INTRODUCTION
A hard-to-believe truth that is unknown to a lot of people, including a large number of investors, is that manipulation of the cryptocurrency market is possible. A lot of talk about it can be heard through experts or on Youtube videos where they agree that such illegal acts are on the rise around the world.
In the majority of cases, it is caused by the immature and unlawful nature of the markets. On the bright side, many solutions have been found to avoid such acts.
What Can Be Considered Market Manipulation?
To be specific, any actions taken by an international body that can affect the value of assets for personal gain can be termed “market Market Manipulation. Market manipulation of cryptocurrencies is identical to any other type of asset manipulation in retail.
Such actions can lead to drastic changes in the price of crypto. The change in price depends on the goal of the manipulator; if he wants to buy more, then there will be a drop in price, and vice versa. Fake orders or excluding orders by exchanges can also affect the price of the cryptocurrency.
7 Ways the Crypto Market Can Be Manipulated
The most commonly used practises are:
- Pump and Dump
- Wash Trading
- Cross Trading
- Whale Moves
- Shilling
- Spoofing
- Dark Pool Trading
We will discuss all these methods in detail.
1- The Oldest Pump and Dump
Mostly, a digital asset is pumped by purchasing large quantities of it and then dumping it at the high point of the price spike. Any person with the ability to buy large amounts of coins can do this.
Sometimes manipulators combine pump and dump with other methods like shilling, spoofing, and wash trading.
Despite the simplicity of this method, making money this way is not easy. A well-coordinated relationship with the entities, such as exchanges, is necessary. Most foot soldiers end up losing money, while only the top investors know the timing of the drop.
2- Wash Trading
Continuous purchase and sale of coins at the same price by the same entity is called “wash trading.” You might be wondering why it is performed if no profit or loss results.
The answer is that it shows large quantities of an asset changing ownership over a short time, which can increase the interest of the investor and lead to a price spike.
3- Cross Trading
When a trade occurs but is not posted on the accounts, it is called cross trading. This is done so that trading cannot affect the price of cryptocurrencies. The occurrence of this is only possible if the exchanges themselves are involved in it.
4- Whale Moves
A crypto whale is an individual who owns large quantities of a cryptocurrency, and if they trade, they can individually shift the price of the cryptocurrency. It is considered illegal only if the whale makes trades for personal gain.
5- Shilling
Some projects have large followings, and all these people talk about the merits of their chosen coin and attack their competitors. The goal is to pump up the price of their chosen digital asset through hype.
6- Spoofing
Faking the purchase and sale of a large number of orders is called spoofing. The orders are cancelled right before the execution. It is to cause a fake pump and dump. This is a fake pump or dump, but the market is tricked into believing that there is one.
7- Dark Pool Trading
Dark pools are personal trading forums. Assets in digital form change hands in large numbers at a set price. The tradings are not recorded in files or in any official volume or official price needle.
How Can Traders Prevent Market Manipulation?
1- Hodl The Crypto
Risks are always present in the exchange of any kind of asset in any type of trading community. Market manipulation is mostly a concern for short-term traders. Therefore, holding your crypto will be the best option for you, as the manipulators will have less power to affect your position since the effects will disappear as the crypto community corrects itself.
2- By Monitoring the Ratio Between Long and Short Positions
Short-term traders can also protect their positions. The effects of all kinds of manipulation can be minimised by gathering information and understanding their concepts. Another way is to identify the most possible manipulation by monitoring ratios between different positions on the market. When the long position has a higher ratio than the short one, a dump may be about to happen, while vice versa, a pump may be about to occur. So regular analysis is needed to check for any changes in either direction.
3- Crypto Portfolio Balancing
The most simple way to avoid any kind of manipulation is by not investing in a single type of cryptocurrency. A balanced investment between different types of assets should be made. This way, even if one of your assets is affected by any illegal acts, only a fraction of your total assets will be affected.
4- Choose a Trusted Exchange
From my point of view, choosing a reliable and trusted exchange is the most important factor. In the majority of cases, new or smaller exchanges with less trading history are the ones most likely to use such manipulation methods.
Conclusion
Similar to any kind of investment, some kind of risk will be present in a crypto investment. The most reasonable reason for this could be that crypto currency is a nascent industry that is still unregulated. In the future, with the rise of technology, these illegal acts will only increase, making it difficult for investors. Therefore, the best thing any investor can do is perform exchanges with diligence.
FAQs
Q1: What kind of punishment can a person receive for market manipulation?
A sentence to prison of 5 years, along with 3 years of supervision, and a fine of at least $250,000.
Q2: Why is cryptographic regulation hard or impossible?
A central government or a nation has no authority over cryptocurrency. It is also considered a medium of exchange. Therefore, it is an open book for the public that cannot be hidden, kept private, or regulated.
Q3: Can Crypto get shut down?
Although a temporary impairment of the network can occur, a fully fledged closing down of the cryptocurrency market can never really occur.