Bitcoin Price Nightmares: Silk Road, OTC Transactions to Blame for Volatility?
Bitcoin’s price plummeted by over 10 percent on Thursday after a previously promising rally past the $7,000 price mark. The brief price spike led many bitcoin enthusiasts to speculate that BTC would build out a higher support.
Many also saw it as a testament to the market’s resistance against recent negative industry events, including bitcoin ETF disapprovals. And now, crypto pundits across the world are struggling to pinpoint the causative elements that led to the crazy 48-hour price-drop.
Bitcoin’s Value Affected by OTC Transactions
According to research undertaken by the Tabb Group in April, over the counter (OTC) markets constitute a significant portion of the cryptocurrency trading market. Overall, OTC markets are estimated to be about two or three times the size of regulated exchanges. Some OTC trading desks reportedly facilitate over $100 million in cryptocurrency trades in a day.
Traders are usually independently audited by brokers, and in most cases, no taxes are applied. This enables players to undertake high volume transactions without moving markets too much or drawing attention. Minimum ticket prices usually range between $75,000 and $250,000, which locks out most amateur speculators.
With the OTC market being of such a significant size, some analysts speculate that sell-off pressure on these markets, coupled with price manipulation moves may have led to the sudden decline of bitcoin prices. A sizeable bitcoin dump from OTC markets connected to exchanges is believed to have swayed prices.
That said, it is hard to verify this hypothesis because OTC markets work away from the prying eyes of industry observers and regulators. However, it is still worth considering that price manipulation in the cryptocurrency market is fairly easy to carry out, and techniques such as wash trading, which can be used to artificially inflate transaction activity are rampant.
According to the CEO and founder of LDJ Capital, David Drake, bitcoin prices will continue to experience a downward trend until the SEC approves a bitcoin ETF. The ETF will be instrumental in creating a safer trading ecosystem. The exec revealed this while speaking to The Independent.
“Right now there are no rules on manipulations and with groups/people manipulating the markets are doing so because they can without fear of consequence. Hopefully, that will change with the SEC and FINRA supervision over the next year.”
A Silk Road Account Manipulated Bitcoin’s Price
The legendary Silk Road is widely regarded as the first contemporary darknet market. Although it was shut down by the Federal Bureau of Investigations in 2013, and its owner arrested, it has seemingly come back to haunt the cryptocurrency market in 2018, in the form of a bitcoin wallet.
According to a recent social media community investigation, a bitcoin wallet with about $1 billion worth of the digital currency, associated with the Silk Road project began distributing huge quantities of coins to crypto exchanges just before the price suppression. The account, which had lay dormant since 2014 moved bitcoin worth over $100 million to Bitfinex and Binance. The bitcoin dump by the owner of the wallet is believed to have triggered the price slide.
There is still a lot of speculation as to who actually owns the wallet, with some guessing that it belongs to Silk Road creator, Dread Pirate Roberts.
Bitcoin’s Tumbling Value and Goldman Sachs Influence
On Wednesday, just before the sharp cryptocurrency price decline, Goldman Sachs was alleged to have halted plans to open a cryptocurrencies trading desk. The move would have opened the door for institutional investors. Some reports attributed bitcoin’s price fall to the negative news, which was believed to have caused some dismay among traders.
However, allegations that Goldman Sachs had plans to trade in physical bitcoin were soon shot down by Martin Chavez, the company’s Chief Financial Officer. He labeled the assertions as fake news and reiterated that there had never been major plans or a timeline for this. The exec, however, clarified that the investment bank was working on a non-deliverable bitcoin derivative for its clients.
That said, suspicious short selling activity is said to have occurred just a few days before the Goldman Sachs ‘fake news’ allegation. According to a report, which was first published by CCN, the RoninAI team uncovered a $74 million short selling move, while the market was still bearish, two days before the Goldman Sachs announcement and the subsequent price dip.
It is believed that insider trading was involved and that fake news catalyzed the price fall. However, all this is still pure speculation and no tangible evidence has yet been brought to light.
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ABOUT THE AUTHOR
ABOUT THE AUTHOR
Elizabeth Gail is a crypto-enthusiast and blogger. Her specialties include cryptocurrency news writing and analysis. When not writing about crypto, she’s out taking part in humanitarian endeavors across the world. For any news tips or coverage, you can reach out and engage with her on Twitter at @Lizbarret001. You can also email her at gailelizabeth100 (at) gmail dot com.