Data Reveals Bitfinex Short Contracts are not Depressing Bitcoin

The increase in Bitfinex short contracts has been correlated with Bitcoin’s ongoing depreciation. However, data reveals that there might be other factors at play.

Bitfinex Short Contracts and The Issue of Fake Trading Volumes

Usually, traders studying crypto trends fail to exclude trading venues, like the ones mentioned in the Bitwise Asset management Report from 2019, from their analysis. There’s also no guaranteed way of determining if an exchange has inflated volumes by providing privileges such as zero fees and special access to market makers.

For their part, exchanges themselves cannot conclude if a group of investors is involved in transactions that inflate volumes and prices. There are far too many pump-and-dump forums, influencers, chat rooms, and trading apps to trace this kind of activity.

As many exchanges are unsuccessful at keeping tabs on wash trading and entities related to it, the presence of institutional investors remains elusive around them. According to Philip Gladwell, chief economist of Chainalysis, exchanges could bring in institutional demand, provided that they are reporting real volumes. In his explanation, Gladwell noted, “If you’re an exchange and you have good incentives to report real volume, you may actually get institutional money coming in, but if you don’t have those incentives, they’ll stay away.”

The problem is that many decentralized exchanges(DEX) can be easily hijacked by market manipulators as there are no barriers against them, except for network gas fees.

The Expiry of Derivates and Bitfinex Margin Short Increase

As per data, the Bitcoin margin short increased by 22,000 as the prices of the largest cryptocurrency plummeted. Hourly price indicators reflected a downward slope that matched Bitfinex’s margin short activity. However, it’s important to note that BTC’s $2.5 billion monthly options expiry occurred at 8 am UTC, nearly an hour before the price activity underlined above.

Additionally, the CME futures expiry involving 12.6K Bitcoin contracts worth $412 million, took place at 3 pm UTC. But it’s hard to connect the expiry of derivates with the Bitfinex margin short increase.

To analyze whether Bitfinex contributed to Bitcoin’s price correction of June 25, one must look at the spot trading volumes.

Hourly volume indicators suggest that Bitfinex’s market share recorded a considerable spike in the last four days. This trend continued for seven hours before it mostly stopped.

These trends could certainly instill fear in traders, who saw a similar pattern develop when Bitfinex margin shorts increased to 25,000 BTC as the price of the primary crypto touched $28,000.

Such events may sometimes boost the positions of bearish traders while impacting the overall market since not many have the margin needed to short 22,000 Bitcoin.

Therefore, it’s reasonable to conclude that there’s little connection between derivatives expiry and the market slump, as the increase in Bitfinex spot volumes coincided with the margin shorts increase. Once the pressure eases, Bitcoin could bounce back to the $32,000 support level, encouraging investors to hedge their bets on the digital asset.