Crypto exchanges report Billions of dollars in liquidations in Bitcoin and Ethereum during the market crashes which are caused by market manipulation.
Market manipulation is a trial to artificially influence an asset’s price or the behavior of the markets. While crypto exchanges became wary of market manipulators, it’s still essential to spot common behaviors so as to identify potential bad actors.
Common Manipulation Strategies by big whales:
Order Book Spoofing
Spoofing was a standard tactic used during Bitcoin’s initial days and still happens on less-regulated exchanges. This strategy involves a whale placing large orders to make a fake buy or sell walls within the order books, hence the name spoofing.
So let’s assume a user may be a professional trader who buys and sells Bitcoin through crypto Exchange X. Exchanges essentially put buyers and sellers together. Buyers submit the costs at which they’re willing to shop for or buy orders, whereas sellers submit the costs at which they’re willing to sell or sell orders. Like everyone else who uses Exchange X, the user sees the order book that’s displayed publicly. As the name suggests, an order book is essentially a listing of buy yet sell orders for a particular asset where market participants can see what quantity demand there’s from buyers and the way much supply sellers are willing to supply at various prices.
Order books will be great because they facilitate transparency, with some traders even making decisions supporting order book data. Unfortunately, they will even be manipulated and users/whales commit to doing exactly that. If the user wants to form other traders think there’s more demand than there actually is because he hopes this may convince them to shop.
He creates large buy orders that he doesn’t shall keep and instead removes them as soon as the current price gets close. If a user wants traders to think there’s more on the provision side than truly and also the hope that it will make prices go down, he does the alternative and creates quote-unquote fake sell orders. This will be done manually, but nowadays whales tend to use complex algorithms, and also the practice itself is termed Spoofing. For established assets like shares, spoofing has been made illegal and is prosecuted in many jurisdictions. samples of less established assets like cryptocurrencies. The prosecution dimension tends to be trickier and as a result, spoofers are less afraid.
Pump and Dump
The crypto market’s most prevalent offender is the pump and dump, which involves a gaggle of individuals working together to artificially inflate a coin’s value. Pump and dumps will happen with low-market cap coins that are available on a small number of exchanges. The group’s insiders will buy a coin early and dump it once there’s enough attention from traders and investors buying in. In recent years, pumps and dumps became more accessible via social media communities like Reddit, Telegram, and Discord. you’ll have recognized them from names like Moon Pumps. In these situations, the leaders typically profit while most of the participants find themselves taking a loss.
Wash Trading
Wash trading is analogous to whale wall spoofing because they both feed misleading information to the market. This strategy involves an individual or group rapidly buying and selling the identical cryptocurrency to inflate the degree artificially. The asset’s increased activity gains attention from traders and investors, which distorts the value even more. Smaller, unregulated exchanges with almost no volumes will help whales to perform wash trades to increase trading volume, grow more commission and entice more users.
Big holders’ manipulation of the little crypto market compared to traditional stocks.
The trading activity of the whales results will have an oversized impact on the crypto market leading to the value volatility and market capitalization of Bitcoin and altcoins. Usually, whales trade in various dollars which is able to lead to a change in behavior and sentiment of the market from bullish to bearish and bearish to bullish.
The Crypto market has hit an all-time high of 2.7 trillion dollars and now the complete market cap of cryptocurrencies is around 1.24 trillion dollars.
Billions of dollars of liquidation in crypto isn’t a replacement topic, we see these events during the high market volatility and whales use these scenarios to form an honest chunk of cash
It is estimated that approximately 40% of Bitcoins are held by roughly a few 1000 people or called early adopters, and major portions of altcoins are going to be the founding team resulting in easy manipulation of crypto. With so few people holding almost a majority of BTC and altcoins, any significant buy or sell from these giant investors could tip the crypto market in either direction.
The Crypto market is more at risk of manipulation.
Cryptocurrencies are one among the foremost volatile assets in the entire world, and thus, one among the riskiest to trade and few big holders manipulate the crypto market in such the simplest way that smallholders panic sells during high volatility.
Leverage trading exchanges together with big whales manipulate the crypto prices, for instance, if small traders with short positions are liquidated by whales by pumping the market, and contrariwise as these exchanges have the information of the positions taken by the traders, they will use these data to swing the market upwards or downwards.
Market manipulation is real and crypto exchanges around the world should work to prevent this market practice to supply the clean and better trading practices from every small trader to an enormous whale.
Investing in cryptocurrency comes with risks, As more regulations are introduced, market manipulation will become harder to drag off. Crypto exchanges are warier of market manipulators, and knowing a way to identify and avoid world organization manipulation tactics is a necessary tool for any trader and investor. Users should also be from leverage trading if the market is volatile and it’s the responsibility of exchanges to encourage users to trade responsibly and do proper due diligence rather than making rash decisions.
“When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett
