Multi-Million Bitcoin Trade “Claimed”
Just recently, a Bitcoin trader on Bitfinex claimed, not liquidated, 9,000 BTC worth of shorts — a position that was collateralized by over $100,000,000 worth of the cryptocurrency if unlevered.
For those unaware of the complexities of Bitfinex’s long-short trading system, the “claim” means that the trader (assumed to be one entity due to the speed of the claim) used funds in his/her/their margin wallet to settle the short. Unlike liquidations, which happens when shorts or longs are forced to close their positions after a large move, all this activity occurs off the order book. As Bitfinex writes:
Claiming a position is essentially converting from a margin trade into an exchange trade; closing the position by buying it yourself and settling your funding costs to the lender. Because of this, there is no trading activity on the order book.
Due to this massive claim, the number of Bitcoin in open shorts on the popular crypto exchange fell by 60% to 5,000. Ouch. What do analysts have to say of this movement in the market, which seemingly didn’t lead to any direct price action in the minutes afterward?
According to popular trader Jacob Canfield, massive Bitcoin short closures on Bitfinex have preceded moves that can be defined by a pattern. Out of the four previous large closures (claims of around 10,000 BTC or more), Bitcoin fell notably three times, with the drawdowns averaging out to 23%. A 23% move lower from the time of the claim would represent a retracement to $9,000, which some actually have pointed to as a good place for Bitcoin to find a short-term bottom.
The other time, BTC rallied by 28% after a large claim, implying that the “sell after claim” strategy may not be valuable this time around.
Canfield noted that he sees a short period of ranging in Bitcoin’s future.
It is important to note that there are other indicators than the number of BTC shorts on Bitfinex that may give some indication as to where the cryptocurrency market is heading next. As reported by Ethereum World News previously, Canfield noted that Bitcoin’s price action over the past month eerily resembles a corrective contracting triangle, which could either signal the end of a trend or a sign of impending continuation. Canfield shows that if Bitcoin follows this trend as it is shown in textbooks, BTC will fall to the low-$10,000s, rebound, fall once again, and break out to either the upside or downside.
Title Image Courtesy of Andre Francois Mckenzie Via Unsplash