An incredible $117 million worth of bitcoin shorts closed on Bitfinex, giving a very uncharacteristic massive red candle.
Just what happened here is very unclear, with bitcoin shorts somewhat instantly falling from ₿14,000 to ₿4,800 at or around 9:50 AM London time.
Minutes after, Bitfinex went down, announcing an unscheduled maintenance at what looks like around 10AM London time.
“We are undergoing unscheduled maintenance with trading temporarily halted. All wallets remain unaffected and all traders will be kept informed of updates as and when they are available. Thank you for your patience,” the exchange said.
At around 14:30 London time they further added: “The issue has been identified and a fix is being implemented. We will communicate further updates in real time. Thank you for your continued patience.”
It is unclear currently what exactly went on, but if such huge amount of shorts were closed in an instant, meaning about 10,000 bitcoins would have had to be bought, then you’d expect a significant upwards price reaction.
There was no reaction at all at the time this occurred earlier this morning, but bitcoin’s price did fall yesterday by quite a bit.
We haven’t yet looked at the blockchain to see what might have gone on, but an invalid block was orphaned yesterday at about 14:35. Around the same time as that big red candle above.
Presuming Bitfinex accepts one block confirmations, then maybe they did not check for orphans. A very basic mistake.
In that case, on a preliminary surface view, our first hypothesis would be that these might be fake shorts. Meaning the price was artificially lowered by out of nothing coins that do not exist on the blockchain but may have existed on finex.
That is speculation with it far too early to draw any conclusion, but the timing of much of this does suggest there may have been some shenanigans.
Update: Asked what’s goin on, Paolo Ardoino, CTO at Bitfinex, says: “Someone claimed his short position. Few weeks ago happened with a short 20k.”
Asked “Why did you have an unscheduled maintenance?” – he says: “A regression after an update. It was safer to pause trading until we verify and fix.”
Ardoino likely means by regression a bug after an update, rather than Investopedia’s definition of regression as “a statistical measurement used in finance, investing and other disciplines that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).”
Ardoino was then asked: “Are you saying these shorts are legitimate? In which case, why did they have no effect whatever on price when they closed? Or what do you mean by regression in this case.”
Ardoino’s response was to link to an explanation of claiming: “The claim feature allows the use of funds you have in your Margin Wallet to settle a leveraged position as an exchange buy or sale.
Claiming some or all of a position requires that you have enough partially realized P/L (you’ve reduced the position at a profit) and/or funds (BTC or USD) in your Margin Wallet (net of any outstanding financing charges) to satisfy some or all of the outstanding financing associated with your position.”