Price manipulation has been around for much longer than cryptocurrencies. Unlike the traditional stock markets that have matured over the years, the crypto space is still in its infancy, with various regulations that could make it vulnerable to market manipulations. Nevertheless, price manipulation is abusive behavior that targets beginner and inexperienced traders. This article explores some common ways via which Bitcoin price manipulation can occur.
Pump and Dump
Pump and dump are among the most common techniques that manipulators use to impact Bitcoin prices. Market participants and insiders usually try to create hype around the coin’s value until it attracts traders’ attention. The group rapidly dumps the digital currency after traders and investors jump into the market, reaping huge profits. However, it can also hurt the insiders because no condition exists that they will attract the expected number of traders or investors.
Initially, some participants used the method to manipulate penny stocks, but cryptocurrencies with low liquidity can also be perfect targets. Many users usually come together through social networks to coordinate the manipulation of a low-liquidity altcoin for profits. It is effective because traders can hardly predict the exact time of the jump and the dump.
The pump and dump tactic can leave inexperienced traders with huge losses. However, you can avoid the traps by analyzing various Bitcoin price patterns to spot a jump and dump scheme. Leading crypto platforms such as Quantum AI , offer precise tools to help traders watch price movements and market trends in real-time.
Market manipulators often apply the pump and dump technique to influence the prices of low-market cap cryptocurrencies not in the top 100 list. While exceptions may also occur in high-cap cryptocurrencies like Bitcoin, the cases are pretty rare. Besides, more significant manipulation usually occurs in limited exchanges.
The trend was mainly prevalent in the early cycles of Bitcoin, but it could still be going on in some shady crypto exchanges. Popularly known as order book spoofing, the technique involves placing a large set of orders with no intention of executing them. Instead, the market participant’s objective is to create the impression of significant market demand or supply.
Whale walls were prevalent in the commodities market, and some renowned institutions have come under scrutiny for it. Institutional investors with significant holdings build up big buy and sell walls on exchange order books to spoof traders. That triggers a bullish sentiment in the market, making traders acquire long positions and pull out their orders.
The technique enables the whales or institutional investors to manipulate price discovery in spot markets, profiting from the volatility in the derivative market. It drove Bitcoin’s price from about $32,000 to $30,000. However, it has become a lot easier to mitigate due to multiple alerts, features, and data the exchange platforms now provide.
Wash trading originates from the whale wall technique. Insiders and market participants use the method to create the illusion of an active market for a particular asset. While it is illegal in the traditional stock markets, wash trading seems to be a fair practice in the crypto space. It entails the simultaneous purchasing and selling of the same asset by an individual or a collaborative group of traders to project a false trading volume. However, it is also easy to spot because traders can look at an asset’s liquidity before jumping in and realizing the false alarms.
The crypto space is still immature, and many assets could be vulnerable to price manipulation. Most bad actors often use shady exchanges, crypto scams, and fraudulent crypto projects to manipulate Bitcoin prices, but others also leverage technology. Nevertheless, traders must remain vigilant and use reputable crypto exchanges to avoid such traps.