Bitcoin is about to surge? Beware of shady dealings

Author: Daii Source: mirror

Currently, Bitcoin has been fluctuating around $96,000, and seems to have encountered relatively strong support around $95,000.

This was also confirmed yesterday. When the US inflation data in January exceeded expectations, Bitcoin once fell below $95,000. Today, it has returned to fluctuating around $97,000, which is enough to show that the support of $95,000 is resilient enough.

Furthermore, data from Crypto Quant shows that: At present, the Bitcoin reserves of all cryptocurrency exchanges in the world have dropped to 2.5 million (see the figure below), a three-year low.

Analysts believe that this change indicates that a potential "supply shock" is coming, and the price of Bitcoin will rise sharply.

So, can the "supply shock" really make the price go back up? My answer may disappoint you. I think:

Even if there is a "supply shock", the price of Bitcoin may fall.

Why is this? Because there are black hands.

1. The supply shock came, and the price still fell?

The so-called "supply shock" refers to the sharp decrease in the number of tradable Bitcoins in the market, while the demand is strong, resulting in drastic price fluctuations. But the outcome of this phenomenon is not a single direction:

Bullish logic: Non-liquid Bitcoin (i.e. long-dormant BTC) accounts for as much as 73% (15.4 million), while miners only produce about 900 new coins per day. If institutions continue to absorb funds at the current rate (such as ETFs with an average daily net inflow of 23,000 BTC), exchange reserves will be exhausted in more than 100 days. Historical data shows that for every 1% increase in non-liquidity supply, the average annual return of Bitcoin increases by 3.2%. Non-liquidity supply refers to Bitcoin that is held for a long time or locked up and cannot be traded.

Bearish concerns: Long-term holders (LTH) may become a "supply bomb". After the halving in 2024, LTH has released 1.58 million BTC to the market. If another 1.4 million are sold in 2025 (accounting for 56% of the current exchange reserves), the liquidity crisis will be reversed into a selling tide. In addition, the U.S. spot ETF recently saw a net outflow of $186 million per day, indicating that institutional funds are not monolithic.

If you still don't understand, you can take a look at the picture below and pay attention to the accelerated outflow indicated by the red arrow.

Affected by Trump's election as president, Bitcoin has been accelerating out of centralized exchanges. From the beginning of November 2024 to now, more than 360,000 Bitcoins have left the exchange. But remember that Bitcoin once fell below 92,000 on February 3?

You may be thinking, since supply and demand cannot determine the price of Bitcoin, then who sets the price of Bitcoin?

2. Who can determine the price of Bitcoin?

Centralized exchanges (CEX) are the price setters of Bitcoin. This is ridiculous and dangerous, but there is no way, we can only accept it.

In 2009, programmer Laszlo exchanged 10,000 Bitcoins for two pizza coupons, completing the first over-the-counter transaction in the history of Bitcoin. At that time, the price was just an accidental consensus between two individuals. But in the following decade, the birth of centralized exchanges completely changed this situation.

In 2010, the first Bitcoin exchange Bitcoin Market went online, and users began to buy and sell Bitcoin through centralized matching orders. In 2014, Mt.Gox collapsed due to a hacker attack, but it also made the market realize the necessity of liquidity concentration. By 2023, Binance alone accounted for 64% of the crypto derivatives market, and the top ten CEXs monopolized 92.2% of the spot market's trading volume.

The rise of CEX is essentially the aggregation of capital, technology, and human needs: they aggregate scattered buying and selling demands into massive order books, and through millisecond-level matching engines, they convert price fluctuations into globally unified digital signals.

The pricing power of CEX comes from three major supports: high liquidity, legal currency entry advantages, and market inertia.

2.1 High liquidity: the decisive force of price.

High liquidity means efficient price discovery: when a large order enters Binance's order book, the market can quickly digest it and form a new equilibrium price, while DEX may cause slippage of up to several percentage points due to insufficient liquidity pool.

2.2 Fiat currency entrance: a bridge connecting reality and the chain

CEX is the first stop for ordinary people to enter the crypto world. Users can directly purchase Bitcoin through credit cards, bank cards, etc., and this process is completely dependent on CEX's centralized custody system (or over-the-counter OTC). This seamless conversion of "fiat currency-cryptocurrency" makes CEX the core channel for capital inflow, thus occupying a great advantage in customer acquisition.

2.3 Market inertia: self-reinforcement of price signals

When DeFi protocols need to liquidate collateral or generate on-chain prices, more than 90% of projects still rely on CEX's API data. For example, lending platforms such as Compound use price feeds from Binance and Coinbase to decide whether to trigger liquidation.

In this way, CEX has the pricing "privilege" of the crypto world. However, the sad thing is that such privileges are completely unsupervised, and manipulating prices for profit has become a business that CEX can make a profit without losing money.

3. CEX "inserts" to harvest leveraged users

Centralized exchanges (CEX) manipulate prices to harvest leveraged traders. This is not an urban legend, but an open secret in the industry, but it is rarely exposed due to lack of supervision. CEX controls user funds and transaction data, and has a natural advantage in doing evil. They are like hunters lurking in the dark, waiting to harvest traders who gamble on high leverage.

Imagine a young trader named "Xiao Li" who is confident in the prospects of Bitcoin. He studied various technical indicators and firmly believed that Bitcoin would soon break through the $100,000 mark. So he opened a long order with 10 times leverage on a CEX and invested most of his savings as margin.

At first, everything was as Xiao Li expected. The price of Bitcoin rose steadily and his account profit continued to increase. He began to look forward to a bright future, as if the door to wealth and freedom had been opened to him.

However, the good times did not last long. One day, a strange "needle" suddenly appeared on CEX. In just a few minutes, the price of Bitcoin fell off a cliff and instantly fell below Xiao Li's liquidation line. When he panicked and opened the trading software, he found that his long orders had been forced to close, and the margin in his account disappeared without a trace.

Xiao Li wanted to cry but had no tears. He couldn't understand why the market suddenly fluctuated so violently. He began to wonder if he had made a mistake in judgment or encountered a "black swan" event.

But the truth was far more cruel than he imagined. He may not know that this "needle" was the result of CEX manipulating prices.

CEX can create this "needle" in many ways. The most commonly used and most hidden method is "point blasting". CEX can analyze users' trading data to find out those traders who are heavily invested in high leverage. Then, they can accurately blow up these traders' positions by controlling prices, thereby plundering their margin.

Please note the following figure. According to Coinglass statistics, if the price of Bitcoin is "pinned" below 93408 again in the future, then there will be nearly $1.5 billion in positions liquidated, and these leveraged trading users will lose their margin forever. If we calculate it based on 25 times leverage, this will also be a huge sum of $60 million.

Considering that Bitcoin was "pinned" below $92,000 on February 3, it is not impossible for it to fall below $94,000 again. The key is that CEX's pinning behavior is still difficult to detect because they can disguise price manipulation as normal market fluctuations.

So, how do they do it specifically?

4. How does CEX manipulate prices?

CEX's operation method is also very simple - Wash Trade.

Wash Trade, also known as fake trading or self-trading, refers to the behavior of traders acting as buyers and sellers at the same exchange to artificially create trading volume and price fluctuations. The purpose of this operation is to mislead other market participants, making them believe that a certain cryptocurrency has higher liquidity and demand, thereby attracting more people to enter the market, and ultimately raising prices or profiting from it.

Of course, more often CEX will conspire with the main force (market makers) to make the depth of pinning beyond your imagination. Recently, the suppression of Bitcoin to below 92,000 was a successful leverage (tariff war) plug-in. For details, you can read "Bitcoin falls below 92,000, is it the end of the bull market or a short trap?".

Because Wash Trade seriously disrupts the market order, regulators in many countries and regions are strengthening supervision of cryptocurrency exchanges and cracking down on false trading behaviors. However, centralized exchanges (CEX) have never given up the privilege of "price manipulation". However, due to the lack of effective supervision of CEX, they are rarely caught. So far, the only one who has been caught is Mt.Gox.

Regarding how Mt.Gox manipulates prices, my article "Don't take the "price" of Bitcoin "seriously"" has a detailed analysis. Nowadays, although the supervision of CEX has been strengthened, CEX is still unregulated in essence, and Wash Trade has always existed. The only thing you can do is to control your leverage and not become a victim of CEX price manipulation.

Conclusion: Survival Strategy in the Dark Forest

I have always said that predicting the short-term rise and fall of Bitcoin prices is no different from tossing a coin to guess the head or tail. Whether it is a rise or a fall, there is a 50% chance. Today you should understand that because of the existence of CEX, such speculation has lost its meaning.

The game in the Bitcoin market has long surpassed the simple supply and demand curve. The exchange reserves have fallen to a three-year low. The narrative of "supply shock" seems to pave the way for the bull market, but the dark operation of CEX is like a sword of Damocles hanging over the head-it can create panic of liquidity depletion, and it can also use a "needle" to pierce the carnival bubble in an instant.

History has repeatedly proved that the combination of centralized power and financial markets is destined to breed secret harvesting games. From the false transactions of Mt.Gox to the "point-by-point blasting" of the current exchange, the distortion of price signals has never stopped. For ordinary investors, instead of worrying about short-term ups and downs, it is better to see the essence of this game: in the dark forest without supervision, CEX is both a referee and a hunter.

The real risk is not the price fluctuation itself, but the collective unconsciousness of the monopoly of pricing power. Perhaps, only when decentralized trading completely breaks the liquidity hegemony of CEX and when the price discovery on the chain is truly independent of the centralized order book, can Bitcoin truly achieve the pricing freedom of "digital gold".

Before that, we should be wary of every seemingly reasonable market signal, because your opponent is not someone else but CEX.

In fact, controlling your desires is the fundamental solution to all problems. I hope these two articles can help you, one is about cognition and the other is about strategy, so that you can learn more about the common sense of survival in the dark forest.

Starting today, add the following "Briefing" to tell you the information I think is important in the form of a briefing.

Briefing

Cathie Wood, founder and CEO of ARK Invest. Recently, she said in a video that the price of Bitcoin could reach $1.5 million by 2030. Her reason is that institutional investors will make Bitcoin an important part of their asset allocation because of its unique risk and return characteristics.

The Trump family, through its blockchain platform World Liberty Financial (WLFI), recently launched a new strategic fund, the "Macro Strategy" fund, which aims to support the growth of Bitcoin, Ethereum and other cryptocurrencies. I hope this is not a leek harvesting 2.0 plan. It seems that Ethereum is also becoming a new consensus for institutions.

VanEck Asset Management recently released an analysis report stating that several states in the United States are discussing bills to create Bitcoin reserves, which, if passed, could drive up to $23 billion in Bitcoin demand. VanEck analyzed the Bitcoin reserve bills in 20 states and found that if these bills were to take effect, state governments would need to purchase approximately 247,000 Bitcoins.

Cboe BZX Exchange submitted a proposal to the SEC requesting permission for the 21Shares Core Ethereum exchange-traded fund (ETF) to pledge Ethereum. Once approved, the ETH ETF will also become an interest-bearing asset class, which may trigger an investment boom in the ETH ETF.

The New York Times said that TRUMP meme coin investors suffered huge losses. According to blockchain intelligence company Chainalysis, at least 813,000 crypto wallets lost a total of $2 billion from buying TRUMP. Hester Peirce, a member of the U.S. Securities and Exchange Commission (SEC), said they don't care about meme coins. It seems that this US government will not care, will Congress?