The Great BitMEX-Tether Short Squeeze Conspiracy Theory — Does It Hold Any Water?
An interesting BitMEX-Tether short squeeze conspiracy theory has emerged suggesting that Tether and Bitfinex deliberately pumped the price of bitcoin during the scheduled BitMEX maintenance shut down, forcing the leverage exchange to liquidate the vast number of short positions on its platform. But is there any truth behind it?
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The BitMEX-Tether Short Squeeze Conspiracy Theory Goes Like This…
Giant crypto exchange BitMEX, which allows traders to take leveraged short and long positions on bitcoin futures, shut down as scheduled for maintenance:
Scheduled Maintenance to begin in a few minutes at 01:00 UTC.
— BitMEX (@BitMEXdotcom) August 22, 2018
A minute after the exchange went offline, a bitcoin price rally began, pushing the coin up to $6800 USD — representing an almost six percent spike in an hour. While the site maintenance was scheduled and announced in advance, the site was offline for longer than originally planned.
Short positions at the time were at their highest levels ever. One of the most informed and intelligent market analysts in crypto, @CryptoQF, noticed the high number of short positions and the impending site shut down. He warned traders to be careful of being caught in positions they couldn’t alter while the site was out-of-service:
I’m not much of a conspiracy guy but it will be epic if bitcoin pumps during the BitMex downtime. If you are shorting there plz make sure you have your stop losses set (may not do a ton of good tho). This can be setting up to be an epic disaster for some. Be safe
— Crypto Quantamental (@CryptoQF) August 22, 2018
Omni explorer shows a large issue of new Tethers — 100 million of them — at around 3am on August 22nd. A history of send transaction from that infamous address suggests 100 million Tether tokens is a particularly large amount.
That transaction represents funds sent from the Tether Treasury to Bitfinex. A large buy order for 4,000 BTC was placed on Bitfinex within a minute of BitMEX going offline, causing the price of bitcoin to surge:
Come on bro. There is not always something around the corner like ETF. Timing was impeccable on the bull whale. So you think it's a coincidence that 1 minute after Mex down 4000 BTC market buy order Finex was executed? Next you tell me gold market not manipulated also? Wow!
— Hoosier Crypto (@Hoosier_Crypto) August 22, 2018
A number of short traders on BitMEX had their positions liquidated, as they were unable to amend their orders with the site down. And with little selling pressure given BitMEX’s closure, bitcoin’s price had nowhere to go but up.
Is There Any Substance to the Great BitMEX-Tether Short Squeeze Conspiracy Theory?
Did Bitfinex, Tether, and BitMEX conspire to liquidate bitcoin shorters when they were helplessly unable to amend their positions? Unlikely. The most plausible explanation is that a bullish bitcoin whale saw an opportunity to manipulate the bitcoin market and profit at the expense of BitMEX bears.
In that scenario, the trade was cynical and opportunistic, taking advantage of a major exchange going offline. Manipulation? Absolutely. A sophisticated whale trading against inexperienced traders with leveraged short positions, made even more vulnerable with BitMEX down? Absolutely. But all that is a far cry from a conspiracy.
A hundred million Tether tokens being printed in a day, while high for the week, is not unprecedented. This is not to relieve anyone of their culpability when it comes to “the Tether problem”, but a connection to the short squeeze in this case appears slightly weak.
The Short Squeeze Was Highly Anticipable
BitMEX going offline when the number of short positions was so high speaks to trader inexperience. All of those traders placed themselves in a vulnerable position from which they should have known they would be unable to find a path of extraction. With so many short positions and low liquidity due to BitMEX’s site maintenance, conditions were perfectly conducive to a short squeeze.
The problem with conspiracy theories is that conspiracies rely on levels of competence and organizational discretion that surpass human capabilities. For Bitfinex, Tether, and BitMEX to have conspired to procure money from unwitting leveraged traders would have required a number of parties to coordinate efforts for shared gain, and for nobody to leak the arrangement. People simply aren’t that smart.
One suspicious observer asked a probing question:
Is it a coincidence Bitmex is down for maintenance and we get a pump?
— Don Le (@DonLeCR) August 22, 2018
No. It wasn’t a coincidence at all. But a non-coincidence does not a conspiracy make.
Have your say. Do you believe the BitMEX-Tether short squeeze conspiracy theory holds any water?
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