Have you ever wondered why the crypto market is so volatile? Or have you ever wondered how the prices go up today and come down the next few minutes? As you must have known, the crypto market is highly unstable, and the reason is that several market forces could determine how well the prices of cryptos would either go up or come down. Some of these factors could come almost naturally; others result from market manipulations.
The concept of market manipulation is what most reputable crypto trading platforms have been trying to shun because it affects other investors. When these manipulations happen, most individuals outside the crypto world use it to call the crypto community a scam. In fact, it is one of those reasons why the government has deemed it fit to regulate the crypto community. The action of market manipulation is blamed on the trading platform as a “lack of customer protection.” While this is true, it is important that we understand the meaning of crypto manipulation and some popular market manipulation trends.
What is crypto market manipulation?
Crypto market manipulation means manually influencing the price of cryptocurrencies such that the market behaves in a pre-planned manner. It might often involve a group of individuals or an organization creating this illusion to rob investors of their holdings. There are, however, different trends or forms of market manipulations that you should know as crypto enthusiasts. Most times, they appear normal and natural, but reputable crypto trading platforms are always quick to scrutinize and flush them out of their platforms. You could know these trends also; here are some of the popular market manipulation trends that you should know as a crypto investor/ enthusiast
The pump and dump strategy
This strategy is the most popular. The crypto market will always experience buying and selling, so it’s important that you don’t get mixed up amid numerous market orders. The pump and dump strategy is such that ridiculous buy order is entered, especially on cryptos with very low market cap. Once this is done, it lures investors into buying into the coin. They cancel the buy order once it gets to their preferred price, and the market dumps. These strategies are often developed from crypto groups on social media like Telegram, Discord, etc. Once these people come together, they lure investors with slang like “to the moon, whales are in” etc. to get them to invest, then they cancel the sell order or activate their sell order and rebuy once the market dumps.
This is also one of the most common strategies, but whales mostly practice it. It was common during the early bitcoin days. It involves s whales setting huge buy/ sell orders to create panics in the mind of investors, pushing them into FOMO (Fear of Missing Out). For example, if the whale wants to create a bearish market, he sets a really high sell order. Once the order appears in the order books, investors will be pushed to panic sell, and once the sell-off happens, he removes his sell order and replaces it with a buy order at a lower price. This strategy still happens on the bitcoin network even to this presently. However, it’s somewhat hard to tell, as most exchanges now have means of spotting true orders from the traps.
The wash trading strategy
This is somewhat similar to spoof trading because they both send wrong information to traders. The difference here is that, unlike most strategies that directly go for the price, this strategy aims at the cryptos trading volume. So what happens here is that an investor or group of investors could start out by buying and selling the coin they wish to manipulate such that its trading volume increases. Once the trading volume increases, buyers and other traders will fall into this trap, hence the name wash trading. Most times, smaller exchanges engage in wash trading to increase their exchange performance and draw traders to the platform.
The crypto market manipulation affects the price of cryptocurrency adversely; hence, the reason why reputable trading platforms have been adopting means to always notice these manipulations on time. Recently, the activities of market manipulators have dwindled because of the stringent rules and enforcement laid down by most exchanges. With this in place, it’s easier to trade and be assured that the market is naturally following its trend and not being inflated or influenced by anybody or a group of persons.