For Bitcoin, that was the week that was, but for analysts and advocates alike, market behavior was, as some people say, not “kosher”. Something just did not smell right. The bottom literally fell out of support for the world’s favorite digital asset, which shed 20% of its market share in a flash on Tuesday and now struggles to hang onto $8,000 for dear life. A few analysts suggested that the Bakkt futures exchange actually led to true price discovery and a “fair value” for BTC, but others claimed market manipulation was afoot.
Were cries of manipulation warranted or were these sanguine gripes from a cast of disgruntled investors that had just received a rather bloody haircut? During the uproar, believe it or not, Arcane Research published a report, which documented eighteen months where the appearance of market manipulation could not be a “coincidence”.
According to an article in Forbes, “Now, new research has warned of a “striking systematic trend” in bitcoin price movements, with bitcoin falling far further than average ahead of CME’s bitcoin futures contracts being settled each month.”
Arcane’s Bendik Norheim Schei noticed that average BTC price movements were 0.04%, whereas the prices fell an average of 2.0% before CME expiration dates, usually the last Friday in the month. Schei’s conclusion:
Statistically, it is highly unlikely that the price falls in advance of CME settlement should be caused by mere coincidence.
Schei also suggested that more work was necessary to determine if true manipulation tactics were at play:
The figures thus support a hypothesis that the bitcoin price is manipulated in advance of CME settlement. However, the figures do not say anything about deliberate manipulation or, for example, only a result of investors’ strategy of hedging.” He then added: “Other factors could potentially explain the pattern, or show that it is even stronger.
At this point, some of you may be scratching your heads, wondering how someone could manipulate prices on a futures exchange that only settled in cash, as does the Chicago Mercantile Exchange? The purported “manipulation” does not occur within the confines of the CME. The guilty parties would more than likely be a large institutional investor, the owner of a large Whale account, or even an exchange for that matter that was hedging its bets in the futures market. The objective would be to throw around enough weight in the spot market to set a price, which in turn would be used by the CME to settle.
These futures contracts are optimal for manipulation. They are settled in dollars and not in bitcoin. The price for the settlement is determined by the bitcoin price in the underlying market. Thus, it is never actual bitcoin that change hands, and it is just an overlying market traded in dollars.
There is one other important fact to remember, as well. Analysts have been contending that the market always fills open “gaps” in CME futures, which can occur over weekends or holidays when the CME is closed. According to Tony Spilotro at NewsBTC:
Below current prices, lies two CME Future gaps: one between $8,500 and $9,000 – a target that many have been watching as a place buyers are waiting to buy the dip – and another between $7,200 and $7,450.
Spilotro reiterated this warning three weeks ago.
Is it therefore purely coincidence that Bitcoin’s price suddenly dipped below $9,000 to wipe out the first “gap” noted above? Is the filling of the second “gap” now a certainty? The following chart provided by Forbes would seem to indicate as much:
The gradually descending and converging triangle formation is now history. For months, analysts debated whether BTC would break to the north or to the south out of this obvious pattern of price behavior. Bitcoin has barreled, unfortunately, to the south and found comfort at a previous support level of $8,000, but for how long? If its downward thrust continues, the next support precipice is not until about $6,300.
If this move occurs, then the last open “gap” below $9,000 will be filled. Are there any remaining “gaps” left unfilled? As a matter of fact, there is one of note. It is from $11,700 to $11,950. When the smoke clears after Bitcoin’s recent collapse, let’s wait and see which analysts are first to claim that $12,000 is next, since the CME “gap” says as much.