Bitcoin Gold exit pump: proactive blockchain analysis for profit

I’ve been watching Bitcoin Gold for about a year now. Is it because of its great fundamentals or wonderful community? No—it’s because I saw something most people didn’t. About 5,000 to 10,000 BTGs were being taken off the market, daily.

What do I mean?

Figure: BTG:USD margin longs chart.

From August 16 2018 to July 22 2019, an accumulation period of 11 months, someone – or multiple entities – entered a massive margin long for Bitcoin Gold.

At the peak, there lay 1,900,000 Bitcoin Gold coins in the Bitfinex margin long position.

Calculating the market share

Bitcoin Gold forked from Bitcoin (BTC) on October 24, 2017, to change the proof of work algorithm from SHA256 to Equihash. This means that every BTC holder prior to the date also owns BTG.

Over 11 million Bitcoins (BTC) haven’t moved in the last year. Considering big wallets’ unwillingness to claim their coins due to fear of private key leak for a minimal return, it can be argued that a number even larger than 11 million BTGs are inactive or lost forever.

Given the aforementioned, this means there can be a maximum of 7 million BTGs on the market; a more conservative number is probably closer to 4 or 5 million. With the prior figure, one entity owns a minimum of 38% and a maximum of 48% of the supply, on one exchange.

Assuming he is the only one in on this accumulation, that’s half the supply belonging to one entity. It is not possible to extrapolate much information just from public longs data. This is where we must use the best feature of blockchain: public on-chain information. By finding the corresponding wallet we can see the activity of the coins.

Looking at the #1 wallet on the Bitcoin Gold rich list we can see this public key: AK3QLikGKibaVovq4xASTxadTeSYdC7dEQ

Figure: Wallet address ‘AK3’; blue line illustrates BTG balance over time.

Figure: Bitfinex:BTGUSDLONGS.

Notice how the wallet balance mirrors the public BTGUSDLONGS chart. It can be concluded that this is Bitfinex’s cold wallet, or where they store the margin bought coins.

“The pump”

In early January 2020, BTGUSD saw an increase of at least 150% from a $5 bottom to roughly $15 top (which didn’t last very long).

During this time, the longs chart was falling off a cliff, and Bitfinex’s wallet balance decreasing by an equivalent amount.

This is no coincidence; mark-up and distribution are starting. BTG will see a price increase that will attract thousands of retail investors to buy up the bags that this huge market participant needs to get rid of.

Since the “whale” largely controls where the price goes due to owning such a big piece of the supply, the coin can be wash traded up to any price he wants to exit at.

Bitfinex is not a place for retail investors typically; until recently there was a $10,000 capital requirement to trade on the exchange. For this reason, the whale has to withdraw out of it, because to pump something you must do it on an exchange where people will actually buy your bags, not just any random exchange.

Where is the whale from?

Using various techniques we can narrow down which exchange the coins are going to.

Looking at the following address we can see that there has been a massive increase in deposits ever since the Bitfinex coins have been withdrawn: ASvwXS7Jm1Djwv7sLRUX46DT1vfQ5XymaY.

Figure: Wallet balance of suspected exchange used for distribution.

The first obvious thought is Binance, right? It’s not; after depositing to Binance and checking to see where the coins go, Binance’s address seems to be this one: GVxf3Kxye9BaAaMXkkgbozXAArUkd72Us4

Huobi isn’t very likely, as the volume on there for BTG is quite irrelevant. However, it cannot be ruled out.

Next, there are Korean exchanges. Korean prosecutors have cracked down on wash trading so it’s unlikely Korean exchanges are willing to risk prison sentences to fake volumes in 2020.

If all exchanges are observed side-by-side, it looks like the leading exchanges are Bitfinex (in suppression) and Bithumb (in expansion).

Figure: Comparison of Bitfinex, Binance, Bithumb, Huobi BTGUSD markets. In the case USD pairs were not present, composite tickers were used to generate synthetic USD markets.

Despite not being able to track down the ‘ASv’ address, this observation makes it probable that our pump whale is Korean. This means either the Bitfinex whale is Korean or there are multiple players here with conflicting goals.

For unknown reasons, the suppressing whale decided to put a massive iceberg sell wall at about $14 on Bitfinex. They refused to let the price fly up from there. There were discrepancies in the price of at least $5 between exchanges, peaking at even $14.

Despite the attempt to increase the price on Bithumb, the sell wall on Bitfinex did not let the other exchanges follow the price (although their volumes spiked).

The conclusion is that the price was suppressed in order to be able to create a bigger pump in the near future. If the price rises too fast, it’s destined to downtrend for an extended period as people gradually take profits and there is no-one to buy up the increasing supply hitting the market.

So, what price will Bitcoin Gold hit?

In order to figure out the aim of the whale, price-wise, we must analyze the average buy-in value of all the BTGs accumulated. Fortunately, Bitfinex margin data is publicly available.

We will be making a few assumptions when calculating the average price accumulated at:

  • Bitfinex margin longs are the only place where the whale has accumulated BTG
  • There was no other exchange activity while this accumulation was occurring
  • The margin long data is accurate and honest in its intentions (not a hedge, hasn’t been covered on another account)

The accumulation started around August 16th 2018, and went until July 22nd 2019; a total of 340 days. That totals to 340 candles to analyze: how many BTGs were bought by the whale on that day and at what price.

To calculate the average buy-in price, we use a weighted average formula. The “value” part of the weighted average will be the closing price for the day, and the weighing will be represented by the increase of margin longs on BTG for that day.

All the data was manually collected for all dates.

Figure: Data visualized.

Excel calculates the average easily for us by using sum() and sumproduct() functions and we are returned with a value of 22.86. In conclusion, the breakeven price for the BTG whale is about $22.86.

In order for an accumulation period of this scale to be profitable, and worth the time and capital deployment, a huge profit must be expected.

It is expected that the price of BTG will multiply in value from the current value of ~$12 (as of this post) and increase a substantial amount from the $22.86 projected breakeven price.

What happens after the publishing of this article will be a good example of how big market participants are able to single-handedly move markets and smaller traders are able to follow using publicly available data. This is analogous to a school of small fish following the whale to avoid getting eaten by the shark. Be the small fish.

Disclaimer: To be clear, when I say ‘exit pump’ — it does not mean it’s an exit scam, but rather that after the big player exits the coin there won’t be much interest in keeping the market up after distribution. Liquidity will decrease drastically. As of the publishing of this article, I own BTG. Everything written is my opinion and does not constitute financial advice; I am not a licensed financial advisor.