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OTC Spreads Exceeded 10% Amid Bitcoin’s Violent March Crash

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Over-the-counter (OTC) liquidity provider B2C2 has published a report analyzing the trading spreads exhibited across its Bitcoin (BTC) market and three leading institution-facing spot exchanges throughout March.

The study finds that spreads widened significantly amid the dramatic crash of March 12–13, the largest drop in the price of Bitcoin since 2013.

Bitcoin order spreads exceed 10% immediately on March 13

As the crash began on March 12, bid-ask spreads for batches of 25 BTC bounced from close to single-digit basis points to 200 on its platform — equating to roughly 5%. 

The report also notes spreads exceeding 10% on one of the top spot exchanges during the March 13.

The analysis shows even more extreme volatility for trades on batches of 100 Bitcoins each — with multiple exchanges seeing spreads of 400 basis points or higher throughout the crash. 

Retail crypto traders generate record volume during the crash

Retail markets also saw spreads between 5% and 10% as cascading liquidations drove violent price swings and hollowed order books.

Amid the carnage, March 12–13 saw record activity from retail traders, with CryptoCompare estimating that 75.9 billion worth of trade took place across the retail-facing spot BTC markets. The report also notes a new record for monthly Bitcoin derivatives trading at $600 billion.

Major cryptocurrency exchange Coinbase reported record-breaking trade activity on its retail platform during the drop — with Bitcoin volume increasing to six-times its monthly average and altcoins increasing by a factor of seven.

The crash also drove record on-chain activity, with Unchained Capital’s ‘Hodlwaves’ estimating that 3.9% of circulating supply of 717,340 BTC moved in 24 hours amid the crash.





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Bad call? Bitfinex bears closed a block of Bitcoin shorts before the drop below $32K

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Bitcoin price is still in a rut, trading near $33,000 and trapped in a downtrend that just seems to get worse with the passing of each day. As the price slumps, analysts have consulted with several technical and on-chain metrics to explain the price collapse, but none of these have picked up on the exact reason. 

One area of interest has been the sharp rise in short positions at Bitfinex in the past week. Traders are placing exaggerated importance on these Bitcoin (BTC) margin shorts as if they are predictors of the current market crash. Still, as Cointelegraph previously reported, analysts forget that Bitcoin margin longs are usually much larger.

On June 18, longs outnumbered Bitfinex shorts by at least 22,800 BTC, but 87% of the short positions were closed before June 22. Currently, margin longs are 43,850 BTC higher than the amount shorted.

While those shorts are usually savvy traders, it is unlikely that they knew in advance that Chinese banks would prevent their clients from engaging in activities involving crypto trading or mining.

More importantly, these bearish positions were built while MicroStrategy was buying $500 million in Bitcoin after a successful senior secured note private offer. To make things worse, Michael Saylor’s business intelligence firm announced the intention to raise another $1 billion by selling stocks to buy Bitcoin.

Let’s take a look at how these courageous shorts fared.

Bitfinex margin shorts (blue) vs. Bitcoin price in USD (orange). Source: TradingView

On June 6, shorts increased from 1,380 to 6,700 at an average price of $36,150. Three days later, another 12,180 shorts were added when Bitcoin was trading at $37,050. Lastly, between June 14 and 15, shorts increased 6,000 to a 25,000 peak while Bitcoin averaged $40,100.

By looking at the Bitcoin prices when those short position increases took place, it is reasonable to assume that the 23,500 contract increase (green circles) had an average price of $37,625.

Related: Traders search for bearish signals after Bitcoin futures enter backwardation

Traders closed positions before BTC crashed bel$32,000

These short positions were steadily closed over the past three days when Bitcoin was already trading below $37,000. However, 17,000 short contracts had already been closed by the time the price plunged below $33,500. Therefore, it is implausible that the average price was below $34,500.

No one would complain about gaining 8%, shorting the market to generate a $73 million profit. However, it is essential to note that on June 16, when Bitcoin reached $40,400, these shorts were underwater by $65 million.

This analysis shows how even highly professional traders can go deep underwater. There’s no way to know if this trade would have been profitable had the crackdown on China not aggravated Bitcoin price or if MicroStrategy managed to raise the $1 billion before the price drop.

If anyone still believes in market manipulation, at least there’s comfort in knowing that pro traders can face drastic losses as well. However, unlike us mortals, whales have deep pockets and patience to withhold even the most rigorous thunderstorms.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.