Just when Bitcoin was looking ready to make another leg higher, the NY State attorney alleges Bitfinex used Tether reserves to mask $850 million that was “lost” when Bitfinex handed the money over to Crypto Capital to handle withdrawal payments. With all the conspiracy around Tether and Bitfinex, you would think Bitcoin would have fallen $1500 or so, but it didn’t. This is really not a Bitcoin issue it is a Bitfinex issue.
Just when it was looking ready to make another leg higher, the NY State attorney alleges Bitfinex used Tether reserves to mask $850 million that was “lost” when Bitfinex handed the money over to Crypto Capital to handle withdrawal payments. With all the conspiracy around Tether and Bitfinex, you would think Bitcoin would have fallen $1500 or so, but it didn’t. This is really not a Bitcoin issue it is a Bitfinex issue.
Within the article and investigation, there was an interesting note. In March Bitfinex modified their wording that coins were backed by “reserves that include currency, cash equivalents and other assets and receivables”. We mentioned this in a previous article, thanks to a wonderful friend, who will remain anonymous, that pointed this out. It was using Ethereum as collateral to remove Tether from the treasury. First lets examine this, and second does this really matter in the end?
I am not an accountant, nor an attorney, but assets are assets. If I have a total of 2 billion, be it USD, gold, Bitcoin, Ethereum etc, it is still a total of 2 billion. If I borrow money and use my gold as collateral, does it matter that it is not in cash? Probably not, but regardless, they have not been very transparent with their handling of Tether. However, the only reason to borrow money is to make money, and here within lies the potential true conspiracy.
Is Bitfinex using the funds from the treasury to manipulate the market, hence retiring the funds lost with Crypto Capital? Surely this is a possibility and would make sense with the transfer of Millions of Tether using Ethereum or Bitcoin as collateral. However, this is not new, and it is not the first time we have brought up the possibility that Bitfinex is using Tether to manipulate market conditions, to their advantage.
Regardless, manipulation of markets is as old as markets themselves. It happened 100 years ago, it still happens today, and it is not isolated to crypto currencies. One thing to look for is red flags, and we mentioned a few days ago that Tether was being moved from the treasury using Ethereum as collateral. Another 100M ETH Tether was printed yet again today which is not chump change. Here is your sign, and with the market acting a little odd, we just simply step back and see how it plays out.
The initial swing on the news is to be expected, but Bitcoin did find support and buyers step in around the 5k area. The key level here to hold is 4900, and as long as this level holds, we can still look for a leg higher. We would have expected news like this to hammer this market and we are not seeing it, at least yet anyways. When ever you get bad news, and the market does not fall apart it is a sign of strength.
A $300-500 selloff is hardly a hammering, and with shorts continuing to pile in we are not seeing capitulation by any measures. Sure we can still pull back further, but we would normally expect to see a $1000+ selloff, as we have in the past with similar news.
There are a few levels to watch, with the first being 4900. Buyers might see this as an opportunity, and start accumulating under 5k. If 4900 holds over the next day or two, we can expect a move to retest the high, or swing into the low 6k’s. The 4500-4700 level is now in play, and this would be an ideal area to add and if we get there, I will be looking to add.
We can pullback as far as 4200 and still consider it in a bullish cycle.
Shorts Piling In
Shorts continue to pile in and the news is pushing more an more shorts into a crowded trade. Up nearly 70% since the April 8th low, Bitcoin has not really pulled back much. In addition there were another 100M ETH Tethers printed today. I assume these are USDT backed by Ethereum, but regardless it looks like multiple exchanges are bag holders of Tether.
Months ago in our Tether article, we mentioned it was in the exchanges best interest, if there was a shortage of USD backing Tether, to fix it. How do you do this? Price fixing, and this is the risk to shorts, because they are the easiest to squeeze out of a trade. It also has a cascading affect, where it attracts buyers, which pushes more stops out, and so on.
So you use your Bitcoin to sell into a peak, pushing out longs, and gathering short interest. You then start accumulating near the bottom of the range, allowing the equity to show weakness. Sometimes this is more difficult than others, but they were given a wonderful news release that plays right into this. Now they can accumulate as shorts begin to really pile in.
Once shorts start to wane, they start aggressively buying, and push right through the stop losses creating a short squeeze, with buyer stepping in thinking, ohhhhh I’m missing out. This creates the buyers they need to sell the coins they bought at lower prices. They then return the Tether to the treasury, keep the profits, or use them to retire some of the $850 million tether “alledgedly” missing.
Watch the 4900-5000 area for the potential for a short squeeze. The exchanges have built up their Tether war chests, and can easily raid a market, and start to slowly, if not already, start to replace the money stolen by Crypto Capital. Even if these levels do not hold, under 4900 is a buying opportunity in my opinion. It is all how you add, not where you add. Trying to time the perfect level, will have you missing out on broader moves.
In the end there is nothing to do here but let the market play out. Tether has become such a conspiracy that the market hardly even reacts anymore to good or bad news. Over reacting to news like this can put you on the wrong side of a trade. Calm down, focus on areas you want to add, and take advantage of them when they get there.
Heck most were wishing 2 days ago they did not sell at 4500 or feel they missed that opportunity, and would love another one. Yet if and when we get there, most will once again get cold feet. Pick your levels and do not hesitate to add, Bitcoin would have to take out the 4k level to null and void a bullish thesis here. If you believe over the next 1-2 years Bitcoin gets back to 20k does it really matter if you added at 4900-4700-4500?