Bitcoin crash: Crowd says $5k, traders say bounce, analysts say PlusToken

New analysis says PlusToken sell-offs are probably driving the market, but traders have their own ideas.

Crowd wisdom, the most powerful predictive tool in existence* is calling for Bitcoin price lows of US$5,000 to US$6,000.

*Your mileage may vary. In this case "the most powerful predictive tool in existence" is a Twitter poll of 3,631 people.

A further one in five is expecting a return to the yestermonth lows of around $3,000, and almost one in three thinks Bitcoin, which is currently trading at around $6,600, has already gone about as low as it's going to.

That $6,000 to $6,500 group may include most of the chart-gazers.

As they say, the last time Bitcoin dropped under $6,600, when Chinese authorities told crypto traders to get a grip and just be cool, it was followed by a massive bounce-back. This suggests that $6,600 is a waterline of sorts, and that anytime the price drops under that, a lot of people start snagging Bitcoin at bargain prices.

The spiky-line enthusiasts also point out that Bitcoin long positions on Bitfinex are piling up, which points at a net bullish sentiment. Of course, this only works if you ignore the equally-growing number of short positions and the fact that these bulls have proven to be exceptionally good at losing money over the last week, with the long positions piling right up even as prices drop.

The helpfully-annotated chart below shows Bitcoin prices as an unnecessarily fat gold line, Bitfinex long positions in green and short positions in red.

BTCUSD chart by TradingView

In the absence of any other clear reason, popular sentiment is pointing at sell-offs from the PlusToken Ponzi scheme as the main catalyst for the drops, with the prospect of future sales currently crimping the market's style.

This has been all but confirmed by analysis from the Chainalysis blockchain analytics firm, which has found clear correlations between PlusToken sales and market depressions.

According to Chainalysis, the PlusToken scammers have so far been trading Bitcoin for Tether on the Huobi cryptocurrency exchange and cashing out mostly through Huobi-based OTC brokers. With this information in hand, Chainalysis theorised that anytime large amounts of Bitcoin are moved from PlusToken wallets to Huobi, it should be followed by a large increase in Bitcoin-Tether trade volume. If PlusToken sales are indeed depressing Bitcoin prices, these would be followed shortly by price drops.

And that's exactly what happened, Chainalysis says. Large PlusToken wallet movements to Huobi are followed by large Bitcoin-Tether trade volume, which is followed by strong downwards price pressure.

This has been observed since July, and the PlusToken scammers appear to have bailed out, or been shut down, just in time to start dumping into the yearly Bitcoin price highs of July.

Source: Chainalysis

The main caveat for someone trying to effectively trade on that information might be that there's an unpredictable time gap between when PlusToken funds hit Huobi and when the trading begins, at which point the price reaction is almost immediate.

It's also a bit unclear how much ill-gotten crypto PlusToken has left to sell, but Chainalysis estimates it to be somewhere in the ballpark of a few hundred million dollars.

"We've tracked roughly 800,000 ETH and 45,000 BTC we can definitively say the scammers transferred to their own addresses to launder. They've cashed out at least 10,000 of that initial 800,000 ETH, while the other 790,000 has been sitting untouched in a single Ethereum wallet for months," it says.

"The flow of the 45,000 stolen Bitcoin is more complicated. So far, roughly 25,000 of it has been cashed out. The other 20,000 is currently spread out across more than 8,700 cryptocurrency addresses, which speaks to the high level of effort the scammers put into obfuscating the movement of funds."

At the time of writing, those mostly-confirmed PlusToken holdings of 20,000 Bitcoin and 790,000 Ether are worth about $230 million combined. Those are only the known holdings, but it's actually not too bad, considering earlier estimates were putting PlusToken's total haul in the billions of dollars' worth.

Discussion points

This entire series of events raises many questions, all of which are perfect for your next cryptocurrency-themed dinner party or for crypto exam questions.

• One of the obfuscation techniques used by the PlusToken scammer is known as "peeling". This technique has also been observed in the movement of other addresses, including an ancient, billion-dollar Bitcoin leviathan. Using the observable market impact of PlusToken's sales as a guideline, explain the expected impact of other old wallets selling their holdings.
• The cryptocurrency markets are unable to absorb a few hundred million dollars of sales without crashing. Explain how's that whole "sound money" thing is working out? Bonus points will be awarded for incorporating the phrase "I'm in it for the tech".
• Chinese authorities have cited upticks in cryptocurrency-related scams as reasons to crack down on the markets. But now OTC traders on the Huobi platform are apparently moving ill-gotten gains with impunity. Explain why this is being allowed, with reference to either (a) crude national stereotypes, (b) wild theories in which China is deliberately trying to crash the cryptocurrency markets or (c) points related to AML/KYC enforcement for independent traders.
• If the crypto markets can't get liquid enough to absorb scam sell-offs until they achieve legitimacy, and can't achieve legitimacy until these kinds of scams are stamped out, is the freedom and cypherpunk shtick ultimately counterproductive to Bitcoin's success?
• How many scams could a scammer scam if a scammer could scam scams? Show your work.
• PlusToken is believed to have sold off approximately 50% of its holdings. Are you bullish or bearish right now?

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Disclosure: The author holds BNB and BTC at the time of writing.

Picture: Shutterstock