Sudden Bitcoin Spike to $57,000: Bitfinex Glitch or Market Manipulation?

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On May 2, 2023, a sudden spike in Bitcoin prices to $57,000 was witnessed on Bitfinex, attributed to an unconfirmed glitch. Within a few seconds, prices jumped from $28,000 to $57,000 on a trading volume of 231 BTC ($7 million), later returning to $28,000 on dwindling volumes of 69 BTC. Although the platform resumed trading normally, the incident liquidated some accounts, pushing the order book upwards.

The cryptocurrency exchange is yet to release an official report on this curious development, suggesting that more information may be unavailable at present. However, speculations about a block-buy of BTC, which would force volumes and prices higher, have arisen. This unexpected price spike comes at a time when spot prices of BTC surged by 2.5% across different platforms, possibly fueled by a 30% fall in Western Alliance (WAL) and PacWest (PACW) stock prices amidst a liquidity crunch in the US banking sector.

Increasing concerns about potential crises in the coming weeks and months have put immense pressure on the share prices of top regional banks in the US. As a result, market liquidity has been severely impacted. Bitfinex’s BTC-PERP pair displayed a 10% market depth of 110 BTC on May 2, which means a purchase of 110 BTC could shift the market by 10%. This centralized exchange market depth gauge determines liquidity.

Post the glitch, Bitfinex’s chief technology officer (CTO), Paolo Ardoino, explained that the sudden price hike could be attributed to low liquidity, which the system handled correctly. It raises questions and concerns, primarily among users who inquired whether shorts would be liquidated even without stop loss. Ardoino clarified that shorts would only be liquidated during marked price changes.

Interestingly, this glitch occurred soon after Bitfinex declared that Bitcoin’s volatility would decrease. The exchange’s analysts labeled Bitcoin’s state as “transitional” and linked the currency’s fluctuating nature to speculators trading with high leverage. These analysts expect Bitcoin’s volatility to reduce as leverage traders are forced out. Coinglass data supports this notion, displaying a drop in Bitcoin options’ open interest from $12.76 billion to $11.48 billion over three weeks since April 11, 2023. The incident raises questions about the stability of markets, with investors keenly observing the situation.


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