Market Capitalization: Ways Cryptocurrency Markets are Manipulated
The recent allegations by New York’s attorney general against top ten digital asset, Tether speaks volumes of the dark sides of the cryptocurrency markets which very few have come to terms with. Concealment of millions in losses, wash trading, and other fraudulent activities are hidden behind false numbers in the markets. Surprisingly, few take actionable steps to address these issues.
Market capitalization in the cryptocurrency industry reflects more about how much value investors place on a cryptocurrency than how much money is actually in the market. A drop of billions in market capitalization may be the result of more people selling than buying cryptocurrencies. It won’t necessarily be an indication of billions leaving the market. Market capitalization can easily distort one’s views of the true nature of the cryptocurrency projects.
Pump and Dumb
Pump and dumps can be quite effective with low market capitalization coins. Coins with less liquidity may be more susceptible to price movements by whales who purchased coins over a period of time to increase their price. Many investors who observe the price movements make purchases based on the fear of missing out. When the whales are satisfied with their profits, they begin to dump the coins.
Sell Walls and Dark Pools
With positive inside information on a coin, whales can place orders that create a huge sell wall. Fear induced by the fall in prices leads to panic sales by investors who are unaware of the true nature of the trades. The whales then purchase the coin at a cheap price as they await the publication of the positive news which will in turn increase demand and price for the coin.
Dark pools can make it easier to accumulate coins to create sell walls. The private exchanges allow whales to trade anonymously. The activity does not affect the publicly traded value of crypto-assets, making it easier to conceal activities.
30% Higher Activity Than at $20,000
Bitcoin’s market capitalization of $160 billion was higher than the world’s largest company in 2017. Interestingly, the daily transactions in 2019 hit all-time-highs of 404,000. The figure could serve to support many notions that much of Bitcoin’s 2017 boom was the result of manipulation. It is of course, presumptive to make a conclusion on that basis alone.
A 66-page research paper says Tether was used to buy Bitcoin at key moments when it was declining. The blockchain is probably the last place you would want to carry out fraud considering the audit trail on it.
By tracking Bitfinex transactions, which are recorded on a public ledger, Griffin found that Tether was used to buy Bitcoin after large price falls. It found that about 87 hours or about 1 percent of tether trading could explain 50 percent of the rise of Bitcoin and 64 percent of the rise of other major cryptocurrencies.
Spoofing and Front Running
The practice of spoofing occurs where a large order is placed to create the illusion of market optimism. As soon s price gets to the desired level, trades are canceled. Many exchanges don’t shy away from manipulation either. Operators may use their control over their platforms to take advantage of buy or sell orders before other customers can.