Single Trader with Enormous Bankroll is Manipulating Bitcoin Price, But to What End?

Rumors are swirling about a trader or group of traders being labeled as “Spoofy” seem to be exercising undue influence over Bitcoin price. Spoofy received his nickname because of his efforts to “spoof” the market, primarily on Bitfinex. Spoofing is the act of placing large buy or sell orders in an attempt to move the price in a certain direction.

What is spoofing?

If the price approaches the spoofer’s order, he immediately cancels it. Spoofing is actually illegal, but as Bitcoin markets are largely unregulated, it’s quite common. What is unusual in this case is the enormous bankroll that Spoofy has at his disposal. He regularly places orders approaching $60 mln.

Even more unusual is that most of Spoofy’s activity occurs on a single exchange: Bitfinex. This exchange came under fire earlier this spring when Wells Fargo cut off their banking ties. As a result, it’s virtually impossible to deposit fiat on Bitfinex without going through intermediaries. Spoofy has large sums of dollars on the exchange and is probably one of the few traders who does. He also has tens of thousands of Bitcoins on Bitfinex as well.

Other tactics

Spoofy has a number of weapons in his article, including spoofing and wash trading. As BitCrypto’ed points out in a recent blog post:

“Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin, of course, to pull it off, and with impunity on Bitfinex.”

The BitCrypto’ed blog also describes Spoofy’s wash trades, when he trades with himself by either selling into his own buy orders or vice versa. Wash trading at high volumes can induce a buying or selling panic, as other traders respond to the high trading volume. Spoofy can execute wash trades at very low cost, about $1,000 per million dollars of volume.

When Bitfinex announced its plan to distribute Bitcoin Cash, an unknown trader (likely Spoofy) placed tens of millions of dollars worth of shorts. The exchange initially planned to distribute Bitcoin Cash to holders of short positions. It’s likely this trader was Spoofy himself, planning on acquiring as much Bitcoin Cash as possible.

The large number of shorts on Bitfinex also led many to believe that an epic short squeeze was coming, and many Bitcoin traders purchase coins in expectation of this. Suddenly, he “claimed” all of his own shorts, closing them using his own Bitcoin. The number of shorts dropped drastically without affecting the price at all.

Who is he?

The identity of Spoofy remains a mystery. He may be a single trader, a group of colluding traders or even the Bitfinex management themselves. He sometimes seeks to drop Bitcoin price, and sometimes acts to increase it.

Not just Bitfinex

Spoofy’s activity also drives the price on other exchanges, as arbitrage takes place. Because BItcoin is so thinly traded, a single large “whale” can potentially move the entire market. Spoofy is certainly exercising outsized control over Bitcoin price, leaving many to wonder what the price actually should be, without his manipulation.

Source: Cointelegraph