Bitcoin is about to surge? Beware of shady dealings

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 97,000 and fluctuated around, which is enough to show that the support of 95,000 is resilient enough.

Furthermore, data from Crypto Quant shows that currently, the Bitcoin reserves of all cryptocurrency exchanges around the world have dropped to 2.5 million (see the figure below), the lowest point in three years.

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

So, can a "supply shock" actually cause prices to go back up? My answer may disappoint you. I think:

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

Why is this? Because there is a dark hand.

1. Supply shock comes, but prices still fall?

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

Bullish logic: Illiquid 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 accumulate 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 illiquid supply, the average annual return of Bitcoin increases by 3.2%. Illiquid supply refers to Bitcoin that is held for a long time or locked 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 BTC are sold in 2025 (accounting for 56% of the current exchange reserves), the liquidity crisis will be reversed into a selling wave. In addition, the US spot ETF recently experienced a net outflow of US$186 million in a single day, indicating that institutional funds are not monolithic.

If you still don’t understand, take another look at the picture below and note the accelerated outflow indicated by the red arrow.

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

You may be wondering, 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 for Bitcoin. This is ridiculous and dangerous, but there is no other way but to 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 convert price fluctuations into globally unified digital signals through millisecond-level matching engines.

CEX’s pricing power 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 experience slippage of up to several percentage points due to insufficient liquidity pool.

2.2 Fiat currency entry: 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 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" in the crypto world. However, the sad thing is that such privilege is completely unsupervised, and manipulating prices for profit has become a sure-win business for CEX.

3. CEX inserts a needle to harvest leverage users

Centralized exchanges (CEX) manipulate prices to reap leveraged traders. This is not an urban legend, but an open secret in the industry. However, 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 reap those traders who gamble with high leverage.

Imagine a young trader named "Xiao Li" who is confident about 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 10x leverage on a CEX and invested most of his savings as margin.

At first, everything went 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 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 plummeted and instantly fell below Xiao Li's margin call line. When he opened the trading software in panic, he found that his long orders had been forcibly closed and the margin in his account disappeared without a trace.

Xiao Li was in 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 is far more cruel than he imagined. He may not know that this "needle" is the result of CEX price manipulation.

CEX can create this "needle" in many ways. The most common and hidden method is "targeted blasting". CEX can analyze users' trading data to find out those traders who are heavily invested in high leverage. Then, they can precisely 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 nearly $1.5 billion of positions will be 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 once “pinned” to 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 did they do it specifically?

4. How does CEX manipulate prices?

The operation method of CEX is also very simple - Wash Trade.

Wash Trade, also known as fake trading or self-trading, refers to the behavior of traders acting as both buyers and sellers on the same exchange to artificially create trading volume and price fluctuations. The purpose of this operation is to mislead other market participants into believing 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 than not, CEX will collude with the main force (market makers) to make the depth of the pin exceed your imagination. Recently, the suppression of Bitcoin to below 92,000 was a successful leverage (tariff war) pin. For details, you can read "Bitcoin falls below 92,000, is it the end of the bull market or a short trap?"

Since 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 caught in the act is Mt.Gox.

Regarding how Mt.Gox manipulated the price, my article "Don't Take Bitcoin's "Price" Seriously" has a detailed analysis. Nowadays, although the supervision of CEX has been strengthened, CEX is still unregulated in nature, 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 strategies 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 and guessing heads or tails. Whether you guess it goes up or down, there is a 50% chance. Today you should understand that because of the existence of CEX, such speculation has lost its meaning.

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

History has repeatedly proved that the combination of centralized power and financial markets is destined to breed a hidden harvesting game. From the fake transactions of Mt.Gox to the "targeted blasting" of current exchanges, 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 on-chain price discovery 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, I will add the following "Briefing" to tell you the information that I think is important in the form of a briefing.

briefing

Cathie Wood, founder and CEO of ARK Invest, recently 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 plan to harvest leeks 2.0. It seems that Ethereum is also becoming a new consensus among institutions.

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

Cboe BZX Exchange submitted a proposal to the SEC to allow 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 investors in the TRUMP meme coin 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 that they don’t care about meme coins. It seems that the current U.S. government will not care about it. Will Congress care?