Studies reveal that the trading volumes of most cryptocurrencies, such as Bitcoin, are non-economic and fake. The cryptocurrency exchanges purposely manipulate data to attract investors to their desired trading platforms.
Price manipulation aspects apply to both small and larger currencies, with some incidences occurring from a single market player. For instance, in 2017, the Bitcoin price soared and the market value reached $326 billion. At least 50% of the increase was a result of price manipulations.
Price manipulation applies to non-regulated and regulated crypto exchanges
Data from Tier 1 exchanges constituting or unregulated and unregulated ones reveal that regulation does not prevent cryptocurrency price manipulation. Thousands of cryptocurrencies are exchanged within minutes after sudden price shifts, whether there is enough liquidity or not.
In all the cased of Bitcoin or other cryptocurrency’s “dump and pump” events, the spot volumes increase above the average that occurs in exchanges. The events result in a rapid decline or increase in the cryptocurrency’s price.
After investing in cryptocurrencies, investors encounter large trades taking place on the exchanges with “thin books,” where a large volume of cryptocurrencies are executed in the exchanges with low liquidity.
This is an indication that market manipulation is happening to cause investors to reap quick profits. The manipulators take advantage of the thin order book by selling volumes of assets on the spot market.
Focusing on huge liquidations
In markets that are leveraged, huge losses for some investors mean profits for others. The continuous impact of cryptocurrency price manipulation indicates that some investors become liquidated and suffer huge losses as a result of margin calls when the price manipulation influences the price.
Many traders employ leverage while trading futures or spot market. For instance, in May 2020, Bitcoin fell by 8% and this caused investors to liquidate assets worth $250 million in the futures market.
This manipulative phenomenon is suspected to have taken place earlier. Later, the price of Bitcoin dropped by 17% within a few minutes and after a few hours, the price went down further by an additional 40%. The sharp drop caused a $1.5 million worth of liquidation in Bitmex futures.
The multi-exchange method
The cryptocurrency price manipulators may be using the multi-exchange method, complicating price manipulation identification. Most regulated and recognized cryptocurrency exchanges have anti-manipulation procedures in place. However, the multi-product manipulation signal that the manipulators may be capable of using top exchanges for unscrupulous purposes without sending alarms.
This means that the market manipulators of cryptocurrency may not be deeply hidden. There have been several cases of major cryptocurrencies, such as the Bitcoin moving down or up within minutes, where high trading volumes are involved. The high movements of volumes result in massive price swings.
Some price movements occur due to organic trading, while others are evidenced by foul play. The key influential people deliver large volumes of cryptocurrency to exchanges some days before dumping takes place.
Challenging the Bitwise theory
Multiple exchanges may be used to manipulate the cryptocurrency market. Therefore, getting data from various exchanges may not be enough to deter the manipulation effects. Although using multiple exchanges makes price manipulation harder, it is still viable because the manipulators use such exchanges for elicit purposes.
The “five-minute effect” may also be used to challenge a portion of Bitwise’s presentation. Bitwise’s presentation means that it is possible to manipulate most of the worldwide spot bitcoin volume within five minutes to have an impact on the NAV.
This theory can be challenged on the grounds that manipulation can occur between two minutes and 120 minutes, although in most cases, the manipulation lasts between 30 and 45 minutes. The suspected manipulation activities include trading of several assets, whether regulated or unregulated.
Using advanced trading products
For most cryptocurrency traders and holders, it is believed that markets may feel the manipulation effects after some time. More upcoming trading products in the crypto space may be contributing to price manipulation.
Today, crypto markets have grown than they were before. Sophisticated products have come up, including leveraged derivatives and spots that are commonly used by manipulators. Leveraged products are known to exaggerate the decrease or increase in prices and these are used by influential traders for manipulation.
The platforms of crypto that may support manipulative schemes are very powerful. To prevent price manipulation, there is a need for exchanges to have vibrant surveillance tools to detect manipulation, a process called spoofing. This may be supported by tools like order books and real-time trade analysis.
The question of whether the prices of cryptocurrency are manipulated by influential people has lingered in many investors’ minds. A little manipulation of crypto prices may lead to a boom in the crypto market, while significant manipulation can cause a price surge. With or without price manipulation, cryptocurrency remains one of the most popular forms of investment, allowing investors to efficiently and quickly transfer funds while enjoying investment security.
About the Author
Thomas Jackson a professional writer and an active member of several writing clubs in New York. He works for a custom essay papers site and has also been writing his own songs since he was a child. As a young author, he gets inspiration from live concerts, music shows and from his family.