Market Manipulation of Cryptocurrencies

Oct 25, 2021
4 min read

The cryptocurrency market has reached such a high level so quickly that less than a year later, as we return to this area around $ 64295.10 for Bitcoin, a large number of investors are seized with sudden fear.

These late-breaking crypto investors were scared that Bitcoin would drop, and fear is akin to falling prices into the depths of an abyss. Unfortunately, these crypto enthusiasts do not seem to understand the mysterious forces that help to govern the market value of Bitcoin. In contrast, these forces are invariably linked to FUD (Fear, Uncertainty, and Doubt) / Bullish (bullish news in finance) type news or outright manipulation of the cryptocurrency market.

How Does Cryptocurrency Market Manipulation Work?

Spoofing

Despite the more than complex nature of the cryptocurrency market and the financial market in general, the most common and effective form of market manipulation turns out to be reasonably straightforward. All you need to manipulate the price of Bitcoin and other cryptocurrencies is much money.

This method is known as "Spoofing." It often happens that spoofing maneuvers are detected on cryptocurrency exchanges. The lower a market's trading volumes, the easier it becomes to manipulate it. Thus, even though Bitcoin has the highest trade volume, its price manipulation is much easier than the traditional financial market, where volumes reach much higher levels.

Many Wall Street experts and the crypto trader Ronnie Moas have thus repeatedly alerted to these price manipulations in the world of cryptocurrencies. Ronnie Moas gives a typical example of manipulation via spoofing:

"If you have $ 2 billion, you want a diversified portfolio. To me, diversified is a $ 200,000 position, but there can be a $ 200 million position because you want 10% of your money invested in Bitcoin. But you don't want to pay $ 20,000 for a Bitcoin, so what you do - and that can apply to a Whale (the famous Bitcoin Whales), a Cartel, a Shark, a Consortium, a Trading group - you're swinging between $ 20 million and $ 40 million in the market, and you put pressure on the sell. People see these orders in the order book in front of them. They're going to jump into the trap because they're going to be afraid that you move and shake up the market, and then the phenomenon feeds on itself. "

This is the easiest method in a relatively young and unregulated cryptocurrency market, but it is also illegal. The United States government even recently launched an investigation into manipulating the cryptocurrency market, focusing mainly on spoofing.

Layering

Layering is very similar to spoofing but with slightly different intentions. Access to the order book as well as its analysis in a short time allows this strategy. Traders who practice layering will place many orders at critical prices in the order book in the hope of reserving key positions in advance. So what's wrong with this strategy?

As with spoofing, traders have no intention of making these trades. At most, they target one or two. While they don't necessarily inflate prices by transforming the public's perception of market demands, they do exactly that by placing (potentially massive) orders in the backlog. Charges that will never be satisfied. This leads investors to have a biased and distorted view of demand in the market, causing price manipulation, as in the case of spoofing. These two techniques can be used together and are, of course, completely illegal.

Pumping and Dumping

Pump and dump movements are orchestrated through fake news or fake promotions. The idea is simple: the people behind these movements will accumulate large amounts of crypto before contacting famous people and influencers to discuss the cryptocurrency on social media. They will then pay unscrupulous media outlets to publish fake press releases, often in the form of supposedly neutral articles. In reality, these are covert advertisements.

Once the pumping phase is finished, the next phase is the dump. However, this will only work if it is done at the same time. Naturally, there will be a price slippage, but manipulators cannot sell their coins slowly without significantly changing the market at the time of the price reversal. The only thing to do is sell everything simultaneously, adjusting the price entirely and getting rid of everyone who bought during the pumping phase. The latter continue to keep their positions and find themselves stuck.

The opposite movement is known as the "Bear Raid." Manipulators will spread FUD-type news to instigate fear in the market and drive prices down.

Chances are you've dealt with this kind of scare news without any factual basis. Once the price of the targeted cryptocurrency hits a low point, the Whales will proceed to buy, benefiting from that low price. Pump and dump and bear raiding strategies are considered frauds in traditional financial markets.

Is The Bitcoin Market Being Manipulated?

Now that you have learned about four well-known techniques for manipulating the cryptocurrency market, the question that arises is quite simple: is the Bitcoin market being manipulated?

What do you think? Asking the question is already a form of answer in itself. Have you never seen this fake news or these widely limited press releases? Do you remember mainstream media reporting scary upcoming events that ultimately never happen or promises of bullish news that have turned out to be false? Have you ever seen large buy orders placed in the order book canceled just before they expire?

Out of all of these questions, chances are you have answered yes more than once. The U.S. investigation will likely reveal some additional and fascinating details. Still, you don't have to wait for the results of this investigation to know that the market has been well manipulated since the early days of Bitcoin. Instead, the real question is, how much did it make for these few Whales, and how much did it cost ordinary investors?

Please share your opinion on the subject in the comments while sending us examples of fake news or FUD articles that have particularly caught your attention in recent months.