Debunking the ‘Binance manipulator’ theory: 3 reasons why the allegation falls short

In the crypto industry, conspiracy theories and rumors of scams are quite prevalent, but sometimes, retail traders who source the bulk of their input from social media simply lack basic market knowledge.

Recently, some reputable crypto market analysts identified a so-called “Binance manipulator”—an entity that has been extremely active in Bitcoin (BTC) futures trading. This entity is alleged to be one of the main reasons behind Bitcoin’s rejection at $66,000 and today’s subsequent retest of the $63,500 support level.

Although there is undeniable evidence that large offers and trades existed, several unproven hypotheses and flawed assumptions contribute to the belief that this entity effectively tried to suppress Bitcoin’s price.

Even if one assumes that the same entity placed multiple large offers on the Bitcoin futures order book, it is impossible to know if other accounts were used to buy. 

Arbitrage and hedging explain large Bitcoin futures orders

It is very common for large trading desks to have separate investment vehicles for arbitrage and long-term holding, which is not illegal and not unusual even for traditional asset managers and hedge funds.

Thus, one could use large apparent offers—known as spoofing—to generate fear, uncertainty, and doubt, while simultaneously buying those contracts stealthily. In essence, it appears that the investor is a large seller, when in fact this entity is a net buyer of derivative contracts—a theory supported by the increase in Binance’s open interest.

Another source of conflicting data comes from the buy side, as order book analysts observed entities adding over 4,000 BTC worth of bids on Bitcoin futures after the $64,500 support level had been breached.

Therefore, this data depicts a scenario where large entities of apparently similar size were battling for manipulation, but the Bitcoin price happened to move lower as investors were already driven to take profits, as the S&P 500 futures indicated a correction and news flow was tilted to the bearish side. Major economic publications highlighted global growth stagnation and tensions in the Middle East.

TWAP strategy contradicts “Binance manipulator” intent

The nail in the coffin for the “Binance manipulator” theory comes from another post by ChimpZoo, which claims that the same entity gave up on placing large offers and proceeded to sell Bitcoin futures by executing market orders at specified intervals of time.

TWAP, or time-weighted average price, is a preferred strategy among institutional traders, including arbitrage desks and market makers. By dispersing a large order into small clips executed at regular intervals, the trader aims to minimize the price impact. This is the opposite of manipulation; therefore, it would not make sense if the entity’s primary goal was to drive down Bitcoin’s price.

Arbitrage trades, for example, try to capture discrepancies across markets, whether between different exchanges or products. If the entity was offered large over-the-counter (OTC) spot BTC or exchange-traded funds (ETFs) at a discount, it would make sense to place large offers on Bitcoin futures contracts as a hedging strategy.

Related: 3 signs that Bitcoin price is not ready to make a new all-time high

The arbitrage desk’s job is to balance out the risk using derivatives markets, eventually selling the spot market position and repurchasing the short (bearish) position on BTC futures. Similar examples can be found in options markets, where a market maker might test the market by placing large sell orders in futures before closing a trade that would result in upside price exposure.

Ultimately, we may never discover the true intentions behind these entities, nor whether the same group was behind the buy and sell walls or was simply using futures merely as a hedge for other financial instruments. While the “Binance manipulator” theory cannot be fully dismissed, all available data points to fair game and normal market activity.