PlusToken scam liquidations: driving down Bitcoin?

So far, the PlusToken scammers have cashed out at least $185,000,000 worth of stolen Bitcoin via OTC brokers.

Those who analyze cryptocurrency markets know that large liquidations generally tend to depress the price of Bitcoin, and others have asked if PlusToken-related cashouts are in fact dragging down Bitcoin. We decided to run our own study of Bitcoin’s price in relation to PlusToken cashouts via Huobi OTC brokers to try and answer that question.

For this analysis, we started by plotting Bitcoin’s price listing on Huobi against two key measures of PlusToken’s Bitcoin transfers:

  1. On-chain volume. On-chain volume is the amount of Bitcoin moving from wallets controlled by the PlusToken scammers to any of 25 prominent OTC brokers on Huobi that we’ve identified as dealing with illicit funds.
  2. Trade volume. Off-chain volume refers to the amount of Bitcoin for Tether traded on Huobi. We chose this metric because we know from our analysis that the PlusToken scammers have definitely exchanged their stolen Bitcoin for Tether, possibly converting it to fiat currency later. However, because these transfers are recorded only in Huobi’s order books rather than on the blockchain, we have no way of knowing which of them are coming from the sale of Bitcoin from the PlusToken scammers as opposed to other users of the exchange.

Our hypothesis consists of two key parts:

  1. We expect that any uptick in on-chain volume would be followed by a corresponding uptick in trade volume, as OTC traders receive Bitcoin from PlusToken wallets and subsequently exchange it for Tether.
  2. We expect Bitcoin’s price to fall soon after those upticks in on-chain as well as trade volume, as more Bitcoin is  unloaded onto the market.

Both parts of our hypothesis were proven true.

Our results:

Figure 1

Above, we see that PlusToken wallets sent a steady flow of Bitcoin starting in April and spiking just before the arrests in late June. After that, we see no movement until a few spikes in August, before transfers spike again and remain high throughout Sept.

Then, we see a few more spikes in October. As we suspected, spikes in on-chain flow to OTC brokers correlate with drops in Bitcoin’s price. There can be a lag, as Bitcoin that is moved on-chain to an exchange is not immediately traded. We see the best example on September 20th, when PlusToken scammers made a large cash out of roughly $33 million worth of Bitcoin. Following that transfer, Bitcoin’s price drops steadily between September 24th and 26th, falling from just over $10,000 to about $7,000 and remaining there for roughly a month.

But what about trade volume? Check out the graph below.

Figure 2

Our hypothesis is proven correct here as well. As we expected, we see a rise in trades of Bitcoin for Tether starting on September 23rd, a few days after the PlusToken wallets sent a large volume of Bitcoin to Huobi OTC brokers. Shortly after on September 24th, the price of Bitcoin begins to drop.

From this analysis, we can conclude that PlusToken cashouts correlate with drops in Bitcoin’s price.

Can we prove causation?

We can’t say for sure that Bitcoin price drops are absolutely caused by PlusToken cashouts. It’s possible that price drops follow the cash-outs by coincidence but are in fact caused by something else.

In an attempt to settle the question of causation, we ran a regression analysis to test how the increase in trade volume between September 23rd and 28th impacted Bitcoin’s price volatility. Typically, we’d test how trade volume impacts the price itself, but there’s only one large change in Bitcoin price for the time period we’re measuring (on September 24th). We need a measure with more variation to look for statistical causality and ensure results aren’t driven by outliers. Volatility, which measures the deviation from the average Bitcoin price at a given time, has enough variation to do that, while also giving us a sense of how the PlusToken cashouts impact Bitcoin’s price.

Figure 3

Our regression analysis shows a positive, albeit small, statistically significant relationship between PlusToken transfers to Huobi OTC brokers and Bitcoin price volatility for the period of time between September 23rd and 28th.

The cashouts likely caused increased volatility in one of two ways. They either cause it directly by increasing the supply of Bitcoin and changing market dynamics, or indirectly by affecting traders’ perception of the market. Keep in mind that PlusToken cashouts are just one of a plethora potential influences on Bitcoin’s price. Media stories, concerted market manipulation efforts, algo trading errors, or any number of other factors may have contributed to volatility as well. However none of those components on their own provides a compelling explanation for the large spike in volatility in the time period we studied absent the influence of PlusToken.

Unfortunately, because it’s not possible to distinguish between trades made by OTC brokers in possession of PlusToken funds and all other trades made on Huobi, thus we can’t say for sure that PlusToken cashouts caused Bitcoin’s price to drop. However, we can say that those cashouts cause increased volatility in Bitcoin’s price, and that they correlate significantly with Bitcoin price drops.


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