Bitcoin [BTC]: Tether [USDT] debacle causes massive spread between Bitfinex and other exchanges

Bitcoin’s bullish swing was stopped in its tracks by last week’s Bitfinex-Tether controversy. The New York Attorney General announced on April 25 that the cryptocurrency exchange lost $850 million and covered up the same with their stablecoin Tether [USDT].

Since the report came to light, the overall market took a significant dip, with Bitcoin dropping below $5,200, days after witnessing its Golden Cross. This led to the collective market plummeting below $170 billion for the first time since the beginning of the month.

A few days after the bearish onslaught, the price began to stabilize with one notable divergence. The price of the top cryptocurrency on Bitfinex, when compared to other top exchanges, witnessed a massive difference, with many analysts opining that “the risk was starting to increase”.

Chris Burniske, a Partner at Placeholder VC and venture capitalist, stated,

“For me, this spread is a good proxy for the market’s mood re: risk in further Bitfinex boots dropping.”

As can be seen from the graph below, the price of Bitcoin on Bitfinex is significantly higher than the other three exchanges. Bitfinex traded BTC at $5,470, while Coinbase, Bitstamp, Bittrex, and Gemini plotted it around $5,141 with a deviation of less than $2.

Source: Trading View

This posits the difference at over $350, which is around 42.8 percent higher than the $200 spread that was witnessed on April 29 morning.

Exchange spread post the Bitfinex-Tether debacle was seen with the American exchange Kraken as well. Interestingly, prior to both the Bitcoin market moving down as well as the NY AG report surfacing, the price of the king coin on Kraken dropped below $5,000, with many speculating a BTC dump with prior knowledge of a market freefall.

The price spread between exchanges comes at an important time when volatility and market manipulation are at the forefront of the cryptocurrency industry. Last month’s Bitwise report to the SEC detailed the same and categorized Bitfinex as an exchange with “real volume”.

Coincidentally, one of the main precepts to this “real volume” tag was the inability of the Bitcoin market to fall prey to manipulation, given the consistent performance of their listed exchanges. According to Bitwise, “real” exchanges posed a price deviation of less than 0.1 percent in March 2019, down from the November high of over 0.25 percent, which decreased the chances of arbitrage trading between exchanges.

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