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Specifically, why did anyone buy a large amount of Bitcoin worth $1.6 billion in a few minutes on Wednesday?
Although many people view this large purchase as a bullish signal, when we zoom in and look at the overall situation, there may be more complicated answers that involve capital markets rather than the relatively small world of cryptocurrencies.
Some clues as to why—and who—can be found in when, where, when, and how this huge Bitcoin transaction occurred.
As CoinDesk’s Muyao Shen reported on Wednesday, a buyer or group of buyers placed an order on a centralized exchange to buy $1.6 billion worth of Bitcoin. That’s nothing-to put it another way, it’s about 4.5% of the average daily transaction volume in the Bitcoin spot market over the past two months.
The large amount of supply entering the market within five minutes (UTC Wednesday 13:11 to 13:16) is a great burden for any one (or three) exchanges. It almost immediately caused the price of Bitcoin to skyrocket by 5% to approximately $55,500.
If the goal is to enter at the best possible price to reduce the risk of rogues known as slippage, then buyers with a long-term perspective will be more cautious.
Slippage is not just what happens when the bartender fills your wine glass and then you walk it to your table while George Sologood is making a loud noise in the background. It is the difference between the strike price and the midpoint between the bid and ask prices that get you to trade first. For large purchases, each quotation will eventually push the transaction price (and the average execution price) higher and higher. But do it bit by bit, you give new sellers time to place orders, these orders can be completed slowly, but the price may be lower than one-time completion.
Here is an example of how a company handles a large purchase of Bitcoin despite its larger scale: Last year, when MicroStrategy purchased $450 million in Bitcoin, the company took a small amount from Coinbase in five months. The snippets were purchased in Bitcoin instead of five months in minutes. Although the price eventually rose over the course of these months, each transaction did not cause it to soar to the degree that it saw on Wednesday above, so that the cost of CEO Michael Thaler slipped away from him. NS.
This has not been the case in the past week, no matter who invested the equivalent of $1.6 billion in Bitcoin. It seems that the big buyers on Wednesday are eager to complete the transaction.
The exchange trying to determine the transaction provided some hints about the buyer’s motivation.
As the transaction progressed, the price of Bitcoin on Coinbase rose sharply relative to other exchanges, leading some people to speculate that regulated U.S. exchanges were the platforms where the transactions took place. However, more mining of data places trade in Asia.
Data provider CryptoQuant CEO Ki Young Ju said that the trading volume of perpetual futures contracts on the three exchanges is particularly large. These three-Binance, Huobi, and ByBit-although not technically in China, they have long been linked to China and recently announced another blow to cryptocurrencies.
“Yesterday, the whales bought BTC in the perpetual futures market, mainly in @binance, @HuobiGlobal and @Bybit_Official. The basis ratio indicates that this is driven by futures. As the open positions soared at that time, they gave up Long positions. These guys know a few things,” Ki tweeted on Thursday.
Ki hypothesized that one possible explanation might be that traders held large positions before the US Securities and Exchange Commission was rumored to approve futures-based Bitcoin exchange-traded funds (ETFs). After the chairman of the regulator Gary Gensler only reiterated his preference for futures-based ETFs, the market buzzed.
“If this move is the first ETF of American Whales, they are likely to use non-U.S. exchanges to avoid accusations of IMO insider trading,” Ki tweeted, Refuted the idea that the transaction came from Coinbase orders. “Coinbase’s spot trading volume dominance is increasing recently, but it is not that high compared to the beginning of this year.”
Again, this does not explain the willingness of traders to accept slippage. After all, it would be imprudent or irrational to take regulatory action in advance, and to put all a large order in, a full week after the speculation began. This does not mean that there is no irrational prosperity in the crypto market; for many participants, this is a function, not a mistake. But this is usually not characteristic of an entity with the resources to undertake multi-billion dollar transactions.
On the contrary, the fact that the three perpetual futures exchanges originated in China (although they are no longer located in China) may be more important than their relative liquidity.
This is a creepy coincidence. Such a large-scale transaction took place on an exchange connected to Chinese customers during a week of trouble in the country’s capital market.
Two days before the transaction, Chinese real estate developer Fantasia missed a bond payment of US$206 million. This caused the company to be downgraded by the rating agency Fitch. This situation is not limited to one company, because Standard & Poor’s downgraded the rating of Chinese developer Sinic. Of course, the two are dwarfed by the overly leveraged real estate giant Evergrande, which has been faltering in default. Trading in Evergrande’s stock was also suspended on Monday.
Another large real estate developer, China Land Holdings Corporation, decided on Thursday to privatize its share price after the market plummeted by more than 40%. China Land is a major investor in Evergrande.
This is a roundabout way of saying that some serious contagion is taking place in China’s real estate market.Given that about one-third of the country’s economic activity is related to the real estate industry, this is not good for the U.S. economy, and the U.S. accounts for only about one-sixth
Although the media claimed that the acquisition was US$1.6 billion, it was not actually the US$1.6 billion paid for Bitcoin.
First of all, if CryptoQuant’s Ki is correct, then this is first done in the perpetual futures market instead of the spot market. This means that the actual bitcoin may not flow to the original buyer. Nonetheless, this will have an impact on the spot market because the two move simultaneously.
In addition, the U.S. dollar itself is probably not the currency used, but transactions seem to be mainly done using the stable currency USDT issued by Tether, which is the entry point for many people in China to trade on exchanges such as Binance or Huobi.
“Most of the transaction volume comes from BTC/USDT,” Ki told CoinDesk of Wednesday’s transaction, “This means that the buyer already owns USDT tokens.”
The transaction volume on the data website CryptoCompare.com shows that at the time of the transaction, the BTC/USDT pair surpassed BTC/USD (USD in Bitcoin) at a rate of approximately 2 to 1.
This means that people who hold large amounts of USDT-even a small part of the actual transaction, because leverage may be involved-convert their stablecoin holdings into Bitcoin exposure, if not the actual coin itself.
Remember when we talked about Chinese corporate debt a minute ago? Here are some interesting things: On Thursday, Bloomberg Businessweek published a cover story, “Has anyone seen Tether’s billions of dollars?” Finally, the author Zeke Faux wrote strangely:
“After returning to the U.S., I got a document listing the detailed accounts of Tether Holdings’ reserves. It said it included billions of dollars in short-term loans to large Chinese companies-which was avoided by money market funds. That was before China Evergrande Group, one of China’s largest real estate developers, began to collapse.”
“Tether denies holding any Evergrande debt, but [Stuart] Hoegner, Tether’s lawyer, declined to say whether Tether has other Chinese commercial papers. He said that most of his commercial papers have received high ratings from credit rating companies. “
The content of the Tether book is still hidden from the outside world. But if mysterious buyers see the same documents as Bloomberg Faux, or other convincing evidence that Tether is indeed exposed to the Chinese credit market, then they will have a strong incentive to uninstall USDT. Even made 1.6 billion US dollars in one fell swoop.
Again, this is just a guess. Unless we know who did it, we may never know the trader’s motives.
We also don’t know if this is the right move, especially if contagion spreads to cryptocurrencies.