okcoin-fake-volume

After the last price pump climaxing on November 4th, globally the price of Bitcoin was undergoing a heavy correction to the down side. The price had stabilised at just over 2000 CNY but it was looking likely to further correct when a suspected fake volume pump on the Chinese Bitcoin Exchange; OKCoin, caused the market to begin to rise again prematurely.

Analysing the 1D chart below, we can easily see this suspected fake volume at the indicated markers.

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The green and red bars at the bottom indicate the volume of Bitcoins traded per day and the candle sticks above indicate how much the price changed over the same period.

As we can see, OKCoin experienced more daily volume than at the peak of the November 4th pump but the price only moved by 89 CNY over the entire 24 hour period. Such a high volume with so little price movement can only lead us to assume that the volume has been faked in order to manipulate the market, and it worked.

When I say fake volume, I don’t mean there is fraudulent activity being committed by the people who run OKCoin. What I mean is that one user (or a group of users) are filling their own buy orders and selling coins to themselves. This is only plausible in such high volume on an exchange like OKCoin because there are 0% fees on all buy and sell orders. You only have to pay a fee when you withdraw CNY from their system, all other transactions are free making it ripe for bot trading and market manipulation.

If the volume were genuine we would expect to have seen the price move by a lot more during this period with almost 1.1 million Bitcoins traded in 24 hours. The price should have moved either up or down much more than we saw as there is on average only about 5000 Bitcoins of buy/sell orders within a 500 CNY spread either side of the current price as seen on the OKCoin Order Depth Charts.

I have seen this tactic play out many times on the micro scale during a stagnant period of a price pump or slump. The idea being that traders want the market to be volatile, that’s how they earn, they largely don’t care which direction it goes in. If the price goes up, they bank money. If the price goes down they bank bitcoin. Either way is a win, but a flat price is not in the interest of the whales.

The purpose of the fake volume is to panic the market and force the sharks and the fish to think they’re missing out on some inside information the whales know about and make them change their positions which causes a snowball effect. In this case, the green closing 1D candle forced the price to prematurely rise again, well before it met its correction targets.

It’s the first time I’ve seen a fake volume pump happen on a macro scale like this and for it to be so persistent is unprecedented. However, if spotted early, these fake volume pumps make a great opportunity to ride the coat tails of the whales and bank some profits along the way, as long a you think you know which way it’s about to swing.

This observation does make me wonder how long the current bull sentiment will last since it seems to be largely propped up by fake trading volume.

Time will tell, but my prediction is for a down turn as the volume drops off and I suspect we will see a correction to the bottom of the daily RSI at some point in the near future.