Ultimate Resource On Bitcoin Price Manipulation By Wall Street
“I Would Be Shocked If Bitcoin Prices Weren’t Manipulated.” Ultimate Resource On Bitcoin Price Manipulation By Wall Street
According to Peter Tchir, there is an ongoing manipulation of bitcoin price. What the macro and fixed income expert isn’t sure of is whether such price manipulations are against the law. The DOJ recently began investigating suspected trading malpractices in the cryptocurrency market.
Writing in an op-ed for Forbes, macroeconomist Pter Tchir states that he’d be surprised if there weren’t any shenanigans going on with the way Bitcoin prices move, saying:
Whether the activities meet the legal definition of manipulation or can lead to a criminal indictment remains to be seen, but I’d be shocked if there wasn’t manipulation of prices occurring. Never forget Rule number two of the Three Rules of Bitcoin – ‘There are no rules!’
According to Tchir, whales and miners have vested interests in higher Bitcoin prices. For miners, it makes sense for them to want to push prices higher from an economic perspective. Otherwise, mining no longer becomes a profitable enterprise.
Tchir drew comparisons with the mainstream market arguing that wealth concentration gives whales “the incentive to push prices higher.”
There is, however, a significant aspect missing from Tchir’s analysis as it ignores the incentives for price declines. Whales can take advantage of these selloffs by shorting bitcoin and strengthen their monopoly of the market. They can acquire more bitcoins at lower prices before driving prices higher again.
On May 24, reports emerged that the DOJ and the CFTC were looking to probe suspected bitcoin price manipulation. According to inside sources, spoofing and wash trading are the focus of the investigation. The DOJ believes traders are engaging in illicit trading activities to move crypto prices in their desired direction.
Continuous Crypto Price Decline
Tchir is correct in pointing out that the lack of regulations in the market make it possible for such alleged manipulations to occur. Bitcoin is currently experiencing a week-long decline that seen the number one crypto bouncing of support at $7,000 USD.
According to Tchir, the crypto market is losing steam due to an amalgam of problems that have slowed down adoption rate. He also pointed out that the failure of the market to rally after Consensus has taken some of the bullish hype away from the industry.
Thus, as investigations probe suspected price manipulation, Tchir believes that crypto investor confidence is at an all-time low.
Was Bitcoin’s Price Manipulated? US DoJ Asks
In its latest attempts to crack down on cryptocurrency market anomalies, the Department of Justice (DoJ) has initiated a criminal investigation into the possible manipulation of the prices of the popular cryptocurrencies like bitcoin, according to Bloomberg.
DoJ-CFTC Jointly Probing Price Rigging
For the investigation, the Department of Justice is reportedly working with the Commodity Futures Trading Commission (CFTC) that administers cryptocurrency futures trading. Though CFTC only regulates the derivatives market including those linked to cryptocurrencies, it can take action if there are irregularities observed in spot markets.
According to people familiar with the matter, the probe is focused on certain malpractices like spoofing and wash trading. Spoofing involves sending fake orders in bulk to create fictitious demand and supply which can lead the other participant into buying or selling at extreme prices, and then the fictitious orders are canceled once the desired price levels are hit.
Wash trading involves a dicey trader acting on both buy and sell side to execute trades at his desired price, leading to other traders to believe that the those rigged price levels are correct.
Regulators also have other hurdles to take. Some of a cryptocurrency’s features that aid the possibility of price manipulation include the unregulated nature of such virtual currencies and their marketplaces, their 24/7 non-stop trading, and trading on multiple exchanges spread across the globe and remain outside of the purview of a single regulator.
Between February 2017 and December 2017, bitcoin prices jumped from the levels of $1,000 to almost $20,000, which led to investors jumping on the cryptocurrency bandwagon. The high valuations also led to a big flood of new initial coin offerings (ICO) to hit the market, and lured people into buying things that they don’t really understand.
Controlling such mass hysteria and developments of the virtual world remains a challenge for the authorities, as they attempt to do their best to safeguard the common man from losing their hard-earned money. The investigation is a major step in the direction. (See also, How to Identify Cryptocurrency and ICO Scams.)
Apart from the regulators, the industry is also taking necessary steps to maintain the sanctity of the new-age virtual currency markets. The Winklevoss twins, Cameron and Tyler, who run the Gemini Exchange platform, have hired Nasdaq to perform the necessary scrutiny of the virtual currency trading on their exchange. (See also,All about Gemini, the Winklevoss Bitcoin Exchange.)
Despite all the regulatory measures imposed on crypto trading by several countries across the globe, the high volatility in their valuations continues. A few nations, like China which accounts for a significant chunk of cryptocurrency activities, have banned cryptocurrency exchanges completely.
Bitcoin extended its declines on the news of the probe, and was trading at $7,402 down more than 6 percent over the past 24-hour period at the time of writing. It is now down by more than 20 percent since its monthly peak on May 6.
Crypto Market Manipulation: How It Works And How To Protect Yourself
Do you sometimes feel that the digital currency markets are manipulated? Do you find some of the Bart Simpson pattern-generating price-swings odd?
A simple Google search will reveal that you are not alone with your suspicions. Scores of “experts” and YouTube talking heads agree that price manipulation is rampant, and yes, that goes for the blue-chip entity, bitcoin too.
Most of the currently occurring manipulation is a direct result of the immature and unregulated nature of these markets. The good news is that there are some measures you can take to insulate yourself from the effects of market manipulation.
You can even completely cut its risks.
So, What Is Market Manipulation?
Market manipulation occurs when a given entity deliberately and artificially induces a swing in the price of an asset. The primary goal of market manipulation is financial gain at the expense of other market participants. As such, it hurts bitcoin investment and hinders mass adoption.
The practice is illegal and immoral. It also constitutes interference with the fair and free operation of the market.
The unregulated digital currency realm is fertile ground for every type of asset price manipulation.
Some Of The Most Common Such Practices Are:
The ever-popular Pump and Dump
Long/Short Liquidation Hunting
Dark Pool Trading
Pump And Dump – The Oldest Trick In The Book
It is common to pump a digital asset by buying massive quantities of it and then dumping it at the high-point of the resulting price-spike. Anyone with the means to buy up significant quantities of coins can do it.
Some perpetrators will use the basic pump and dump in combination with tactics such as shilling, spoofing, and wash trading.
Sometimes, pump-and-dumpers pool their resources in P&D groups for better efficiency. Despite the apparent simplicity of the technique, it is not easy to make money with it. It lends itself best to well-coordinated entities such as exchanges.
Even most P&D “foot soldiers” end up losing money, as only the top brass knows the exact timing of the dump.
Exchanges Use Wash Trading To Generate Volume
Wash trading refers to the simultaneous buying and selling of coins, for essentially the same price, by the same entity. Since no direct profits or losses result from this “water-treading” activity, why is it done?
The Short Answer Is: volume. Wash trading makes it look like large quantities of an asset change hands over a short time. That, in turn, can mean increased investor interest, which can lead to a price spike.
Being able to show proper trading volumes is important for exchanges prestige-wise too.
Long/Short Liquidation Hunting Is The New Way For Exchanges To Make Money
Following the 2018 crash of the bitcoin and altcoin markets, the notorious volatility of the vertical has lost some of its bite for now. The spot markets no longer offer the sort of gains on bitcoin investment they did during 2017.
Bitcoin investors thirsting for action have thus turned to leveraged trading and high margin bets. Their spot trading fee-based revenues dropping, exchanges have started compensating. Some have increased their trading fees. Others have begun manipulating asset prices. Their goal is to trigger the liquidation of their clients’ leveraged long and short positions.
It may not be the cleanest way to make money, but sadly, it works.
Bitcoin Whales Are On A Completely Different Level
Some 4.11 percent of bitcoin addresses own over 96 percent of all BTC in existence. When a true whale begins to throw its weight around, price ripples, or rather, tsunamis follow.
Pumping and dumping bitcoin is a walk in the park for such a whale.
Dark Pool Trading Gives Rise To New Whales
How does one with the proper financial means become a bitcoin whale these days? Wouldn’t the sudden acquisition of massive quantities of BTC send the price to the moon?
The answer is dark pool trading. Dark pools are private trading forums. Digital assets change hands in vast quantities at a set price on these forums. Given that the whole setup flies under the radar, it does not result in any “official” volume. Nor does it move the “official” price needle.
The Golden Era Of Crypto Shilling Is Still In Full Swing
YouTube is rife with talking heads pushing one altcoin or another. Some projects have massive armies of “fans”. These fans constantly talk up the virtues of these altcoins and attack their competitors.
The oft-declared goal of such shills is to pump the price of their chosen digital asset through sheer hype.
Spoofing May Be A Crude Approach To Manipulation, But It Certainly Works
Manipulators who spoof the markets launch a massive number of buy or sell orders. The “technique” will often result in fake buy/sell walls. These orders are then canceled before execution.
Spoofing is akin to a faked pump and dump. It never really pumps or dumps anything, but it tricks the market into believing that it does.
Manipulation Comes From Unaffiliated Groups As Well The Exchanges Themselves
In fact, it is safe to assume that those who can manipulate the market may try at one point or another to do so. It truly is a free-for-all out there.
Unaffiliated manipulating entities may be whales, as well as the mentioned P&D groups.
Exchanges are without a doubt in the best position to manipulate prices. They are also extremely incentivized to do just that. The discussed market manipulation techniques are easy to execute for exchanges.
Let us not forget about trading bots either. Once again, exchanges are in the best position to take advantage of this potent manipulation tool.
What Can You Do To Avoid Losing Out To Manipulation?
The good news is that if you are a long-term bitcoin investor and holder, these short-term shenanigans will likely not affect you in any way. If your adrenaline receptors are only tickled by thoughts of bitcoin’s price in 2025, market manipulation is of no concern to you.
However, if you are a bitcoin trader, you are fully exposed to the possibility of market manipulation.
Reading into the fundamentals and generally doing your homework makes perfect sense and can go a long way toward protecting you from market manipulation. There’s something you can do above that, though.
Keep your eyes on the long and short positions and their ratio at your exchange. Fully expect a price dump or pump if that ratio begins to tip one way or the other. If longs become dominant, look for a dump. If shorts grow too high, a pump may be underway.
Are Crypto Derivatives Killing The Price Of Bitcoin?
Let’s go back a couple of years and remember what it was like when Bitcoin was surging to new highs and people were selling their houses and taking out loans to buy Bitcoins. Obviously, in hindsight it’s easy to say it was a bad decision but I am more interested in the future and what is going on with the digital gold now.
The only way to get a piece of the action was to buy Bitcoin itself back then. Now due to financial innovation, we have fractional investments, futures, options, CFD’s and even perpetual contracts. What impact did this have on Bitcoin?
When you trade derivatives, it doesn’t move the actual price. So regardless of how many futures contracts or spread betting positions you have, it will not change the price of the underlying asset.
Bitcoin Futures – These are contracts to purchase at a future value. If you buy a 1-month futures contract you are betting that the price will be higher in 1 months time. This is a margin traded instrument and unless you redeem your contract at the end of the month you will not own any real Bitcoin. The futures price is actually governed by supply and demand but it still will not directly affect the physical Bitcoin price.
Bitcoin Options – Again this is the option to buy or sell at a point in the future. With a 1 month Bitcoin options contract you can buy a put (bearish) for a call (bullish) position. If you buy a call you pay a premium to be able to purchase the Bitcoin at the expiry point (in this case 1 month). If you buy a call and the price falls you pay the premium to earn the difference between the price at the time and the price if it falls to the level you want in the month. When the trader is bearish on Bitcoin, he/she can purchase put options to profit from a slide in asset price. The price of the asset must move significantly below the strike price of the put options before the option expiration date for this strategy to be profitable. Now you can get to own the Bitcoin if you take physical delivery of the asset at the end of the contract term but traders rarely do this.
Contract For Difference (CFD) – This is another margin related product where you do not need to own the underlying asset. In this case, a broker will ask you to have a certain percentage of the value of the asset and you can buy or sell to profit or go long or short. Again when trading CFD’s you do not affect the underlying price. Sometimes the broker will actually own the asset for you if you go long or short.
Spread Bet – With this asset, you do not actually own the asset at all. You simply just made a bet with the broker about the direction you think the asset will go. It’s as simple as buying when you think the price will rise and selling if you think the price will fall.
Perpetual Or Swap Contracts – This is very similar to a futures contract. This is an agreement between counter-parties to buy or sell an asset at an explicit price but with no expiry or settlement. The buyer is obligated to buy the underlying asset a specific price once the contract expires, and the seller is required to furnish the asset at the time of expiry. This is all margin-based to so it can be very volatile.
What Does This All Mean For Bitcoin?
Back in the day when you wanted to buy or sell Bitcoin you had to do it physically via your exchange. Now there are all these options and as you can see from the information above not many of them actually affect the underlying price. I have done some analysis on the exchanges that offer the services and they have taken away a lot of volume from the old physical exchanges.
So if you are bullish on Bitcoin now you have soo many options other than just buying it physically like before. Is this changing the dynamic of the market?. Of course, it is, part of the reason for the euphoric rise was the flood of volume. Bid upon bid pushing the price higher. Now some of those large funds and deep pockets are moving into more regulated spaces like ICE’s Bakkt futures and options or CME’s Bitcoin futures.
All in all, the market is now more sophisticated and that means more stable and less volatile. The days of the price pump may be over as lots of volume has moved into crypto derivatives.
The Price Of Bitcoin Is ‘Driven By Manipulation’: Nouriel Roubini
Nouriel Roubini, professor of economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates joined Yahoo Finance to discuss his thoughts on bitcoin.
JULIA LA ROCHE: Welcome back to Yahoo Finance Live. We are joined now by Nouriel Roubini, NYU professor of economics at NYU’s Stern. Nouriel, always great to have you on.
We’d like to share some breaking news that’s just coming across. We’re getting some headlines that President Trump has defied Congress and has vetoed the bipartisan defense policy bill. In some comments, Trump called the defense policy bill a, quote, gift to China and Russia.
And, of course, I know you’re someone who does look at geopolitical events. And we are shaping up for a new administration in 2021. Your reaction to this news that’s just crossing.
NOURIEL ROUBINI: Well, you know, I mean the president is becoming unhinged on everything. He’s literally trying to do a military coup, following the advice of Mike Flynn and others, in order to subvert the results of the election.
He doesn’t want to pass the stimulus bill. And if he doesn’t, we may end up in a government shutdown. And now, he’s accusing the defense bill of things that don’t make any sense, you know. He has even denied that this major hack attack came from Russia. He claims that it came from China without any base. And if there is anything that actually can help us to push back against our strategic rivals, whether Russia or China or North Korea or Iran, it’s going to be this defense bill.
So, literally, the guy is becoming completely unhinged across the board. It’s just politics. Maybe he’s trying to prepare himself to run again in 2024. Maybe he’s losing his marbles. I don’t know what’s going on. But pretty much everything he’s doing, it doesn’t make any sense.
ADAM SHAPIRO: Nouriel–
JULIA LA ROCHE: Nouriel– go ahead, Adam. You go ahead.
ADAM SHAPIRO: Go Julia. It’s all you, Julia.
JULIA LA ROCHE: Well, I would like to shift the conversation, and thank you so much for sharing your thoughts on that, to cryptocurrency. Of course, Bitcoin. I think the last time we had you on, you got quite a bit of attention.
I’m just looking at Bitcoin’s price now. It’s above $23,500. And you put out a tweet that Bitcoin has no place in an institutional investor or retail investor’s portfolio. Yet we continue to see big name institutional investors kind of flood the space. Paul Tudor Jones, for example. Even Anthony Scaramucci. And then, we’re also seeing the retail investors. Why does it not deserve a place in a portfolio?
NOURIEL ROUBINI: First of all, calling it a currency is not a currency. It’s not a unit of account. It’s not a means of payment. It’s not a single [? numerator. ?] It’s not a stable store of value.
Secondly, it’s not even an asset. Either an asset has both income, use, and capital gain, like bonds, like stocks, like real estate. Or like in the case of precious metals, they don’t give you an income. But gold gives you industrial use, it gives you [INAUDIBLE] as jewelry, and as a capital gain. While in the case of Bitcoin, there is no income, there is no use, there is no utility.
The only thing is a speculative self-fulfilling kind of rise. And that rise is driven totally by manipulation. There’s been an academic study suggesting that these pseudo stable coin Tether is being created by fiat. This year alone, the increase in the supply of Tether has been another $16 billion out of the initial 4. So, it’s 20.
And every time the price of Bitcoin goes down, literally overnight they issue more of this Tether that is used literally to manipulate the price of Bitcoin.
So, the price of Bitcoin is totally manipulated by a bunch of people, by a bunch of whales. It doesn’t have any fundamental value. And like in 2017, when it went from 1,000 to twice that, and then in ’18 it crashed from 20,000 down to 3,000, I think we are close to the point in which this hyperbolic bubble is going to go bust. And it’s going to go bust because law enforcement authorities are having an investigation of Tether and of the company behind it.
And in my view, like in the case of BitMex that was the biggest scam and criminal derivative cryptocurrency house has being indicted, you can have an indictment of those who are behind Tether. When that’s occurring in the next few months, there will be a crash of Bitcoin and all of the other cryptocurrencies. They’re not even currencies. They are shit coins.
ADAM SHAPIRO: Nuriel, I want to break this down in several parts. Because I think a lot of investors with Bitcoin at over $23,500 today need to pay attention. Why would there be, I’ll call it a contagion, if the feds crack down on that other crypto, to Bitcoin? And how do you look at the fact that central banks worldwide are looking at creating digital currencies? Are they different than what we see with the Bitcoins and the other cryptocurrency is already out there?
NOURIEL ROUBINI: Well, there are several academic studies, including one by the University of Texas, that showed that every time the Bitcoin prices are weakening, there was an issuance of this Tether. There is literally a stable coin created out of Fiat. There has been no update that these cryptocurrencies are backed by any assets. And it’s just printed by fiat used to buy Bitcoin. So, it’s actually total price manipulation.
There’s plenty of evidence that there are other schemes of manipulating cryptocurrency. There are pump-and-dump schemes, hundreds of channels on Telegram or on WhatsApp that is frontrunning, that is wash trading. Pretty much anything that is being done for penny stock is done for crypto and Bitcoin to the power of 10.
That’s a totally manipulated market. It’s not driven by fundamentals. It’s driven by insiders, by criminals, by whales, by scammers. That’s the reality and there is evidence on it. And that’s why there are criminal investigations that are going to reach their climax in the next few months.
Secondly, central banks are going to introduce digital currencies. But, first of all, these digital currencies will have nothing to do with crypto or blockchain. Today, every private commercial bank has a bank account with the Fed. We, as individuals, are [? non-corporational ?] are non-financial. We don’t have access to the balance sheet of the Fed.
Suppose that tomorrow we have access to the balance sheet of the Fed. That’s what a central bank digital currency means. It’s not digital money. Digital money already has existed for decades. We have bank accounts, we have wire transfers, we have AliPay, we have WeChat Pay, we have Venmo. We have all sorts of other digital payment system.
So, what’s new is not that it’s going to be digital. There are thousands of digital payment systems that work all over the world. It’s that we don’t have a situation where individuals like you and me have access to the balance sheet of the Fed. Once we do, we don’t need to have a bank deposit for making cheap, fast, instantaneous transactions that our payment system then clears and settled instantaneously.
So, once we have a central bank digital currency, not only crypto– this junk, these shit coins that don’t have any payment use. But even other digital payment systems like bank deposit or Venmo and PayPal are going to be dominated by central bank digital currency.
And this scheme technologically has nothing to do with crypto, has nothing to do with blockchain. It’s going to be centralized. It’s going to be permissioned. It’s going to be a system that is going to be private, not on a public decentralized ledger.
So, calling it crypto is not true. It’s a central bank digital currency. It’s going to revolutionize payment systems and is going to destroy any pseudo cryptocurrency that is not a cryptocurrency and is not a currency.
The people don’t know what they’re talking about when they’re talking about central bank digital currency. They get excited. They say even central banks are going to crypto. Just the opposite. They don’t know what they’re talking about.
JULIA LA ROCHE: Nouriel Roubini, professor of economics at NYU’s Stern and CEO of Roubini Macro Associates. Always a pleasure to have you on. Wish you a happy holiday season. And thank you, again.
Bitcoin Price Manipulation: Who Is Guilty?
Of all of the questions, we here at CryptoDetail receive on a daily basis the notion of Bitcoin price manipulation is one that we receive far too often.
This article wants to address that thought and put it to rest once and for all.
This question comes directly from the “Crypto Bible,” also known as the Bitcoin Whitepaper. Why do we call it that? Like in the Christian Bible, the Crypto Bible gives us the ideals and reasons behind everything crypto since the beginning of time. So, let’s start there, at the beginning. There was the word (White Paper) in the Beginning, and the word was Bitcoin, and Bitcoin was good.
As we have discussed many times here at CryptoDetail, that first crypto, Bitcoin, was born of an idea. That idea was that every human on the planet should be in control of their own money. As such, every other person or entity is thereby stripped of the power of every other person or entity’s money. Thus, we are each in control of our own, with no control over another.
This independence from one another’s money, also known as decentralization, came into being to all know true financial freedom. To be precise, the cryptosphere was born to free us from the control of the governments, banks, credit card companies, and online payment platforms (yes, PayPal, we are talking about you).
So, the Crypto Bible tells us that in the beginning, Bitcoin granted us all equal power over our own money and similar influence over the system as a whole.
Who Is Manipulating Bitcoin Prices?Well, we know that we will hear a bunch of Wall Street-type nonsense in response to this answer. But, the fact is, NO ONE IS MANIPULATING BITCOIN PRICES. No one!
We are not saying that a single person cannot affect the price of BTC. But no one controls that price.
There has been occasional manipulation (yep, here we go jumping on Jaime Dimon again); but, that was manipulating the masses. It was not direct manipulation of the price of Bitcoin. In the early winter of 2017, Jaime Dimon, CEO of JPMorgan Chase and head of the US Department of Housing and Urban Development, publicly declared Bitcoin a scam.
At the time, this announcement was considered a massive move by the US government to destabilize the price of Bitcoin as a sort of punishment for those of us in the cryptosphere. However, as soon as the price plummeted, JPMorgan Chase bank purchased many Bitcoin for their coffers.
Since JPMorgan Chase bank is heavily involved in Wall Street investments, it must also be that, at the time of Mr. Dimon’s announcement, that fiat banking institution knew of the coming Wall Street invasion of December 2017.
We do not doubt that this mass manipulation netted Chase billions. And, were it to have been IBM Stock instead of Bitcoin, Mr. Dimon may have been investigated for inside trading (the least of his crimes). But, he was not.
But again, not even that criminally brilliant bank CEO and government official did not manipulate the price of Bitcoin. He scared people. He made an announcement designed to frighten the masses. And, it worked.
Supply And DemandThe simple fact of the matter is that Bitcoin prices are strictly dictated by supply and demand. Since we each control our Bitcoin, WE contain the cost through that most ancient commerce concept. If I have a Bitcoin and you are willing to give me $ 15k for it today, our transaction will be averaged with all other BTC transactions today, likely raising the value slightly.
If you have a Bitcoin and give you $ 1 for it, that transaction will make the price drop slightly when averaged in with the other current transactions. It is as simple as that. We inhabit the exchanges. We decide prices that seem fair to us individually when we initiate a trade. So WE are the only ones dictating the price of Bitcoin.
Again, we know this revelation is sure to cause an uproar. It won’t be the first time our assessment has been challenged in the cryptosphere. But let’s throw away all of those old fiat investment ideas. Let’s remember that Bitcoin is NOT an investment; it is a currency.
The currency is ultimately dictated by the number of goods and services the PEOPLE are willing to trade for it. And Bitcoin is no different than any other currency in that regard.
HODL Your Crypto Despite The FUDSince each of us plays a part in the Bitcoin price, what can we do to help the King of the Cryptos become more stable and even grow?
Well, the most significant step we can all take is to stop running to the exchanges to sell our BTC every time we hear FUD (fear, uncertainty, and doubt, like Jaime Dimon did intentionally, as described above).
If we, as a group, a population, decide that OUR currency (Bitcoin) is strong enough to survive such things as government FUD or even attacks (remember, BTC was created to free us from that old nonsense) and if we will HODL and only accept a fair going rate for our trades; THEN, and only then will the roller coaster ride of the Bitcoin price flatten and begin its slow, steady growth to the proverbial moon.
Wall Street Uses Old Tricks (High-Frequency, Price Arbitrage, Futures Trading, Options Writing, ) In $2.4 Trillion Crypto Jungle
Wall Street traders like Trey Griggs are finding a new lease on life in the $2.4 trillion crypto Wild West.
After two decades in energy trading, the 51-year-old was lured by a former Goldman Sachs Group Inc. colleague this February into a new world of market-making in digital currencies.
Now he’s in fighting spirits — unleashing old-school finance tricks to exploit the industry’s rampant inefficiencies, volatility and downright weirdness.
“All the fun that used to be had 30 years ago in the commodity markets and is no longer fun — that fun is now in crypto,” says the U.S. chief executive officer at GSR Markets in Houston.
Griggs is among crypto newcomers deploying systematic strategies that are tried-and-tested in conventional asset classes — price arbitrage, futures trading, options writing — in a booming new corner of finance. As more mainstream investors get behind Bitcoin, boutique firms are joining the likes of Mike Novogratz in an ever-broadening crypto rally that keeps breaking records.
For those who can stomach the price swings, the threat of exchange hacks and the byzantine market structure, complex fast-money trades are offering an alternative way to ride the digital mania.
At GSR, the firm’s bread and butter is market-making, where traders pocket the spread between buy and sell orders.
In stocks, that’s a nearly oligarchic business where the likes of Citadel Securities and Virtu Financial operate at lightning speed.
In virtual currencies, where hundreds of exchanges offer free access at a slower pace, GSR can capitalize on the big volumes without splurging millions on high-frequency infrastructure.
“Part of the tech we have is just to tell us did we actually trade or not, is this trade good or bad,” says GSR co-founder and former Goldman trader Richard Rosenblum. “We don’t want to be slower than our competitors, but it’s just not quite as much of the driver.”
For every strategy in stocks, bonds or currencies rendered boring by low rates, regulation or market crowding, there’s a lucrative trade in a token lying across the hundreds of exchanges out there. Or so the thinking goes.
While crypto die-hards have made merry like this for years, the relentless rallies across the tokensphere this year are drawing more Wall Street converts seeking riches and new thrills.
Take Mark Treinkman. After a career mostly at proprietary stock-trading shops like Chimera Securities, digital money is renewing his passion for quant trading.
“I’ve been going through some of my old strategies and things that wouldn’t have worked in equities in decades have an edge in crypto still,” he says.
A market-neutral strategy run by his $60 million firm BKCoin Capital gained 71% last year using investing styles that often include arbitraging different prices across exchanges and the gap between the spot and futures market.
For a few minutes during trading on Wednesday, for example, the price of Ethereum Classic jumped well above $100 on the Coinbase exchange. The digital token was trading at less than $80 at other venues, offering an obvious opportunity for investors to make money simply by buying in one place and selling in another.
It’s one of the best-known — albeit diminishing — discrepancies exploited by the likes of Alameda Research, a crypto trading firm filled with former traders from high-frequency shops. A famous example is the kimchi premium, the tendency for Bitcoin to trade higher in South Korea thanks to strong demand and the difficulty of moving money around to profit from the gap.
With no one-stop prime broker to centralize trading books and offer clients leverage across venues, traders like Treinkman face plenty of challenges in their bid to arbitrage price gaps, but say the rewards are commensurate.
And the opportunities pop up everywhere. For instance, when longer-dated futures in pretty much any asset class trade higher than the spot price — known as contango — the former almost always converges to the latter as the contracts mature.
That’s popularized the crypto basis trade, where an investor goes long the spot rate and shorts the futures.
When Bitcoin last peaked in mid-April, the December contracts were nearly 4% higher than August which were in turn about 2% higher than the spot reference rate, as speculators unleashed bets on rising prices. By contrast, the December oil contracts were trading beneath August’s on the same day, according to the data compiled by Bloomberg.
“The crypto market is still dominated by retail investors who use excessive leverage and bid the premiums for futures,” said Nikita Fadeev, a fund manager at $60 million crypto unit at quant firm Fasanara Capital.
Trades common in the industry also include short-term momentum and a form of statistical arbitrage, which bets on gaps between various tokens eventually closing like when Ethereum is surging but Bitcoin isn’t, Fadeev says.
As assets grew, the fund recently appointed Laurent Marquis, the former co-head of derivatives at Citadel Securities, as chief risk officer, and Steve Mobbs, co-founder of quant fund Oxford Asset Management, as senior adviser.
Over in Zug, Switzerland, St. Gotthard Fund Management has transformed from an old-school family office writing options on Swiss shares to a digital evangelist in its income strategy aiming to yield 8% a year. Just like in stocks, the investing style sells derivatives to take advantage of big demand to hedge price swings — which causes the volatility priced into options to be higher than what’s likely to come to pass.
For option writers like St. Gotthard, that means the premiums are much juicier, though they also come with a higher risk of having to actually pay out, like an insurer during an earthquake.
“The major difference at the end of the day is how much premium retail investors are willing to pay,” says chief investment officer Daniel Egger. “On the other hand of course we’ve written calls we wished we hadn’t in those moves up.”
In fact, going long crypto over the past year has proved the easiest and most profitable way to tap into the boom. And for those choosing the systematic route, competition is rising.
For example, in order to get an edge in its market-making strategy, BKCoin has recently installed servers at Asian crypto exchanges, a move known as co-location in the high-frequency world of stocks. It’s a sign the industry is growing up fast.
“In any emerging market we’ve seen these inefficiencies decrease over time,” said George Zarya, founder of Bequant, a crypto prime brokerage that caters to systematic traders. “There are more professional players that come in.”
Lark Davis Exposes The Biggest Bitcoin Price Manipulators In The World
According to Lark Davis, the big investors intentionally pull the price through bearish predictions, buy cheaply then sell high in a cycle that does not favour the smaller investors.
Davis cautions investors to watch the actions of these big institutions, and not their words or predictions.
Lark Davis, a popular YouTuber and crypto influencer has revealed that the biggest and most experienced financial players and investors in the industry are manipulating the Bitcoin price.
In a video dubbed “Bitcoin price manipulation rampant”, he stated that the big investors intentionally pull the price through bearish predictions, buy cheaply then sell high in a cycle that does not favour the smaller investors. The major manipulators according to Davis are BlackRock, Guggenheim, JPMorgan, and Goldman Sachs.
BlackRock Claims No One Wants Bitcoin
Recently, BlackRock CEO Larry Fink claimed that institutional investors are not interested in crypto. According to Davis, Fink has a different motive for making that statement as his words do not match the action of his company.
About six months ago, BlackRock claimed Bitcoin was going to hit a $10 trillion market cap. The company further predicted that Bitcoin could replace gold. Furthermore, a couple of days ago, the company bought 12 percent of all MicroStrategy shares.
MicroStrategy has roughly 100,000 Bitcoins, so basically, BlackRock bought 12,000 Bitcoins from them. According to Davis, they want to scare people to sell their Bitcoins while they buy them cheaply.
You do not buy a stake in MicroStrategy unless you want exposure to Bitcoin…Don’t look at their words, look at their actions.
Fink’s statement further contradicts the reality on the ground as Fidelity Digital Asset proved otherwise by announcing plans to increase staff by 70 percent due to the high Bitcoin demand from institutions.
Guggenheim Claims Bitcoin Is Going To 10K
Guggenheim’s Scott Minerd recently predicted that Bitcoin will go down to $10,000 days after his $15,000 prediction. However, Davis claims that like Fink, he wants to play with the emotions of investors. Guggenheim interestingly predicted in February that Bitcoin will go as high as $600,000, which is basically in agreement with BlackRock’s prediction that the market cap would match that of gold.
They are overly bullish at the top, and overly bearish at the bottom.
Just like BlackRock, Guggenheim is literally scaring investors to sell their Bitcoins while they silently buy the dip.
Goldman Sachs Claimed Bitcoin Is Not Viable As A Currency
For some time now, Goldman Sachs has been saying Bitcoin is not a viable currency or investment. Yet, their internal memo disclosed that they are unveiling a new crypto trading team. Another report also claims that Goldman Sachs is ramping up Bitcoin trading in a new partnership with Mike Novogratz’s Galaxy Digital.
This is like somebody saying ‘I love you, I love you, I love you, but beats you all the time.
JPMorgan Claims Bitcoin Will Fall To $25,000
JPMorgan recently predicted that Bitcoin will drop to $25,000. Davis admitted that this is the closest prediction to reality, however, they just want people to dump their assets. The same institution predicted this year that Bitcoin will hit $146,000 when it was bullish. The firm also endorsed clients’ 1 percent allocation to Bitcoin as a hedge. According to Davis, all the biggest manipulators in the world are bearish on Bitcoin.
These guys are the biggest financial criminals in the world.
Crypto Complex Recalls 1920S Stock Market With ‘Rampant Speculation, Manipulation And Theft,’ Says Left-Leaning Think Tank
Cryptocurrency regulation is becoming a partisan issue.
The Center for American Progress, a left-leaning think tank, released a report Monday calling on the Securities and Exchange Commission to aggressively assert its authority over large swaths of the market for digital assets, in the latest signal that the U.S. center-left is becoming increasingly impatient with crypto firms that refuse to submit to the SEC’s authority.
The report, previewed exclusively by MarketWatch and authored by Todd Phillips, CAP’s director of financial regulation and corporate governance, argues that SEC Chairman Gary Gensler has the law on his side when he has said that the vast majority of cryptocurrencies being traded today are unregistered securities and that their issuers and brokers and exchanges who trade them are violating federal law.
“The SEC is in a pretty difficult situation here, because they are issuing guidance explaining what the law is,” Phillips said in an interview with MarketWatch. “They are having meetings with companies, telling them what the law is and they are bringing lawsuits based on what the law is and the industry doesn’t seem to care.”
Though CAP describes itself as nonpartisan, it “has strong ties to the Democratic Party establishment,”according to Influence Watch, and is led by by Patrick Gaspard, a former high-ranking official in the Obama administration. The report could be the latest sign that the debate over crypto regulation is taking on a partisan valence.
This dynamic was on display at a Senate Banking Committee hearing last month, when Republicans took Gensler to task for not providing the crypto industry with enough clarity as to what makes a digital asset a security and therefore under SEC jurisdiction.
Republican Sen. Pat Toomey of Pennsylvania has been increasingly critical of what he calls the SEC’s “strategy of regulation by enforcement,” or the practice of bringing enforcement actions against crypto issuers without “proactively [providing] rules of the road to the industry,” according to a September letter the ranking Republican on the Senate Banking Committee sent to Gensler.
In August, the ranking Republican on the House Financial Services Committee, North Carolina Rep. Patrick McHenry, accused the SEC Chair of attempting a “power grab,” in asserting his agency’s jurisdiction over digital asset exchanges.
Democrats have largely come to Gensler’s defense on the issue, who has argued when Congress passed U.S. securities laws they “painted with a broad brush,” and that its definition of a security “included about 35 different things.”
Some of the most high profile Democratic lawmakers sitting on committees with jurisdiction over financial markets and crypto have called for the SEC and other financial regulators to get more aggressive with the crypto industry.
In July, Sen. Sherrod Brown of Ohio, Democratic chairman of the Senate Banking Committee called cryptocurrencies “funny money” that was putting “Americans’ hard-earned money at risk,” while Sen. Mark Warner of Virginia, the Democrat who chairs the Senate Intelligence Committee, has pushed for tougher tax reporting rules on crypto transactions and expressed worry about digital assets enabling cyber crime.
Democratic Rep. Bill Foster of Illinois, co-chair of the House blockchain caucus, even called for laws to allow federal courts to identify digital-asset holders and then reverse transactions in bitcoin or other digital currencies, a policy that is anathema to many cryptocurrency investors.
Phillips argued the SEC must get tough in order to protect investors from largely unregistered and unregulated exchanges offering digital assets. In the report, he likened today’s digital asset market to the capital markets of the 1920s, “with rampant speculation, market manipulation, deception and outright theft.”
He cited several examples of exchanges that had investor funds stolen through hacking incidents, including the August $600 million theft at Poly Network, a $97 million heist from the exchange Liquid and the 2019 “siphoning” of $163 in digital assets by the founder of the QuadrigaCX exchange.
“These abuses should not occur, especially as the law already exists to put a stop to most of them,” Phillips wrote in the report. “Simply bringing digital-asset securities under the jurisdiction of the securities laws to the greatest extent possible would allow the SEC to address abuses related to” asset valuation, accounting rules, data privacy, investor insurance and market access, he added.
Though the SEC has signaled it doesn’t consider the two most popular cryptocurrencies, bitcoin and ether to be securities, Gensler has suggested the vast majority of other digital assets are. Even if the SEC cannot regulate bitcoin and ether directly, it can regulate exchanges that offer them, as long as those exchanges trade other digital assets that are securities, Phillips said.
The CAP report also suggests the SEC should pass rules mandating that issuers of digital assets disclose the environmental impact of their technologies, as the mining and digital assets and validating of transactions on the blockchain can be energy intensive.
“If you disclose blockchain power consumption people will move their investments into coins that use the lowest power blockchains, and that could end up helping the industry use less energy,” Phillips said.
CAP’s Phillips said there is a range of views in the Democratic caucus on cryptocurrency, but argued that it was perhaps most important for the party to focus on funding the SEC, so it can enforce laws already on the books. President Joe Biden’s budget called for a 5% boost to the SEC’s budget in June, an increase that financial watchdogs have called “meager” and inadequate for the agency to tackle aggressive regulation of an entirely new asset class.
Gensler agrees, telling CNBC last month that the agency is “short-staffed” with about 5% fewer staff than it had five years ago.
He argued for a 10% surge in the number of lawyers at the agency to help police crypto.
“The SEC has limited bandwidth to deal with issues,” CAP’s Phillips said. “They have limited personnel, they have limited time and Congress needs to increase funding so the SEC and other regulators can go after the law breakers.”
Why A Bitcoin Futures ETF Is Bad For Investors
It takes more than derivatives to contango.
The Securities and Exchange Commission (SEC) greenlighting a futures-based exchange-traded fund for bitcoin has been a boon to holders of the cryptocurrency this week, with bitcoin hitting all-time highs just shy of $67,000 on news of the ETF’s clearance. But let’s be clear: It’s a horrible deal for investors in the fund itself.
Due to a common phenomenon in futures markets known as contango, the manager of the newly listed ProShares Bitcoin Strategy ETF looks likely to incur such significant costs that investors will earn a dramatically lower return than if they’d invested directly in bitcoin. The loss is so large it makes any concerns the SEC had about volatile, inconsistent reference prices for spot-market bitcoin ETFs seem trivial.
In choosing the futures road to an ETF rather than approving a spot market-backed fund, the SEC seems to have chosen the easiest route from a regulator’s standpoint, given that the underlying contracts – the CME Group’s bitcoin futures – are themselves regulated by the Commodity Futures Trading Commission (CFTC).
If it had instead blessed one of the many spot market-backed ETF proposals submitted over the past eight years, it would have needed to approve the prices quoted by exchanges whose bitcoin listings aren’t regulated by either the SEC or the CFTC.
Nevermind there are now sophisticated, trustworthy indexes – such as CoinDesk Indexes’ XBX index for bitcoin – that would serve that role perfectly well. It seems the SEC just couldn’t get beyond the global, unregulated world of bitcoin exchanges and the prices they produce. So it punted to a futures solution.
Yet, in choosing that path over the spot market and essentially approving contango-based losses, the SEC may be doing more harm to the small investors it is supposed to protect than they would incur from whatever uncertainty the spot market brings.
My colleagues David Morris and Omkar Godbole have already done a fine job explaining the challenges posed by contango, where the prices for longer-dated futures contracts are higher than the short-dated ones. (In essence, there’s a cost involved in the ETF manager having to “roll the contract” every month, because the manager will have to sell the lower-priced, expiring current-month contract and buy the higher-priced next-month contract.
The greater the contango effect, the more a futures strategy will underperform the price of the underlying asset the futures contracts intend to track.)
But it wasn’t until I talked with another colleague, CoinDesk Indexes Managing Director Jodie Gunzberg, that I realized just how costly this phenomenon is for a bitcoin ETF. (She described the concept as “fatally flawed” in an appearance on CNBC.)
According to Gunzberg, the average “negative yield” per monthly roll on bitcoin futures for the past few years of its existence has been 2.29%. On an annualized basis, if investors held shares in a bitcoin futures fund that had rolled over every month for the past year, they’d have ended up with a cumulative cost of 28% relative to the spot market.
The monthly average negative yield for bitcoin futures is above the average contango cost incurred by crude oil futures, at 1.69% per month, and only slightly below that of unleaded gas, at 2.85%. It’s significantly higher than the monthly contango costs incurred on gold futures, which average at 0.23%.
For commodities, a great deal of the contango effect is explained by storage costs, which mount up over time and thus make longer-dated futures contracts more expensive. Those costs vary from commodity to commodity. Gas and oil are costly to store; gold is not. Hence the disparity in the average negative yield roll.
Yet, bitcoin, which according to Gunzberg’s analysis is in a state of contango 58% of the time, is even cheaper than gold to store.
Storage is not a factor at all in its tendency toward contango, which is explained purely by hyper-bullish future price expectations. In fact, the absence of any storage problem makes managing bitcoin futures a very different – and arguably more difficult – proposition than for commodity futures.
Although the overall cost of storing commodities grows over time, the marginal cost of adding more storage time tends to decline the longer the commodity is held. That means the negative yield burden is often lower for longer-dated futures in contango. Savvy investors will offset their losses in shorter-dated contracts by buying the longer-dated ones.
But in the case of bitcoin, where there’s no real storage cost to speak of, that longer-term effect simply doesn’t occur.
“The price of bitcoin futures contracts is reflecting very purely the higher expected spot price in the future,” says Gunzberg. “And there is no convexity in the back end. It’s just straight up. You can’t even play those back-end contracts to your benefit. There is nowhere to hide.”
The other contango-related problem with a futures-backed ETF is that fund managers are forced to hold a large amount of cash to cover the roll payments over time, which creates an opportunity cost because those funds aren’t exposed to bitcoin’s gains. By contrast, spot market-backed ETFs can invest the bulk of their funds.
“Our ETF has 95% of funds under management invested directly in physical bitcoin,” says Alex Tapscott, managing director and head of digital assets at Toronto-based Ninepoint, one of four firms now managing spot market-backed ETFs north of the U.S. border.
None of this – not the comparatively better performance in either Canada or the bitcoin spot market – has deterred U.S. investors so far. It took just two days for the ProShares ETF to surpass $1 billion in assets under management, a record for any ETF.
Demand is so strong, Bloomberg reported, that ProShares is close to exceeding the Chicago Mercantile Exchange’s limit on the total number of contracts an entity can own. Bloomberg’s analysis found that, with a stash of 1,900 contracts in the current October month – just shy of the 2,000 limit for a single month – the fund has had to diversify into longer-dated contracts.
It now holds 1,400 November contracts, but may have to go further out the curve into December if demand keeps up. Even then, the fund faces an absolute limit of 5,000 contracts
A decision by the CME to raise the front-end month limit to 4,000 from 2,000 starting in November could ease some of the pressure on ProShares. Meanwhile, competing bitcoin futures ETF from Valkyrie and VanEck will likely pick up some of the slack from pent-up investor demand and take the pressure off ProShare.
But if investors respond negatively to the underperformance of their fund relative to bitcoin’s soaring spot price, the rush for the exits could become a stampede.
All of which raises the question: Why on earth did the SEC, with a mandate to protect small investors, take this route? It’s time for a proper, spot market-backed bitcoin ETF.