- Rangebound Bitcoin is perfect for market manipulators looking to liquidate both long and short derivative positions.
- Until broader macro conditions appear to create a durable bullish or bearish market for Bitcoin, manipulation will mean that traders will continue to get rugged at either end of the range.
Bitcoin advanced for a third straight day yesterday, rising back above US$31,000 only to come crashing back down again to US$29,000 and little of this may have to do with the U.S. financial markets or risk appetite.
As has been the case for the past several weeks, there have been signs that the real catalyst for movements of Bitcoin’s price behind the scenes have been the regular and periodic liquidations of long and short derivative products.
Given how the cryptocurrency markets are barely regulated, exchanges have the first look into the amount of longs or shorts overhanging the markets and it’s happened with an uncanny level of regularity over the past few weeks for these liquidations to kick in whenever Bitcoin has rebounded from around US$29,000 and pushed towards US$31,000.
In rangebound markets and absent any longer-term bullish reasons for Bitcoin to go higher, market manipulation can often become the order of the day, with market makers walking up the price of Bitcoin (spoofing) luring in the long futures at the peak (near US$31,000) only to orchestrate a swift reversal soon after.
Heatmaps which chart the buy and sell walls have shown relatively strong levels of resistance at US$32,000 and support at US$29,000, which are perfect for luring in traders to short and then get hammered at the liquidation and long (late) to see themselves caught out.
Bitcoin’s straddle around US$30,000 works because the macro backdrop remains uncertain.
Some analysts suggest that Bitcoin could get a weekend boost if U.S. consumer price data later this week suggests that inflation is coming down, fueling speculation that the U.S. Federal Reserve will dial back its hawkish pivot, but this is highly speculative.
Until such time that the broader financial markets provide a clear direction for risk assets, manipulation will continue to be the order of the day and traders should not despair when Bitcoin falls to US$29,000 nor should they expect a turnaround when it’s at US$31,000.