There is a famous saying “a fool and his money are soon parted”. One thing that bothers me about the Bitcoin space is all that all of the people catching this rising tide think they are the Warren Buffet and can’t lose. News flash: you aren’t a great trader. When every crypto goes up everyone looks like a genius. Then they get cockier and their false bravado builds pushing them to trade on margin making even more money.
Then suddenly a sharp drop in price hits a few margin players as the exchange forces them out of their position. This creates cascading margin sales as other people are then forced out.
This article on BI talks about the guys hurt in Bitcoins recent flash-crash. They trade using margin on Bitfinex and when the price tanks they get liquidated at prices they say aren’t fair. Its possible they were forced out at bad prices – but they still would have lost a lot of their holdings. Keep in mind these guys are using margin (very dangerous) on an exchange which is completely unregulated and has major rumors of shady behavior. This accident was waiting to happen.
This brings us to a well known trader saying to all those in the crypto space:
“Bulls make money, bears make money, pigs get slaughtered”
Where this could bring major problems is to exchanges and other entities that use Tether for funding. Tether, as I understand it, could be swept up in the ICO ban and could well be affected by this and China is a huge trading market.
Currently cryptos on Bitfinex like Bitcoin, Ethereum and Litecoin are all trading at a significant discount to US exchanges. Here is a shot between kraken at top and bitfinex on bottom, you can see a ~$200 price difference:
It should be noted that OKCoin is down around $4,080 at this time – so its possible that its just asian exchanges being hit harder by the ICO ban.
It will be interesting to see what the shakeout from this China ICO ban is over the next few days. I have a feeling there will be some casualties.
First I’d like to say I have no idea if any of the below is either:
B) If it is true – that it results in Bitfinex blowing up.
This is a notification that if you use Bitfinex you should be doing some homework.
The general outline is that Wells Fargo cut off Bitfiniex – and Bitfinex started to leverage Tether for their funding. Tether is a currency their sister company started. Since April there has been a 400% increase in the amount of Tether. A second site offers that this Tether can be used for margin trading and this could be influencing the price of Bitcoin.