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Like a toddler in a car seat on a long drive, over the past week the cryptocurrency market has consistently asked the nagging and annoying question “Why?” “
Specifically, why did someone make a massive $ 1.6 billion bitcoin purchase on Wednesday in a matter of minutes?
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While many see this huge buy as a signal of optimism, there may be more complex responses when you zoom out and look at the bigger picture, one that involves capital markets at- beyond the relatively small world of crypto.
Some of the clues as to why – and who – can be found in what, where, when, and how this huge bitcoin trade happened.
What?
As CoinDesk’s Muyao Shen reported on Wednesday, a buyer or group of buyers placed an order on a central exchange to buy $ 1.6 billion worth of bitcoin. That’s no small thing – to put it in perspective, it’s about 4.5% of the average daily volume in the bitcoin spot market over the past two months.
Such an offer reaching the market in less than five minutes (1:11 p.m. to 1:16 p.m. UTC Wednesday) is a lot to scramble into a single exchange (or three). It almost immediately sent bitcoin prices up 5% to around $ 55,500.
A buyer with a long-term perspective would be more cautious if the goal was to enter at the best possible price to mitigate the risk of that rascal known as slippage.
Slippage is more than what happens when a bartender fills your glass to the brim and you direct it to your table while George Thorogood screams in the background. It was the difference between the execution price and the midpoint of the bid and ask price that caused you to accept the trade in the first place. With a big buy, fulfilling each offer ends up pushing the deal price (and therefore the average execution price) higher and higher. But do it sparingly and you give new sellers time to place orders that can be filled slowly but potentially at a price lower than if it had to be done all at once.
Here’s an example, albeit on a larger scale, of how a company handled a large bitcoin purchase: minutes. Although the price did eventually rise over those several months, each transaction didn’t shoot it up with the same kind of ferocity it did last Wednesday, preventing CEO Michael Saylor’s costs from slipping away as he bought.
This was not the case last week with the one who shelled out the equivalent of $ 1.6 billion for bitcoin. It appears Wednesday’s big buyer was in a great hurry to close the deal.
Where?
Trying to identify the exchange that took over this trade offers some clues as to the buyer’s motivation.
The price of bitcoin on Coinbase relative to other exchanges rose sharply as the trade took place, leading some to speculate that the regulated US exchange was the platform on which the transaction took place. occurred. However, digging a little deeper into the data, the trade is in Asia.
Three exchanges saw particularly large volumes in their perpetual futures contracts, according to Ki Young Ju, CEO of data provider CryptoQuant. These three – Binance, Huobi, and ByBit – while not technically based in China, have long had ties to the county, where another crackdown on crypto was recently announced.
“Whales yesterday bought $ BTC on perpetual futures markets, mainly at @binance, @HuobiGlobal and @Bybit_Official. The core ratio indicates that it was focused on futures, and they took long positions as open interest skyrocketed at that time. These guys know something ”, Ki tweeted Thursday.
Ki speculated that a possible explanation could be that traders are taking huge positions ahead of a rumor that the United States Securities and Exchange Commission has approved a bitcoin exchange-traded fund (ETF) based on contracts at term. The buzz hit the market after the chairman of the regulator, Gary Gensler, simply reiterated his previously stated preference for a futures-based ETF, should it ever be launched.
“If this move were the ETF in the lead of US whales, they will likely use non-US exchanges to avoid blame for IMO insider trading,” Ki tweeted, shooting down the idea that the trade came from an order on Coinbase. “The dominance of spot trading volume for Coinbase has been increasing lately, but not as high from the start of this year.”
Again, this does not explain the trader’s willingness to accept the slippage. After all, launching regulatory action a full week after speculation started by piling everything up with a big order wouldn’t be prudent or rational. This does not mean that irrational exuberance does not exist in the crypto markets; for many participants, this is a feature, not a bug. But this is usually not something characteristic of an entity with the resources to undertake a billion dollar business.
On the contrary, the fact that these three perpetual futures exchanges originated in China (although they are no longer based there) may be more important than their relative liquidity.
When?
It is a strange coincidence that a transaction of this magnitude took place on exchanges with links to Chinese clients in the middle of a week plagued by problems in the capital market in that country.
Two days before the deal, Fantasia, a China-based real estate developer, missed a $ 206 million bond payment. This led to the company being downgraded by the rating agency Fitch. The situation is not confined to a single company, as Standard & Poor’s demoted Chinese developer Sinic. Of course, both are pale compared to Evergrande, the over-leveraged real estate giant that falters when it defaults. Evergrande’s shares were also suspended on Monday.
Another big real estate developer, Chinese Estates Holdings, decided to pull out on Thursday after the market slammed its shares by more than 40%. Chinese Estate Holdings is a major investor in Evergrande.
This is a roundabout way of saying that there is serious contagion in the Chinese real estate market. This is not good for the country’s economy given that about a third of its economic activity is tied to the real estate sector, while it is only about a sixth for the United States.
How? ‘Or’ What?
But wait, there is more!
Although the purchase was listed in the press at $ 1.6 billion, it was not actually $ 1.6 billion in greenbacks paid for bitcoin.
On the one hand, if CryptoQuant’s Ki is correct, it was first done in the perpetual futures market, not the cash market. This means that the actual bitcoin may not have gone to the original buyer. Nonetheless, this will have an effect on the spot market as the two move in tandem.
Additionally, dollars themselves were probably not the currency used, but the transaction appears to have been largely carried out using the USDT stablecoin, issued by Tether, which was a ramp for many in China to trade. on exchanges like Binance or Huobi.
“Most of the trading volume came from BTC / USDT,” Ki told CoinDesk of Wednesday’s trades, “meaning buyers already had USDT coins.”
A review of the transaction volumes on the data site CryptoCompare.com shows that at the time of the transaction, the BTC / USDT pair exceeded BTC / USD (bitcoin for the US dollar) by about 2 to 1.
This means that a person with large holdings of USDT – even though a fraction of the actual transaction might have been involved – has converted their stable holdings of coins into bitcoin exposure, if not the coin itself. .
Another strange coincidence?
Remember a minute ago when we talked about Chinese corporate debt? Here’s something interesting: On Thursday, BloombergBusinessWeek published its cover story, “Anyone Seen Tether’s Billions? Towards the end, author Zeke Faux writes, curiously:
“After I returned to the United States, I obtained a document showing a detailed account of Tether Holdings’ reserves. He said they included billions of dollars in short-term loans to large Chinese companies – something money market funds avoid. And that was before one of the country’s biggest real estate developers, China Evergrande Group, began to collapse.
He goes on to say:
“Tether has denied holding any debt from Evergrande, but [Stuart] Hoegner, Tether’s lawyer, declined to say whether Tether had other Chinese business papers. He said the vast majority of his commercial paper had high ratings from credit rating agencies. “
What is on Tether’s books remains hidden from the outside world. But if the mystery shopper saw the same document as Bloomberg’s Fake, or other compelling evidence that Tether is indeed exposed to the Chinese credit market, then they would have a strong motivation to offload USDT. Even $ 1.6 billion all at once.
Again, this is just guesswork. Unless and until we know who did it, we may never know the motivation of the trader.
We also won’t know if that was the right move, especially if the contagion spreads to crypto.
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