Bitcoin Price Manipulation: Who and Why?
The price surge of bitcoin in the year 2017 was met with unexpected enthusiasm and skepticism. Analysts were keen on learning why the price surged to groundbreaking numbers. Many are calling this hype whereas others are talking about bitcoin price manipulation.
In this article, we will be exploring bitcoin price manipulation and understand who is behind it and why it even happened in the first place.
Bitcoin price manipulation: True or False
Before we go into the reasons behind bitcoin price manipulation, we need to first learn if the bitcoin prices were manipulated in the first place or not. According to multiple reports published by CCN and research published by financial experts, bitcoin price manipulation indeed took place. According to the CCN report, bots played a crucial role in this situation. Financial expert professor John Griffin, also showed in his 66-page study that the price is manipulated to ensure that the bitcoin price is kept stable for a long period. The price stabilization made it possible to manipulate the price further.
He told CNBC that “Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things.” His data-driven study provides a direct approach to understanding and establishing that bitcoin pricing is manipulated beyond proportions.
The impact of bots on the market
Trading bots have always been a part of the market. They are active in both the traditional market or the cryptocurrency market. And, why not? They are better predicting markets. Bots can also be used to to do other things including price manipulation. These bots work at large scale mostly impact the big players. For example, Stefan Qin, the Virgil Capital managing partner used their bots to counter the enemy bots. These enemy bots work worldwide to ensure that the price is manipulated in the best possible way.One instance that Virgil mentioned was that of “harassing bot.” These bots are explicitly targeted towards ether traders, but similar bots are also aimed at bitcoin traders as well. These bots will post ether selling at a lower price. And, when someone who wants to take advantage of that, will cancel those orders. This impacted Virgil Capital a lot as their business model is aimed towards arbitrage, i.e., taking advantage of the price difference across different exchanges. The malicious bots performed spoofing – a method that is used to provide an impression that asset value is higher than the actual value. Bots can also run pump-and-dump schemes. By doing so, some investors pump the price and dump it as soon as it reaches a certain price-point. This leaves the novice investors at risk if they buy it close to the top. Many types of tools or bots are available that provides different actionable strategies. For example, users can manipulate price by buying and selling their orders and giving an illusion of growth or activity. It is known as wash trading.
The role of Tether in price manipulation
Bots are not alone in the game. Tether, a popular cryptocurrency that is pegged 1:1 against US dollar is also seen to be used to manipulate the price of Bitcoin. The conclusion was reached after John Griffin released his 66-page study that showed fraud and manipulation at critical stages of bitcoin price. He gathered data from Bitfinex, one of the biggest cryptocurrency platforms out there. He shared his insights to CNBC through this article which we recommend to read.
Artificial Intelligence also detects the bitcoin market manipulation
We are at a stage where we can use technology to help us assist in finding anomalies in the market. RoninAi, a cutting edge artificial intelligence cryptocurrency trading SaaS tool discovered patterns that hint at market manipulation by bitcoin price against social sentiment. It collected more than data across 100 factors. However, the one factor that helps determine the market manipulation is the social sentimentSocial Sentiment is a key metric that impacts the day-to-day bitcoin price. It is calculated by taking social context from different social media platforms such as Twitter, Facebook, Linkedin, and so on.
As you can see from the graph itself, there is an artificial spike in the price vs. bitcoin price. This is clear indications that there is a coordinated market manipulation which is carried out by an organized group. You can read more about the story here: https://hackernoon.com/breaking-news-bitcoin-market-manipulation-detected-by-artificial-intelligence-a4534b7be369
Reasons behind bitcoin price manipulation and fluctuations
So, you might be wondering, how is it even possible to manipulate cryptocurrency or bitcoin price in general? Let’s find out.
No regulations: The number one reason behind bitcoin price manipulation is no regulations surrounding it. Security and Exchange Commission is slowly pushing new regulations but is far from reaching a safe level where manipulations can be controlled or even punished.
Decentralized solution: The inherent property of the blockchain solution is yet another reason behind its manipulation. It is decentralized which makes it harder to spot manipulator or whale manipulations.
Whales: Whales are the person or organization that holds a large amount of bitcoin or cash inflow to manipulate the price. They can simply buy a considerable amount of bitcoin, improving a price jump in a matter of minutes. This can lead the novice buyers to buy-in, only to find themselves stuck when the bitcoin gets dumped by the whales again.
Pump and dump: We have already discussed pump and dump schemes as it is one of the most reasons behind price fluctuations and manipulations.
Miners: Miners can also play a crucial role in its price. However, their impact is low compared to other reasons mentioned here.
What now?
Regulators are concerned about the volatility and bitcoin price manipulation. SEC is working hard to regulate the market and ensure that any of these malpractices are barred from future usage. So, what do you think about bitcoin price manipulation? Do you think we will reach a point where it will not be possible to manipulate the bitcoin price? If yes, when you think it can happen? Comment below and let us know. We are listening.
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