Most cryptocurrency enthusiasts will agree that people manipulate the Bitcoin market. Even though Bitcoin should be all about a free market, the rich and wealthy -known as whales- are in a position to muck around with the price as they see fit. There are rumors circulating about an entity called “Spoofy”, who is -or are- manipulating the price of Bitcoin. Bitfinex and Tether got tangled in this story somehow as well.
Meet Spoofy, the Whale of all Bitcoin Whales
Anyone who has kept an eye on cryptocurrency price charts will notice there is a fair bit of volatility. In some cases, these price swings can be explained due to some major news breaking. Other times, these market movements are seemingly entirely random, which is a bit more difficult to explain. It now appears the entity known as “Spoofy” may be responsible for these market movements on a regular basis. This entity seems to favor the Bitfinex exchange.
Bitfinex ran into a fair bit of issues over the past 18 months. First of all, they got hacked and lost a few dozen millions worth of customer funds. To counter that issue, the company issued IOU tokens and reduced user balances to make up for the missing money. These tokens were eventually redeemed not too long ago. One peculiar aspect about that process was how the company successfully redeemed over 90% of all outstanding IOU balances simultaneously. No one knows where the money came from, but a lot of users shrugged it off and moved on.
A few months ago, Bitfinex was one of many exchanges caught up on banking issues. Their Taiwanese banking partner could not process USD transfers due to insufficient KYC and AML measures. Those issues have been resolved as well without as much as an official explanation by the company. Both of these issues were resolved quickly but without any proof of how they were addressed. This is not all that uncommon, but it is may have been a prelude to something bigger going on behind the scenes.
Spoofy is a trader -or group of users- who mainly operate on Bitfinex. They place large bids for Bitcoin, which are used to manipulate the price. In most cases, this has the desired effect. If the price goes beyond their initial target, they immediately put up sell orders for $2 million or more to push the price down again. Sounds like market manipulation. The reason this group is known as “Spoofy” is because they often place orders which are never intended to execute in the first place.
The manipulation is done through a technique called “spoofing.” This is where traders place buy or sell orders with no intention of actually executing them. Such tactics could be used to manipulate traders and the market in general. If the price is falling, and traders see a 1000 BTC support buy order, the price will most likely bounce up in reaction. This works the other way as well, if the price is rising and users see a 1000 BTC sell order the price will most likely retract.
This is exactly how a mystery trader or a group of traders have been placing orders on Bitfinex. Bitcrypto’ed provides the below video as evidence, what you are looking for is large orders (900-5000 BTC) being placed and never executed.
A perfect example of one such order is at 39 seconds, where you can clearly see a 909 BTC order that is sitting there only for manipulation. If you keep watching, when the price rises and 909 BTC order disappears and a ~700 BTC order appears at a slightly higher price, aiming to push the price higher.
You may think that this is a fair way of trading because at the end of the day, Bitcoin markets are full of manipulation and deception. However, “spoofing” was made illegal in the United States under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in July 21, 2010. As a result, it is Bitfinex’s responsibility to sanction the traders responsible for the manipulation.
There is further evidence that this group of traders is also manipulating the market on GDAX but with much smaller orders. By the look of things, if the orderbook on Bitfinex keeps flashing multi million dollar buy and sell offers for a few seconds at a time, the exchange may see some scrutiny from regulatory entities. After all, there is no reason why a user would need to play with thousands of BTC for any other purpose than market manipulation.
Sending false signals to traders -either to push the price up or down- is not uncommon in the financial sector. In most cases, people -or trading bots- will gladly execute on those signals but they may regret doing so pretty quickly. Placing asks or bids for your own bitcoins is apparently illegal in the United States. With most exchanges not being regulated too tightly, issues like these are still tolerated. You would need a lot of money to pull this off on the Bitfinex exchange.
According to the original Medium post outlining the existence of Spoofy, the trading group has up to $60 million on the exchange. Why anyone would keep that amount of money in an exchange is beyond belief, though. Most people would not trust Bitfinex -or other exchanges- with more than $5,000 worth of fiat currency or Bitcoin. This information is based on the findings of one user who has been analyzing Bitcoin price charts on Bitfinex. That being said, there does appear to be some kind of market manipulation afoot.
It also appears the Bitcoin Cash distribution provided more evidence to verify the existence of Spoofy. Bitfinex acknowledged some entities were manipulating the Bitcoin price during the fork, which is why those traders did not receive their BCH tokens. Someone traded around 24,000 BTC in shorts at that time. It also appears this manipulator is active in other markets, including Ethereum Classic and Ethereum. This is a very interesting case, and it is well worth checking out all of the evidence posted on Medium.