Why are Crypto Markets so Volatile? Manipulation in Crypto, 3 Manipulative Trading Practices Explained

Why are Crypto Markets so Volatile? Manipulation in Crypto, 3 Manipulative Trading Practices Explained


Cryptocurrency volatility can be scary, and sometimes it can lead us to making the wrong decisions whether it's on the upside or down.

This is a quick rundown of the 3 most common manipulative trading practices that we see on a daily basis.

I have had my fair share of FOMO ( fear of missing out) and FUD (fear, uncertainty, doubt) to say the least, and because of this has compelled me to understand the markets better with the hopes to make better decisions in all my crypto trades.  This is what I have come to learn.  

On the major Bitcoin markets there is no overseeing, basically it's a free for all, the wild wild west.  The SEC (Securities Exchange Commision) here in the U.S. has rejected  all proposed Bitcoin ETFs (Exchange Traded Funds) to this very day.  Taking this in to perspective, the manipulation of Crypto markets is also one of the main reasons  why large institutional investors are wary, not to mention the rest of us, (the early adopters) and have yet to really enter the market, slowing the adoption of cryptocurrencies by large sectors of the financial community.  

Trading volume is the main metric used as a measure of an exchanges adoption and Big Willy status.  This is the also the main metric used by Coinmarket Cap the most widely used cryptocurrency data and price platform around.  Why does any of this matter and how could it affect me?  

In the case of cryptocurrency exchanges the potential for huge rewards together with a fairly low barrier to entry for creating a new exchange has produced the fiercest competition to gain users and the trading fees that come with them.  This is another reason decentralized exchanges are setting new standards as well as promoting a more secure and pleasurable user experience.  I have another  article with an up and coming Dex aggregator that is leading the way, SwapZone 5afce85de52e5042df160ace2d56a84e70ddc56beba1b80f3058df7308fb8d9a.jpeg

A May 2019 report from Bitwise Asset Management  stated that 95% of reported BTC volume was fake volume consisting of fraudulent puts/calls or wash trading.  The same holds true to token issuers being motivated to boost their tokens trading volume which would be regarded as a measure of their popularity and market attention.  4d9f6d74828d0f1d9e93e1ea8c55ae43ab6992f61104a8b9f0e0f3bb3d6a8286.jpeg

These exchanges, such as Binance and Coinbase are incentivized to compete on the basis of volume and inflate volume with these 3 types of trading:  

1) Spoofing.  Spoofing occurs when a trader creates an order with out the true intentions of the orders being filled, for example, I open a create a trade that I cancel immediately to prevent other market participants having enough time to fill the order or I were to create an order at a wide spread resulting in uneconomical prices.  The motivation behind spoofing is usually creating the appearance of increased order book depth and signal market interest in certain coin.  This can also result in a trader capturing rebates for providing order book depth(liquidity).

2) Wash Trading.  Occurs when a trader or a group of traders working together, trade with themselves (amongst themselves) with the goal to inflate the volume of a traded crypto coin.  There is no economic rationale behind this besides inflating the volume.  

3) Price Manipulation.  This is the attempt to artificially push prices high in one direction or prevent prices from moving in one direction.  We also hear the term "Pump and Dump", this is a common form of price manipulation in which a group of traders buy a coin and inflate its price with the objective of enticing other market participants to join the fun and buy the coin to prolong the price increase, then shortly after immediately selling the coin to capture profits from the artificial "Pump".

Every Exchange competes for liquidity and the market for liquidity itself grows in significance.  Understanding some of these things helps me keep in perspective of what it is I am trying to do.  There are so many strategies and picking one for yourself is imperative to your success, with the right tools we can have fun with our journey.

 

 

 


bobby dig!tal
bobby dig!tal

I'm a developer and love all kinds of technology


A cryptocurrency journey ongoing
A cryptocurrency journey ongoing

A journey ongoing. Lets explore projects with great potential, whitepapers, protocols and the emerging DeFi trends and maximize this new era in finance.

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