This story is about a trader, or a group of traders, or possibly even Bitfinex themselves manipulates the price of Bitcoin. The past few months I’ve slowly collected screenshots of a trader I like to call ‘Spoofy’. You’ll see evidence of spoofing, wash trading, a sketchy scheme associated closely with Bitfinex known as ‘Tether’ among other shenanigans.
Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin of course to pull it off, and with impunity on Bitfinex.
Phil Potter referred to me in an interview on August 6th, and claimed they have not seen the kind of activity I’m talking about.
This is a video showing activity on July 22nd, 2017 and contains Phil Potters comments along activity that he claims isn’t happening.
You be the judge.
Since March 2017, I’ve been warning people about the issues regarding Bitfinex and their disconnection from the traditional banking system.
The issue regarding Bitfinex’s banking woes is essentially on the backburner as prices have gone up significantly since then, but in my opinion, this is a very big driver of why the price of Bitcoin is exceedingly easy to manipulate.
Spoofy is a regular trader (or a group of traders), that function primarily on Bitfinex, and in a limited fashion on some other exchanges who engages in the following practices:
What is ‘Spoofing’, you may ask?
Spoofing is placing orders which you have no intent on allowing to execute.
The goal of spoofing is to send false signals to other traders that they will act upon. Placing a large bid may indicate bullishness, causing traders to close short positions and possibly even buy Bitcoins.
You can profit from this by placing asks for your own bitcoin, then send false signals for bullishness, and people close short positions by buying your Bitcoins you have on ask orders.
You can also do the opposite. Placing large asks indicating bearishness, causing people to close long positions, perhaps also into your buy orders.
Spoofing by the way, is illegal. It was made illegal in the United States back in 2010 under Dodd-Frank. Bitcoin exchanges are largely still unregulated and do not police for spoofing, wash trading, and other shenanigans.
Spoofers bid or offer with intent to cancel before the orders are filled. The flurry of activity around the buy or sell orders is intended to attract other high-frequency traders (HFT) to induce a particular market reaction such as manipulating the market price of a security.
Spoofy is able to manipulate the prices so easily because he simply outwhales everyone else on the exchange. Spoofy is a single entity with between $20 million and $60 million USD on Bitfinex, but it could be more.
In order for someone to combat Spoofy (by dumping into his orders before he can remove them all), they’d have to put a lot of money on the exchange.
As a result, Spoofy can operate pretty much with impunity on Bitfinex.
Spoofy shows himself during three scenarios.
On July 23rd, there was some large selling, at which Spoofy then single handedly placed over $14 million in false buy orders.
These bids were unusual for Spoofy, because this time he left them up for a little bit. It supported the price and he didn’t really have to buy very many Bitcoin with his bids.
However, about an hour later, in most unusual circumstances, somebody did dump some into his order, at which he pulled the rest of the order almost immediately.
From the looks of it, I believed a trader with a lot of longs sold into him, because overall long positions dropped immediately after this.
However, there’s a little issue. How do we know this trading is legitimate? How do we know that Spoofy, didn’t close into his own order?
How do we know Spoofy himself wasn’t selling into his own orders as well triggering a false crash?
We do have evidence of wash trading, and if spoofy is wash trading the price up, he could wash trade it down as he makes positions on other exchanges.
Remember, just like how someone isn’t realistically going to send enough Bitcoin to Bitfinex to combat spoofy’s false buy orders, nobody is going to send enough USD to combat his relentless market sells either. They couldn’t even if they wanted.
Unfortunately, watching the trades normally make it a little difficult to prove if a trade was a wash trade or not.
But Bitfinex gave us a little gift to help prove this theory.
On July 27th, Bitfinex announced an unusual scheme on how they plan to credit “Bitcoin Cash” tokens.
“ Please note that if there are more shorts than longs at the fork event, this coefficient will be less than one. This coefficient can be roughly computed from publicly available information from our API (longs & shorts) and the Blockchain (cold storage).”
As a result of this, people could get ‘Free’ BCH, by wash trading their own shorts, predictably, that’s exactly what happened.
A single entity (entity could be a trader, or a group of traders), single handedly wash traded 24,000 Bitcoins in shorts. In order to do this, you would need to have at least 24,000 BTC on Bitfinex and the USD to buy them with.
As a result of me constantly alerting people about this on my Twitter, people seemed to be paying some attention to it. Eventually, the exchange admitted that there was in fact wash trading going on and ‘sanctioned’ the trader.
In my opinion, it’s more like they politely asked the trader to claim his positions before the distribution. Someone with $20 Million to $60 million on Bitfinex likely has something no other trader has. A phone number for Bitfinex.
On top of that, as a result of these false signals. It caused other traders to expect a ‘big short squeeze’ or perhaps some traders ‘expecting a big dump’, to possibly take positions based on these fake shorts.
“After the methodology announcement on July 27th, several accounts began large-scale manipulation tactics in an attempt to obtain BCH tokens at the expense of exchange longs and lenders on the platform, causing the distribution coefficient to artificially plummet.
We have determined that this kind of manipulation — including wash trading and self-funding shorts — is in violation of Bitfinex’s terms of service. Those who intended to take unfair advantage of the circumstances surrounding the BCH distribution at the expense of other users have been sanctioned accordingly.”
The fact that the shorts dropped by 24,000 BTC in a single tick, in my opinion is proof this is done by a single entity.
Spoofy isn’t limited to just Bitcoin. Shortly after this ‘trader’ was ‘sanctioned’ another interesting thing happened.
Here we can see how the ETCBTC shorts simply vanished, from 60,000 ETC short, to a low of 93 ETC.
But let’s not just look at ETCBTC, what about ETCUSD?
I’m not sure what to make of these, but it calls into question the legitimacy of this data. The point I’m trying to make by showing the ETCBTC/ETCUSD margin pairs also engaging in very funny business at the same exact time, how are we supposed to know that the BTCUSD longs on Bitfinex are not also subject to this manipulation?
ETCBTC Shorts = Clear evidence of manipulation
ETCUSD Longs =Clear evidence of manipulation
BTCUSD Shorts = Clear evidence of manipulation (and admitted by Bitfinex)
BTCUSD Longs = BTCUSD Longs in terms of USD, has never been higher in Bitfinex’s history. See the green line.
And of course, we’re not even getting into the other margin pairs… such as ETHBTC which is quite frankly, ridiculous.
Spoofy has been spotted on GDAX… however his orders though on GDAX are much smaller. Usually 400–500 BTC spoof bids or spoof asks.
I have plenty of screenshots on my Twitter
People underestimate how much exchanges follow each other. Manipulation on one exchange will affect prices on other exchanges. You have traders that watch all of the exchanges and if one exchange starts to pull ahead, they too buy on cheaper exchanges.
You don’t just have people, but you also have bots that will do the same thing, so price reactions can be immediate.
I believe that since Bitfinex lost their traditional banking, sending USD to buy or selling on Bitfinex to get USD involves a lot of friction, and as a result there are far fewer legitimate traders, leaving us with the wash traders and spoofers.
In my opinion, Bitfinex will never re-establish traditional banking relationships, and their ‘clever workarounds’ will eventually fail. Their Chief Strategy Officer, Phil Potter, even admitted to playing games with banks in an interview that was eventually pulled off of YouTube, but luckily, I saved it.
“We’ve had banking hiccups in the past, we’ve just always been able to route around it or deal with it, open up new accounts, or what have you… shift to a new corporate entity, lots of cat and mouse tricks.”
-Phil Potter, Chief Strategy Officer of Bitfinex
If you think that’s the kind of business banks want to do business with, I have some Bitcoin in the Genesis block I’d like to sell you.
Their next Cat and Mouse Trick?
What are Tethers you may ask?
Tethers are ‘tokens’ that on their website claim to be backed by US Dollars, and 1 TetherUSD (USDT)= 1 USD.
Bitfinex has claimed in a support ticket that they have an ‘Institutional’ Investor, who supposedly has a Taiwanese bank account, and therefore, can buy Tethers.
There’s only one teensy tiny itsy little bittle problem with that. No institution in their right mind would ever agree to buy over $250 million USD worth of what are legally car wash tokens… unless it’s someone like BTC-E, hence why I think they could be tied up in a mess together, again speculation on my part.
Tether is in the same boat as Bitfinex. They were also cut off from banking by Wells Fargo. The Bitfinex lawsuit against Wells Fargo also had Tether as a plaintiff. (Source)
They have repeatedly said themselves that “Tether” isn’t part of Bitfinex, but when you dig down a little bit, it turns they are all shareholders in each other.
Tether issuance has continued to skyrocket despite no traditional banking, and despite the fact that tethers, by their own admission (and admission of their own lawyers), are not redeemable for money.
When Tether was cut off from banking, Tethers were around $60M, at the time of this post, they are over $310 million.
At the start of the year, the amount of Tethers in circulation was a mere $6M. A ten fold increase from January to April, and a nearly four fold increase from April to August.
The lawyer for Tether is Stuart Hoegner, and is general counsel for Bitfinex and Tether. Member of Bars of Ontario (LSUC #42037E) and Nevada (NVbar #12774).
While they are sure to assure everyone that they in fact have 1 USD for every Tether issued, that is pointless if they never actually have to give you that USD for your Tether.
Let’s not forget that the entire concept of Tether, even if they were redeemable and legit, will eventually run afoul of US banking regulations. In my opinion, that is the actual reason why they made them legally no cash value car wash tokens, as an attempt to make them legally permissible. I do not think regulators are this stupid.
Let’s think about what happens to Tethers if their bank accounts are seized, or if it turns out that money is co-mingled with BTC-E withdrawals from criminals.
The exchange rate of Bitcoin has been heavily manipulated as a result of spoofing, wash trading, and other shenanigans. This is not healthy long term for the price of bitcoin and the possible future collapse of Tether and Bitfinex will cause a dramatic effect on future Bitcoin prices because we will no longer have these false signals coming out from Bitfinex.
All of the money on Bitfinex is essentially in the same position as Tether. Bitfinex has been without banking for nearly five months. Banking is unlikely coming back to Bitfinex.
I don’t believe a bank is going to do business with an exchange as such as Bitfinex, and banks are probably hesitant to do business with a institution who has also sued a large bank in what was obviously a frivolous lawsuit and then withdrew the lawsuit a week later.
A bank that would do business with a business like a Bitcoin exchange is going to do a significant amount of due diligence on the exchange. What do you think they are going to find when they do some homework about Bitfinex?
Finally, in my opinion, I believe that a significant amount of the trading on Bitfinex is likely wash trading, and this could be wash trading in both directions up and down. I believe Spoofy is playing on multiple exchanges, but his orders are usually much smaller on the other exchanges.
Spoofy is either:
In point of fact, two out of the top ten BFX token-holders are in our management team. We assure everyone that we feel the loss acutely, both as a company and as individual customers. Source (Archive)
In my opinion, there’s absolutely no way that Bitfinex does not know who the spoofer is, or that he’s engaging in illegal spoofing. The exchange can easily prevent, or punish this type of activity.
Nobody needs the ability to place $2M to $15M of buy orders for Bitcoin for five seconds. They could prevent a lot of this activity by simply not allowing orders over a certain size to be removed until a timer lapses.
Even some video games have these kinds of restrictions to prevent manipulation of their fictitious markets.
This is a common strategy in financial markets, and Bitcoin is not immune to this.
Now, I’ll leave you with this graphic. The very first miraculous recovery happened right when Bitfinex was cut off from Wells Fargo.
Don’t forget that Bitfinex failed to announce this problem until April 13th, they even proudly announced their BFX token redemption despite knowing nobody could withdraw USD from their exchange.
The period between March 23rd to April 13th, most traders were in the dark about their banking problems.
Except for management.
Was Spoofy buying?
For more information regarding Tethers, be sure to see a more complete story regarding tethers here.