Bitcoin ‘Fake-Selloff’ Was Driven by Dealers With Short Inventory – Arca
What we saw last week in the crypto market wasn’t actually a selloff, but the price being artificially driven down by dealers with short inventory, according to Jeff Dorman, the Chief Investment Officer (CIO) of US-based investment management firm Arca. Also, the second-highest amount of “cash” sent to exchanges this week could be seen as “a very healthy sign of support.”
Following the recouping of most of losses suffered the prior Sunday, on Thursday “the bears gave it another shot following President [Joe] Biden’s revealed tax plan, pushing the market down violently once again,” said Dorman in a blog post. “Only this time, it was nearly impossible to buy the dip [as] there wasn’t much available for sale.”
The two selloffs were very much different, the CIO argued. The first one was caused by the unwinding of leveraged longs and a record number of forced liquidations, and the second one – seen on Thursday and Sunday – was a dealer-driven markdown, with very little selling pressure from token holders, he said, adding:
“If anything, it was more of a buyer’s strike than a seller’s parade. […] These types of fake selloffs happen all the time in other semi-liquid asset classes.”
This selloff wasn’t actually a selloff, “as anyone who tried to buy the dip found themselves bidding into an offerless wind tunnel,” he argued, adding that this refers to any buyers looking to put money to work outside of BTC.
Anyone who tried to buy “real size” (meaning tens to hundreds of millions in a clip, which is the type of size institutional investors buy) had no ability to do so, OTC or on exchange.
Smaller, retail purchases were not affected by this dynamic
— Jeff Dorman, CFA (@jdorman81) April 26, 2021
The bond market is the best parallel, said Dorman, explaining that: after a period of heavy volatility, dealers end up with a lot of long and short inventory, with those with short ones possibly incentivized to start taking prices down so to turn around and buy, and others following suit – until the buyers start to slowly arrive. With prices artificially down, buyers emerge, but are unsuccessful at making significant purchases, while “the dealers take their prices back up, and lo and behold we end back where we started with very little to show for it other than a lot of stress.”
In crypto market, some of the information working in the favor of dealers/funds who were short include: a lack of buyers, crypto stocks dropping, and Biden’s tax plan.
With the start of this week, more “cash” was sent to exchanges than at any point in history other than one month ago, said Dorman. This could be viewed as “a very healthy sign of support and a lot of pent up buying pressure,” but it remains to be seen if that cash can “actually be put to work before prices head back higher.”
Dorman concluded that “you’d have to be trying pretty hard to ignore the underlying signs of strength,” adding that “this is what adoption looks like — the top six most popular financial app downloads in the app store are all companies that allow customers to buy certain digital assets.”
Meanwhile, per data provided by digital currency manager CoinShares, outflows for bitcoin hit USD 21m for the week of April 23 – the largest weekly outflow on record. Poor sentiment led to low inflows of USD 1.3m, the lowest weekly figure since October 2020.
There was, however, an “improving appetite for ethereum (ETH), which “bucked the trend” with investment product inflows of USD 34m.
At 14:00 UTC, BTC trades at USD 54,703. It’s up by almost 2% in a day and down almost 2% in a week. ETH increased by 2% in a day and almost 18% in a week, reaching USD 2,551.
@RaoulGMI Might be a good idea to take a look at the monthly RSI while you’re looking. Changes things a bit re reas… https://t.co/xlpnUCWFf3
— Joel Kruger (@JoelKruger)
And for those that say “blah blah $BTC is too volatile to replace gold,” volatility will dampen with time, size, and liquidity (and has).
— Chris Burniske (@cburniske)
— The Wolf Of All Streets (@scottmelker)
Funding is very low and healthy.
— Lex Moskovski (@mskvsk)
Quite a move in #Bitcoin: After falling to around $47,000, lowest in 7 weeks, Bitcoin has bounced back strongly and… https://t.co/OlMvbGCOXU
— Mohamed A. El-Erian (@elerianm)