Bitcoin Price Manipulators Watch Closely as BTC Loses Bullish Momentum
On Sunday Aug. 2 the price of Bitcoin (BTC) dropped by 12% in just 5 minutes. In the same period of time Ether (ETH) dropped by 21% and similar losses were observed with many other altcoins.
In retrospect, the general consensus on the cause was an unknown entity unloading roughly $1 billion on the open market during a time of low volume and liquidity.
At first thought, one would assume that selling such a huge amount in an illiquid market would be to the detriment of the seller, but given the size of the move, we don’t think the seller was unaware of what would happen.
In fact, it’s entirely possible that the orchestrated move was 100% intentional. Here is how the crypto market was thrust into a sharp correction with one large sell.
This was a well thought out move which involved the buyer beginning to buy coins in the spot market when the price was nearing and obvious kety technical resistance.
After the investor built a position, they then put in a large market order to take down all the offers on the order book and push the price sharply below a key resistance level.
This maneuver triggered a significant number of buy orders from other investors who had stops to buy above the resistance level. At the same time, a short-squeeze was caused due to traders who were short from this resistance level.
The investor who submitted the large market order now enjoys the price appreciation of the coins bought before the breakout, following the ignited momentum.
After some time, this trader decides that it’s time to ring-up the register. Thus, he quietly builds a short futures position on various exchanges using different accounts to be as stealth as possible.
Using 30x to 50x leverage, the investor is able to maintain the position even if the price of the underlying asset goes up by 2% or 3%.
Once he has accumulated a big enough short futures position, he then sells the previously purchased stash of BTC at market rate when the market exhibits low liquidity again.
By doing this, all the bids in the order book are taken out, resulting in a price crash which ignites as he had built before a short position with futures. The result is, a nice profit is locked in from the short position.
Let’s say BTC is trading at $9.9K and the key resistance is at $10K.
A trader builds a stealthy position of 100 BTC with about $1 million of cash at an average price of $9.9K. Then he puts a market order to buy 100 BTC at the time when the market liquidity is low and this pushed the price instantly to $10.4K.
This means his average position is 200 BTC at $10,150. The move above the obvious resistance price triggers other traders to buy above $10K, and also catalyzes a short-squeeze that forces short traders to cover their position by buying back the underlying. This results in even more upward pressure on the price of the underlying and phase 1 of the traders plan is complete.
Now BTC sits at $11.8K and the trader manipulating the market begins to build a short futures position with 30x to 50x leverage. For simplicity, let’s consider 50x leverage, meaning for $1 invested, $50 of the underlying asset is obtained.
The trader again builds a stealth short position in futures markets across several exchanges using multiple accounts. As he is leveraged 50x, in order to cover his long position of 200 BTC worth $2.36 million, he needs to sell shorts for only 200BTC / 50 = 4 BTC.
He would then use some of the proceeds from his initial buy to cover the margin of futures contracts worth 4 BTC.
Of course he can also sell more futures in order to further magnify the move and his upcoming ill-gotten profit also.
The trader completes his witty strategy by selling the 200 BTC he initially bought at market all at once when market liquidity is low.
This results in crashing the price of BTC from $11.8K to $10.1K. His long position price was $10,150 so while he takes a little $10K loss on his initial position, he profits significantly from the futures sold short. The result is a net gain of $330K or 16.5% of the initial $2 million invested and all of this was done with minimal risk.
Obviously, this is an overly simplified example of how big players manipulate the market and take advantage of weekends when liquidity and trading volumes are lower.
This sort of setup requires a significant amount of upfront capital and decent trading infrastructure in order to execute seamlessly. But, given the liquidity and volatility of the crypto market versus traditional markets, just $10 million of capital could lead to decent returns with minimal risk.
This is at least feasible until regulators step in.
There are ways to perpetrate this maneuver with even more leverage. By using futures to take the initial long position which requires on a fraction of their notional value to trade, and buying put options instead of selling futures to profit even more off the provoked downward move due to the convexity of the options.
However, such practice requires specific market conditions (i.e. a well-regarded instrument with price nearing a key technical point) and an easy to manipulate instrument (i.e. an instrument for which derivatives exist). Therefore, this play cannot be conducted all the time.
Basically, the entire maneuver is market manipulation and it is completely illegal in traditional markets. However, in the wild west of crypto-land, unscrupulous traders can still act with little worries for now.
The hope is that as crypto markets mature, these kinds of price manipulation plays will disappear.
As the market grows, the larger amount of cash needed to perpetuate these sorts of acts, and the increased risk that an even larger player could counter the one who initiated the move may deter manipulation.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Author: by admin
What Is Universal Market Access (UMA)?
Universal Market Access (UMA) is a protocol for creating, holding and settling derivatives for any underlying asset. At a high level, the UMA protocol allows users to create contract-tight smart meta tags that represent an arbitrary derivative; Meta token traders can express their opinions on the market without having the underlying asset.
Public addresses of all counterparties
Margin accounts for each counterparty
The logic for calculating derived economic terms (such as NPV or volatility)
A prophet is appointed to report the data (i.e. the price) of the underlying asset
The contract has the function of modifying the balance of the margin and governs the payment procedures; Each partner is required to maintain margin balances
Since each UMA meta tag references an off-chain feed (usually the price) for the underlying content, a main design challenge is to safely encourage the reporting of that data correctly to the UMA contract. To achieve this goal, the team launched a magical design called the Data Verification Mechanism. At a high level, this system tries to provide economic guarantees that encourage the presentation of accurate data, through the Schelling-Point voting system, for the smart derivatives contract by making it work. Damage to food becomes more expensive than earnings from an incorrect contract. This system has three main features:
The cost of corruption is the total market value of the tokens needed to spoil more than 50% of the votes, reported to the network through the Schelling point system. This cost can be the price that a malicious person has to pay to control these voting tokens on their own or a price bribing existing token holders.
Profits from corruption are the measure of the potential financial benefits that an actor can achieve by breaking smart contracts through bogus data. Each smart contract must report its own corruption gains and the sum of these values taken into account when adjusting the CoC.
An enforcement mechanism ensures that the cost of corruption outweighs the benefit of corruption through the token provisioning operation.
Because UMA contracts are covered by smart contracts that have terms defined by the contractual partners, these smart contracts can use tokens to represent the degree of risk of each partner. If these tokens are fungible and conform to a standard, such as ERC-20, they will be easily traded and transferred on exchanges. This broadens the visibility of the token, allowing people to access financial risk without directly interfering with the UMA contract. This is especially important for investors with less capital, who do not need to commit to a UMA contract due to the divisibility of the tokens. Decentralized financial products, such as DAO hedge funds or others, can also symbolize your visibility. This allows the entity’s smart contract to do the job of maintaining visibility through the UMA contract, while the entity’s investors only need to exchange tokens in their own wallet.
The price volatility of Bitcoin and other cryptocurrencies is often considered the biggest barrier to the adoption of cryptocurrencies. Stablecoins backed by fiat currencies or commodities, such as Tether or Digix Gold, rely on a centralized party or physical audits to ensure their value. Decentralized solutions, such as Dai and Basis, aim to solve this problem, but have not yet been widely applied. In general, if an investor who owns Currency A wants to invest in an asset with Currency B, then the investor’s exposure to that asset fluctuates with it. Because any gains on the property must be converted to Currency A. Similarly, when the aggregate asset rate is obtained, the calculation and margin deposits in the same currency as the base asset are the most natural. Because UMA contracts allow partners to define all economic aspects of their exposure, counterparties can define financial contracts that allow synthetic exposure regardless of the change in the exchange rate between the margin currency and the currency of the underlying asset.
Investing in cryptocurrencies and other crypto assets can be difficult for institutional investors. This is primarily due to custodial and accounting reasons – each new asset requires new systems and processes to be created, tested, and approved, creating significant barriers to any token, periodic, or new crypto system. Organizations can simplify this process by investing through financial contracts and standardizing their risk, custody and accounting systems with a single standard, the UMA Protocol.
The UMA protocol is a decentralized specification that enables the trustless transfer of financial risk to any underlying asset to any individual around the world. The protocol uses new systems and economic drivers to maintain collateral in a transparent and efficient manner, while settling transactions with precision and allowing users full control of their economic implications. Together, these attributes enable and empower people to transfer financial risk, regardless of geographic location.
Author: Souvik Sarkarhttps://news.triunits.comCrypto Expert And Blogger .
Coinbase CEO: Apple Is Still Blocking Crypto Functionality
You can download crypto-related applications from Apple’s App Store — be that Coinbase, Binance, Blockchain, or otherwise. But even with this support, the chief executive of Coinbase, Brian Armstrong, says that the technology giant still isn’t entirely friendly towards cryptocurrency.
In an August 22nd tweet, Brian Armstrong noted that Apple’s policies towards cryptocurrencies remain restrictive, even as Bitcoin has gained legitimacy over the years:
Apple has been very restrictive and hostile to cryptocurrency over the years. They’re still blocking some functionality right now, including the ability to earn money with cryptocurrency by completing tasks, and unrestricted dapp browsers.
In December 2019, it was revealed that Coinbase may have had to remove the support for decentralized applications within the Coinbase Wallet App.
At the time, Armstrong commented that Apple’s attempt to “eliminate the usage of Dapps from the App Store” was “unfortunate”:
Armstrong isn’t the only one to have targeted Apple’s policies on cryptocurrency use in its ecosystem over recent weeks.
Epic Games recently got into a legal tussle with Apple over the company’s app store policy. Epic Games attempted to bypass Apple’s in-app purchase tax for the Fortnite iOS app, but instead got banned from the App Store.
A lawsuit against Apple filed by Epic Games specifically name drops Bitcoin and “other cryptocurrencies” as a type of payment method that Apple is against:
Many in the cryptocurrency space have rallied behind Epic Games due to this industry’s propensity to support permissionless systems.
This post was originally published on www.newsbtc.com