop or increase the price of bitcoin by 0.5% to gain a 10% ROE (roughly speaking)....
The math really does work out. Say you have 100 million, you use 80 million to drop the value of Bitcoin by just a tiny percentage, say 0.1%, But at the same time, you use the remaining 20 million and leverage by 20x to short Bitcoin. Your leveraged short is now worth 400 million and you earn 400,000 from a 0.1% difference.
You close the short, and get your 400,000 USD. You close your spot position and lose 160,000 (0.1% of 80 million) + other fees (which are most likely very small because you are a VIP account holder and you are using the market rates, therefore, reducing costs and earning market maker fees). The net difference is 240,000.
Rinse and repeat 100 times a day....... and you get 24,000,000 a day (at best).
However, in this case, you would be oscillating between long and short and starting by going long on futures and buying bitcoin to a tune of 80 million, then switching to short and closing the spot position, and then buying again to go long. I believe that 80 million is enough to move the price of bitcoin by at least 0.1% in a very short time frame, which would hardly be noticed at all. And they wouldn't just target 0.1%, they would see how far they can push it in either direction.
So they get greedy (or lucky) and try to drop the price by 0.5%, but it coincides with a natural drop, causing a 1% drop. This causes a snowball effect and now everyone is selling, all the big players are shorting, stop losses get triggered.
0.5% turns to 1%, that turns into 2%, then 4%, then 8%, then 16% drop.
Yes, from 61k to a low of about 51k, that's a 16% drop.
But it stops at 50K because from 50K onwards the growth was mostly fueled by FOMO due to Elon Musk's tweets, Coinbase IPO, and other celebrity endorsements. So in a sense, you could say that the growth from 50K onwards was due to market manipulation, and therefore the growth wasn't healthy, it wasn't real.
These high profile people can't go to jail for shilling Bitcoin..... unfortunately, I don't think Bitcoin counts as an asset that you can sue someone for market manipulation.
I mean if some famous person was shorting the Turkish Lira and claimed with good reason that the Lira was going to crash and caused the price to stumble by 0.1% or more...... I would find it hard to claim market manipulation. Who would sue? Only the government would sue. The same is for bitcoin, who would sue? What government?
ParityError
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@Xcritu That’s an awesome explanation and no doubt there’s market manipulation happening everywhere in cryptoland. Unfortunately it’s almost always the little guy who gets burned by it. So the question becomes whether trying to hold longterm is worthwhile or not. In situations like this it would’ve been better to take the profit before things went south, but then there’s the risk (at least in my mind) that you won’t be able to get back in before a big run.
CryptoCheerleader
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It was expected. I've been waiting all week for it. :)
My theory is that some big players out there are manipulating Bitcoin during quiet trading hours, they make a profit by using futures with high leverage.
For example, with 20x leverage, they only need to (or can only afford to) drop or increase the price of bitcoin by 0.5% to gain a 10% ROE (roughly speaking)....
The math really does work out. Say you have 100 million, you use 80 million to drop the value of Bitcoin by just a tiny percentage, say 0.1%, But at the same time, you use the remaining 20 million and leverage by 20x to short Bitcoin. Your leveraged short is now worth 400 million and you earn 400,000 from a 0.1% difference.
You close the short, and get your 400,000 USD. You close your spot position and lose 160,000 (0.1% of 80 million) + other fees (which are most likely very small because you are a VIP account holder and you are using the market rates, therefore, reducing costs and earning market maker fees). The net difference is 240,000.
Rinse and repeat 100 times a day....... and you get 24,000,000 a day (at best).
However, in this case, you would be oscillating between long and short and starting by going long on futures and buying bitcoin to a tune of 80 million, then switching to short and closing the spot position, and then buying again to go long. I believe that 80 million is enough to move the price of bitcoin by at least 0.1% in a very short time frame, which would hardly be noticed at all. And they wouldn't just target 0.1%, they would see how far they can push it in either direction.
So they get greedy (or lucky) and try to drop the price by 0.5%, but it coincides with a natural drop, causing a 1% drop. This causes a snowball effect and now everyone is selling, all the big players are shorting, stop losses get triggered.
0.5% turns to 1%, that turns into 2%, then 4%, then 8%, then 16% drop.
Yes, from 61k to a low of about 51k, that's a 16% drop.
But it stops at 50K because from 50K onwards the growth was mostly fueled by FOMO due to Elon Musk's tweets, Coinbase IPO, and other celebrity endorsements. So in a sense, you could say that the growth from 50K onwards was due to market manipulation, and therefore the growth wasn't healthy, it wasn't real.
These high profile people can't go to jail for shilling Bitcoin..... unfortunately, I don't think Bitcoin counts as an asset that you can sue someone for market manipulation.
I mean if some famous person was shorting the Turkish Lira and claimed with good reason that the Lira was going to crash and caused the price to stumble by 0.1% or more...... I would find it hard to claim market manipulation. Who would sue? Only the government would sue. The same is for bitcoin, who would sue? What government?