Bitcoin is closing in on $30,000, and that is just weird:
Why?
On Monday, Cointelegraph published a now-infamous tweet that the Blackrock spot BTC ETF had been approved.
Bitcoin spiked briefly to $29500 before dropping back when Blackrock denied the news.
Assuming the market is reasonably efficient, Bitcoin should have dropped back to under $28,000, where it has been hovering for most of the month.
But it didn't. And now it's going up.
What's happening?
Well, it could be that the sudden spike of Bitcoin on the fake rumour was a wake-up call to traders that the market for Bitcoin is a lot tighter than people thought.
Waiting around for the American Securities Exchange Commission (SEC) to approve a spot BTC ETF and then buying Bitcoin might not be a good idea.
Here are the numbers on Bitcoin's trading volume over the last 24 hours:
At first glance, Bitcoin's trading volume looks very healthy, with a trading volume of more than $5 billion USD in the last 24 hours.
However, the numbers are fishy. Very fishy.
Three of the top four trading pairs are on the Binance exchange, and the counterpart to the Bitcoin in each pair is NOT the US dollar, but a synthetic US stablecoin, (FDUSD, USDT, TUSD).
Those trading pairs supposedly did $4.2 billion of Bitcoin trading volume or more than 80%.
There are only two US exchanges in the list above, Coinbase and Kraken. and their combined trading volume is $720 million.
It is virtually impossible for American citizens to trade on Binance, due to sanctioning by the SEC.
Therefore the trading volume we are seeing on Binance must come from Asia and the rest of the world.
Are we to believe that the Asian market for Bitcoin is more than five times higher than the US? I don't believe that.
I think there is another explanation.
Wash trading.
The SEC has specifically charged Binance with wash-trading:
"In the lawsuit against Binance, its two US affiliates, and the CEO, Zhao, the SEC charged the exchange and other parties for wash trading on the US platform using dozens of user accounts that were held by Sigma Chain, a Swiss trading company controlled by Zhao."
Therefore if we make the assumption that Binance trading volume is mostly fake, what does that leave us?
The most interesting number I am looking at is the +2/-2 percentage depth on the BTC/USD trading pairs for Coinbase and Kraken.
In the US, hypothetically it would take just a $16.3 million buy to move Bitcoin up 2% and a $12.6 million sell to move the price of Bitcoin down 2%.
Of course, that's a gross simplification. There are dark trading pools for the Bitcoin/USD trading pair available for institutional investors, and money from those pools would rush to fill the gap.
But would they?
Here is another chart, this one of Glassnode, an organization that does deep analysis of the Bitcoin blockchain:
By analyzing the wallet address of Bitcoin on the blockchain, Glassnode has discovered that 14.6 million Bitcoin has not moved in six months (long-term holders).
Short-term holders (moved or traded Bitcoin in the last six months) own only 2.56 million BTC.
What that tells us is that at most $75 billion USD of Bitcoin is available for trading, versus the market cap of $577 billion.
Unless those whales that have been holding on to Bitcoin for more than six months decide now is the time to dump. Don't hold your breath on that.
Conclusion
There is absolutely nothing to suggest that market volume for trading BTC to US dollars is able to absorb any type of large buys without spiking the price upwards (or conversely, downwards, if somebody wants to dump).
On the contrary, the more you analyze Bitcoin blockchain wallet addresses, what you see is Bitcoin leaving exchanges and moving into private wallets.
Overseas trading volume is faked, tricking many in the industry into thinking we are still in a bear market and there's a lot of time to get back in.
But how else to explain this week-long rally on a rumour that was shown to be false literally 30 minutes after it was published?
There's not a lot of free-trading Bitcoin out there. That is going to make for an interesting rest of the year.
DJ