How is the cryptocurrency market being manipulated?
The cryptocurrency market is still heavily unregulated, and while many people love the freedom that this offers, it also presents some major problems. This allows many people to manipulate the market in many ways unchecked.
For the average investor who doesn’t know any better, this can be a disaster. It also causes people outside of the niche to not trust cryptocurrencies and continue to tell people that they don’t have real value.
In this article, we’ll be talking about some of the ways that this manipulation happens and what to look out for so that you can be informed yourself.
Pump and dump schemes
One of the most dangerous areas of manipulation for new cryptocurrency enthusiasts is the pump and dump scheme. That’s because this manipulation technique is one that most often targets the most naive investors.
How it works is that a certain “investment” group will buy up a large number of coins for a very small market cap cryptocurrency. Usually, this currency has very little trading volume, and that makes it easy for them to begin toying with the pricing.
Other investors see the price going up, or in many cases, they are even invited to participate with the promise of riches, and then they are left holding the bag once the pump and dump group sells off all of their coins.
The investors who were late to the party are now left holding on to a dying coin which they will never sell for the price that they paid for it.
Fake and paid news
The media in cryptocurrency is also not always the most trustworthy, unfortunately. Many sources have no problem accepting some cash to post news which may be completely false in an effort to sabotage a good project or build up one that is possibly a scam.
Some people share this news without compensation to negatively impact the reputation of a coin or to boost the hype for one they are holding. They can even be very good at doing it too, using an entire network of people to get the fire spreading on social media.
It’s hard to tell which sources are in on this, and even legitimate sources might accidentally pick up a story which might prove to be false later if they don’t check their facts. Investors should be careful and make sure to verify news from multiple reputable sources.
While the truth does always come out in the end, by the time it does it’s far too late for the many investors who have ended up panic selling or panic buying a cryptocurrency asset. That money now belongs to the market manipulators.
In some cases, whales may participate in the pump and dump scheme we talked about earlier. However, in some cases, they may just move the market by participating at all since they have so much currency.
If a whale sells a large amount of a cryptocurrency it can cause the market to tank and the panic that follows it could spell the death of a currency. That’s because once people see the price dipping they don’t want to be left holding the bag.
This causes a mass sell-off event that can be unpredictable and nobody really knows where it will land. It can be a dangerous time to be holding a coin, unfortunately, and it can happen to coins of any size because all of them have whales hoarding larges caches of coins.
Fortunately, many whales would prefer to trade on the OTC markets to avoid this, but that doesn’t mean that some of them don’t like creating waves for fun and profit.
Cryptocurrency also has some prominent figures which can leave chaos in their wake. While normally we think of people who might be up to no good when we think of market manipulators, the truth is that the market can even be manipulated by people who otherwise have good intentions.
For example, someone like Vitalik Buterin commands a large audience as the head of Ethereum, and if he were to share certain news the market would go into a panic even if he didn’t intend for that to happen. There’s just so many people following him that he has great influence over prices in the crypto market.
He’s not the only one either. There are many other cryptocurrency influencers who for better or worse can manipulate the cryptocurrency market with just a tweet. This could include people like Roger Ver, Charlie Lee or John McAfee.
All of which have large armies of followers ready to spread whatever message they put out into the world whether good or bad.
Criminals also have the ability to greatly influence cryptocurrency markets. Nothing drops the price of a cryptocurrency faster than people finding out that it has been compromised in some way, and sometimes people do this not for the money but simply to devalue another cryptocurrency that they don’t like!
However, even if an attack is purely financial and not personal it ruins the integrity of the network and the price will plummet. These attacks are not limited to the coins themselves even and attacks on wallets or exchanges could also possibly lead to market manipulation.
A prime example of this is the attacks on Verge, it seems unlikely that they will ever truly recover from this hit. Which was the manipulator’s plan all along.
In closing, while cryptocurrency is an amazing breakthrough in technology, it still has a long way to go in development. It’s difficult to have a truly free market and yet also have something that’s safe, reliable and without the ability for people to take advantage of it.
However, we do get a little closer every day. The key, for now, is to make sure that you have learned the ways that manipulation can happen so that you can protect yourself from it. Learn to identify the signs and steer clear of investments which seem too good to be true.