16/10/2018/07:50CET
We now know more about yesterday. BTC had a big move and seems there is more to this story than there was on the surface.
Traditional to crypto correlation.
It would be easy to overlook crazy moves in peripheral markets like #bitcoin when the world is falling in the traditional markets. We had a sharp fall last thursday, seemingly in sympathy with the carnage on wall street, but then on monday to be faced with this crazy spike up.
Finding fundamental evidence for movements that seem to defy technical analysis is not easy and often there is no single reason. Finally there is no arbiter as to what the reason actually was, only opinion.
Tether and the USD
#Tether has had a checkered past. It was the only stable coin based off of the USD that we had for some time, and as such filled a sorely needed niche in the #crypto markets. Having failed decisively to put all doubts to rest about the backing of the circulating Tether was a gamble that was only going to work for a limited time.
I knew, as did many others that eventually competitor stable coins would appear and either Tether would have to match the game or there would be some market reaction.
Well I think monday morning was the reaction - a crack in the faith in USDT.
Faith in stable coins
Since USDT became available, most monetarists (those drawn to crypto because they understand the flaws in the existing monetary system) have looked askance at USDT because of the suspicious way it is managed.
I will not go into the details of this since much better bloggers than I already have, but suffice to say, their monopolist position market resulted in no particular market pressure to be transparent. Now with competition, this market pressure has arrived.
USDT and Bitfinex
Eventhough not made apparent by them, Bitfinex management is highly involved in Tether. This is where my failure at putting 2 crucial parts of the puzzle together properly exists.
I was comparing the BTCUSD price on Bitfinex to the BTCUSDT price on Binace as my bellweather to track any growing arbitrage between USDT and actual USD.
This was wrong! Why?
Bitfinex is trying to, or has no option but to honor all USD holdings on its exchange as pegged to the USDT. I believe in fact that when #Bitfinex quotes a price in USD, they are actually using USDT.
About 6 months ago I tried to withdraw USD from my trading account on Bitfinex only to find that they could not execute this transaction. I put it down to the fact that I was not in the US and the transaction would have to be converted to EUR or CHF for me. This may not have been the real reason.
Trust arbitrage
Now we get down to the juicy part.
This is what our arbitrage monitor should look like...
So now we see the spread has blown out to 6% at press time or 397 usd
I think what we see in the market is bad money is being chased out of the system.
Personally I have been at work since monday morning to trim my exposure to USDT and now to Bitfinex as well.
I do not think I am alone here. And if I extrapolate what will happen as this continues, there will be an accelerating exodus from both of these institutions (is USDT an institution?, dunno, and doesn't matter for me at the moment).
BTC in all of this?
Nothing fundamental has changed for BTC by this episode except that one of its largest "fiat" pairs is breaking down.
This will ripple the market but btc, as always, will come out of it stronger for the experience.
Let's take a quick look at the charts to see. And I will not look at the Bitfinex BTCUSD pair, or the BTCUSDT Binance pair.
For this I will look at the daily chart on Bitstamp
We are trading at 6445 usd
We are re-entering our descending wedge but looks like we are wanting to bounce off it as support.
We are on top of our 21 dema indicator which is positive as well. If we cannot hold this level then all eyes will be on the lower end of the wedge at 6200.
A look at the hourly...
Whatever the catalyst was, we should be happy that it brought btc up to the levels before the spooked fall last week.
I think all eyes are on traditional markets at the moment as everyone is looking uncertainty for the new direction. Fundamentally, traditional markets have a long way to correct to any historic mean, so odds are for a continued correction over the next days or weeks.
Will be interesting to see how crypto will react to this. If BTC is really the 21st century digital gold, then it may get market cues from real gold... (gold daily chart in USD)
As always guys, leave comments, have fun and trade safe.