On April 14th, someone placed a sales order of 2,500 Bitcoin. This is a Binance Order Book that costs around $85,600, which is about 2-3% above the spot price trade at the time.
Seeing such a large order, the price of Bitcoin began to attract this level around 5pm UTC.
Suddenly, the order is gone, as you can see using Coinglass data. This caused a brief moment of market indifference as bulls and bears grabbed to fill the liquidity void.
But Bitcoin prices at the time were already on the volatile ground due to geopolitical concerns. It then went low after the order of disappearing caused confusion for traders.
So what happened?
One answer could be an illegal technique to place a large limiting order to earn trading activities and remove the order once the price is met and approached. This is called “ordered spoofing,” as defined by the 2010 US Dodd Frank Act.
coinglass fluidity heatmap before the spoofed order is extracted
As can be seen in the liquidity heat map in the image above, on the surface, the order of prices at $85,600 appeared to be a key area of resistance, so market prices began to attract them. But in reality, it is likely that it will cause that order and liquidity, giving traders a stronger market illusion.
A liquidity heatmap visualizes your exchange order book and shows you how much assets you have in each price book. Traders use heat maps to identify areas of support and resistance, and to target and narrow down the location of underpressure.
In this particular case, traders appeared to have placed a possible spoofing order as they were usually a low-liquidity period in the Bitcoin market, usually 24/7, when the US stock market was closed. The order was then removed when the US market opened. For example, this could still have a desirable effect, as a large order of one exchange could prompt a trader or algorithm in another exchange, remove an order, and invalidate liquidity and subsequent volatility.
Coinglass Fluidity Heatmap after the spoofed order is pulled
Another reason is that traders who placed a $212 million sell order with Binance wanted to create short-term sell pressure to be met with limited purchases, and then deleted the order once those purchases were filled out.
Both options are plausible, but they are still illegal.
Dr. Jan Philipp, a former ECB analyst and current managing director of Oak Security, told Coindesk that manipulative trading behaviour is “a systematic vulnerability, especially in thin and unregulated markets.”
The story continues
“These tactics give sophisticated actors a consistent advantage over retailers. And unlike Tradfi, where spoofing is explicitly illegal and monitored, the ciphers reside in the grey zone.”
He added, “Spoofing had to be taken seriously as a threat as the 2010 flash crash helps cause a crash in the traditional market, and its market value has been wiped out by around $1 trillion.”
Meanwhile, Binance claims it plays its role in preventing market manipulation.
“Making a fair and orderly trading environment is our number one priority, investing in internal and external monitoring tools that continuously monitor transactions in real time and flag inconsistencies or patterns that deviate from normal market behavior.”
The spokesman added that if someone is found to be manipulating the market, they will freeze their accounts, report suspicious activity to regulators, and remove bad actors from the platform.
Spoofing, or strategies to mimic false order, are illegal, but for younger industries such as cryptography, there are examples like that.
In 2014, when there was little or no regulatory oversight, the bulk of the trading volume took place in the exchange of Bitcoin only with retailers and Cypherpunks, opening up such practices to the industry.
During the ICO stage in 2017, tactics such as spoofing were also expected as institutions remained skeptical about asset classes when trading volumes surged. In 2017 and 2018, traders regularly placed nine figure positions.
Bitmex founder Arthur Hayes said in a 2017 blog post that he “felt incredible” that spoofing was illegal. He claimed that if a smart trader wanted to buy $1 billion of BTC, he would bluff a billion dollar sell order to meet it.
Bitcoin trading volumes before 2017 did not exist (Bitconity)
However, since the bull market in 2021, the crypto market has experienced a wave of institutional adoption, including Coinbase (coin) being publicly available, Bitcoin all-in strategies (previously micro-strategic), and BlackRock launching funds (ETFs) traded on exchanges.
At the time of writing, there are no such large orders to indicate further spoofing attempts, and the spoofing attempts appear to be no longer explicit. However, even if billions are traded by Tradfi companies, examples of such strategies still exist in many crypto exchanges, especially in low-liquid Altcoins.
For example, last month, Cryptocurrency Exchange MEXC announced that it had been curtailed by an increase in market operations. Internal research shows that market manipulation attempts rose 60% from the fourth quarter of 2024 to the first quarter of this year.
In February, traders manipulated the high-fat jelly market by tricking pricing oracles, and the hyperglycemic response to activity was filled with skepticism and subsequent capital outflows.
The burden will ultimately be on exchange and regulatory authorities.
“Regulators need to set a baseline,” Dr. Yang Phillip told Koindsk. “Regulators need to define what to count as operations, specify penalties and outline how the platform responds,” he said.
Regulators certainly tried to close such a scheme. In 2020, Rogue Trader Avi Eisenberg was found guilty of manipulating decentralized Exchange Mango Markets in 2022, but there were few cases.
However, crypto exchanges should also “strengthen their surveillance systems” as well as use circuit breakers while adopting stricter listing requirements to close market operations, Philip said.
“Retail users won’t stick if they continue to be frontrunning, spoofing and dumped. If Crypto wants to surpass the casino phase, they need infrastructure that rewards fair participation rather than insider games,” concluded Philipp.
Read more: Crypto trader appears to spam true terminals on pump coins related to Brian Armstrong’s dog
