We’ll make this quick. The past few days have seen me receive several missives on a bitcoin ‘flash crash’ the weekend before last. I looked it up and as far as I can see the market dropped by around $1000 in quick time and recovered about half the losses.
It shows how far bitcoin has come that a move I and many others considered normal in this market is actually starting to raises peoples’ hackles
The fact is the drop happened on a Saturday when people (perhaps) have better things to do with their time and, while not fact, I am less willing to pussyfoot around the issue as some commentators – I will label this a deliberate act. It’s a classic clear out of weak longs and is as old as markets themselves – what makes this different is that the market structure in a way helps the perpetrators because market positioning is readily available and easy to pick up. This makes it a simple exercise of waiting for the right moment, slamming the market in reasonable but not inordinate size, and placing the passive bids a thousand bucks lower.
Welcome to the world bitcoiners! Just as many of you yearn for institutionalisation, with that comes market access for people who will be able to access the positioning data and take full advantage of it. At some stage it might be thwarted if enough people think ‘great I’ll buy $200 bucks into the dip’, but we don’t have the market depth yet and more importantly, that’s not what happens in the much more liquid FX market with many more competing interests and motivations to trade, so why would it happen in bitcoin?
It’s a classic ‘chicken and egg’ scenario – with institutionalisation would come greater market depth making this type of manoeuvre harder to pull off, but this type of move gives those genuine investors in the institutional space more reason to hold back. Sadly the evolution of these things means those with nefarious intent always get first crack at a market before those who would be able to stop them.
There is a solution of course, crypto markets can become less vulnerable to this type of exercise if they shut down at the weekend – few genuine institutional investors work weekends, and if these markets are regulated. The problem then is, the original ‘pure’ concept of bitcoin disappears and it becomes what I have long argued it always has been – just another asset or commodity to trade (albeit one that is a lot more ‘fun’ than most!).