There’s nothing random about price movement.
If all you have in your trading history is timestamped proof of losses upon losses – then, what’s random about that?
Your consistent loss has been someone else’s consistent gain.
Meaning – there’s individuals participating in this market that have a timestamped trading history that details nothing other than a string of consistent gains.
What are they doing that you’re not?
Well, we have to take a step back to look at the bigger picture.
Those that dabble will always fall victim to those that ply this trade day in and day out, on a minute to minute basis.
There are those that maintain Bitmex and Binance accounts for the sole purpose of engaging in what they refer to as a “side hustle.”
For them, Crypto is a hobby that has potential to pay.
These individuals are the contributors of market.
They are the only ones that put money into a trade, whilst secretly accepting the fact that their money may never return to them.
These hobbyists are the cash cows of the markets.
This variety of trader makes up more than 90pc of those that trade crypto currencies.
But – unlike these hobbyists, there are individuals that have made certain to themselves that they shall never take a loss.
These are the individuals that will only place trades once they are sure that they can control the outcome.
These traders aren’t the ones that cross their fingers, praying for favourable results.
Traders that understand the market, are the ones that understand cause and effect.
They know that when the market moves, retail traders respond.
Therefore these individuals do not waste time ‘guessing’ market movement.
Instead, their time is spent on creating market movement.
In short, this individual is a market maker.
A hobbyist trader could be on vacation enjoying his fifth shot of Bombay Sapphire – but, this won’t prevent him from using his drunken hand to open a leveraged positon on Bitmex upon receiving notification that prices are soaring.
Market makers understand this very well.
You see – the sole purpose of a market maker is to extract from the market money that the retail trader contributes.
It is in this way that the market is revealed for what it actually is – a mechanism that allows value to be transferred from outsiders to the insiders.
Looking at the wider landscape, this is the reason behind the continued success of institutions such as Goldman Sachs.
The retail trader is merely a gambler in disguise.
Retail traders sincerely believe that price movement occurs at random – but, this isn’t the case.
True market makers understand that there is nothing random about price movement.
They understand that, in investment, being consistently profitable means being in consistent control of the reality of the market.
Therefore their time is spent on creating and then maintaining a reality that suits their cause and allows them to achieve their investment objectives.
However it’s instructive to note that, for market makers, it’s easy to cross the fine line that exists between price control and outright price manipulation.
When opportunity arises
In 1971 the United States ended its adherence to the gold standard.
In August of 1971 President Nixon announced that the U.S. dollar would no longer be convertible into Gold on the international markets.
…I have directed the Secretary of the Treasury to take action necessary to defend the dollar against the speculators. I have directed Secretary John Connally to suspend, temporarily, the convertibility of the dollar into Gold or other reserve assets…US President Richard Nixon, August 15, 1971
Following this announcement, intense printing of dollars ensued causing devaluation.
It’s also important to note that, during this time, United States citizens were also prohibited from owning gold.
These events created an opportunity for a Dallas based Oil Tycoon by the name of Nelson Bunker Hunt.
In fact any thinking individual would have seen, as clear as day, that immense opportunity was to arise.
The USD was undergoing devaluation.
In addition to this, it was illegal for private citizens to own gold.
Thus Silver was now in position to be used as one of the more prominent hedging mechanisms, to prevent loss of wealth due to the excess printing of the United States Dollar.
Bunker Hunt was fully aware of this.
So aware was he, that he took it upon himself to corner the world’s silver market – so that he may enjoy the spoils for himself.
So he set about his plan.
Just about anything you buy, rather than paper, is better. You’re bound to come out ahead, in the long pull. If you don’t like gold, use silver, or diamonds or copper, but something. Any damn fool can run a printing press.
Nelson Bunker Hunt, Barron’s Financial, 1974
In early 1974, Bunker Hunt accumulated futures contracts totalling 55 million ounces, or about 9 percent of the world’s silver supply at the time.
These contracts gave Hunt the right to buy silver at agreed-upon prices on an agreed-upon date in the future.
The strategy was simple.
Bunker Hunt opened a long position in silver, knowing that he was about to force prices higher. He would then go the opposite direction.
Once he got the price up, he was to then open a short position – knowing that he was going to dump several ounces of silver back onto the market.
However, to achieve this – it was important that he not only purchase silver contracts, but it was essential that he actually took possession of physical bullion.
It would be a huge logistical feat to accept delivery of 55 million ounces of silver.
However, that’s exactly what he did.
He was worried that the U.S. government might introduce legislation to prohibit private ownership of silver, like it had done with gold.
So he chartered jets to fly his silver, under armed guard, to Switzerland for safekeeping.
Doubling down on his plan, in 1979, Bunker went on to persuade a number of Saudi Princes to back his play.
And they did.
Together, they purchased an additional 43 million ounces of silver contracts on U.S. exchanges, with delivery to be taken at the end of the year.
By 1980 Bunker Hunt was in possession of nearly than 150 million ounces of silver. Which was between a third and two thirds of a year’s supply at the time.
Due to this intense and sustained buying, the price of silver had rocketed from 1.5 USD per ounce to 50 USD per ounce.
This forced the Commodity Exchanges into a panic, since they held only 120 million ounces of physical silver – a sum typically traded during a busy month.
Therefore if buyers of silver futures wanted to take delivery of more physical silver than the exchanges had, the exchanges would be forced to buy silver on the open market, which would push prices even higher.
This forced government intervention, as the market was now on the brink of collapse.
What goes up, must come down
The Commodity Futures Trading Commission (CFTC), finally decided to put a stop to Bunker’s buying—by changing its rules.
Margin requirements were suddenly raised, and traders could hold no more than 3 million ounces of silver futures; it also said that all contracts over 3 million ounces per trader must be sold by February 1980.
Bunker cried foul, accusing CFTC members of having short positions, so that they would profit when silver prices fell — an accusation that would later be proven true.
Then, the Federal Reserve and its chairman, Paul Volcker, added to Bunker’s troubles by ordering U.S. banks to begin curtailing their loans.
Loans for “speculative holdings of commodities or precious metals” were singled out – with Bunker Hunt as a specific target, since he was borrowing money to buy his silver contracts.
Thus, American banks and brokerages would no longer lend money to him.
Adding to this, the CFTC announced that trading in silver would be limited to liquidation orders only, thereby eliminating buyers from the market completely.
This particular ruling was essentially the same as saying, “Until this rule is lifted, the price of silver will only go down.”
Which is what happened.
On March 26, 1980, Bunker Hunt had a 135 million USD margin call and couldn’t pay it.
It is at this point that he began to unload his silver holdings onto the market, sending prices downwards.
By the time Bunker had finished dumping his holdings onto the market, silver was being traded at 10 USD an ounce, down 78 percent from its high 10 weeks earlier.
Bunker and Herbert Hunt were eventually convicted of manipulation, fined, and forced into bankruptcy. It took them over ten years to make things right with their creditors.
In 1989, in a settlement with the CFTC, Nelson Bunker Hunt was fined $10 million and banned from trading commodities as a result of civil charges of conspiring to manipulate the silver market.
Never the less, he died a multi Billionaire in 2014.
The true nature of the market
This is an example of when manipulators go too far. It’s a colossal example of how simple it is to shape the reality of an entire market.
The manipulative actions of Bunker Hunt forced the government to take manipulative actions of their own – forcing liquidation that they knew would crash the silver market.
Yet, they did it anyway.
This is the true nature of financial markets of the world.
The same thing happens on daily basis in the crypto arena. Gaining an understanding of these tactics allows you to put yourself in position to stay ahead of the market makers, and to get the most out of inevitable market activity.