How A Single Trader Manipulates The Bitcoin Market: Spoofing With Large Sums & Illegal Methods On Bitfinex

in #bitcoin5 years ago (edited)

Bitcoin has broken through the $3,000 mark and is reaching new all-time high's.
While experienced daytraders are busy doing their work and profiting from the price volatility, it seems like there are also some who manipulate the Bitcoin price to their own benefit.

One particular trader with extremely large funds in both USD and BTC is "spoofing" the market on Bitfinex, manipulating other traders so that the price changes to his own liking!

Nobody knows who it is or if it's even an individual or a group of people - but the anonymous trader has been nicknamed "Spoofy"

What is Spoofing?


"Bidding or offering with the intent to cancel the bid or offer before execution"

Basically, this is how it works: "Spoofy" holds a large amount of coins.
He places a large buy order just below other buy orders, or a large sell order just above other sell orders.
Other traders will see his order, and immediately think that the market price will be affected once his order gets through.
And we're talking about really large funds here - when you see that someone is about to sell 2500 BTC, you assume the price is going to crash, and in return you might panic sell your coins.

But then Spoofy takes action: Once the price approaches his order, he cancels it!

So he tricked all the other traders into thinking the price was going to change due to his large order, while actually not performing any trades at all.

"Spoofy" and his large funds on Bitfinex

The spoofing effect wouldn't be as bad if the manipulation wasn't so extreme.
"Spoofy" regularly places orders over $50 million - he seems to be very liquid, and also managed to get this huge sum on to bitfinex.
Earlier this year, Bitfinex stopped their cooperation with Wells Fargo - meaning that there is no way to deposit fiat currency into the exchange platform.
But Spoofy holds large amounts of BTC and USD - and he might actually be one of the only traders who does manage sums like these on Bitfinex.

Other manipulation methods

Spoofy also uses wash trading as one of his tactics to manipulate the BTC price.

A wash trade is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace.

This means that "Spoofy" basically trades with himself - he is either selling into his own buy orders or vice versa.
Since he owns such large amounts of both cryptocurrencies and fiat, this is no problem for him.

Of course, these manipulation methods are officially illegal.

But since Bitcoin markets are almost always unregulated, Spoofy can easily get away with this behaviour.


"Spoofy" and the Bitcoin Cash distribution

During the Bitcoin Split on August 1, many exchanges offered free Bitcoin Cash to their customers.
Bitfinex also did this, but with a different method:

Please note that if there are more shorts than longs at the fork event, this coefficient will be less than one.

(Shorts are orders profiting from a falling market, while longs are trades with the intention of profiting from a rising market.)

In other terms, you could easily wash trade your own shorts to profit and get some free BCH.

And that's exactly what "Spoofy" did - he wash traded 24,000 BTC in shorts.
In order to do this you would need 24,000 BTC, as well as the equivalent in USD - which "Spoofy" clearly did.
Multiple people were noticing his behaviour and were reporting it to Bitfinex - which resulted in an official statement from them:

After the methodology announcement on July 27th, several accounts began large-scale manipulation tactics in an attempt to obtain BCH tokens at the expense of exchange longs and lenders on the platform, causing the distribution coefficient to artificially plummet.
We have determined that this kind of manipulation — including wash trading and self-funding shorts — is in violation of Bitfinex’s terms of service.



Someone on Bitfinex is manipulating the Bitcoin price by placing abnormally large orders, and then cancelling them just before they'd drop.
This affects the other traders' behaviour, because they assume the large order will affect the BTC price.
In this medium post you can see countless screenshots and proof that "Spoofy" actually did all of this on purpose.
We still don't know who "Spoofy" is, (the medium author suggests that he might even be part of Bitfinex himself), but he has access to an extremely large amount of funds in both crypto- and fiat currency.

It's important for regular traders to know that this sort of behaviour is happening!

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I pretty much seen this sort of thing happening. It's not like this is the first person to pull this kind of short and wash, even with smaller amounts of bitcoin.

If the government is interested in the coins, I can easily see them toying around with purchase and sell orders to make instant profits from
the resultant fluctuations in the markets.

Bitcoin has proven to be highly volatile in itself, most likely due to
holders jumping in for quick profits. You can make hundreds in a single day trading the same 1 BTC a day if you had the tech & software to do it.

This isn't going to be the last time this happens. Let's see if it quiets down.

Dang spoofy! This name reminds me of the spoofaccounts of my friends on counter strike GO, accounts with lower ranks that made it possible to play with lower ranked friends to 😉... I'm curious how many rich (I mean really rich) people are actually manipulating values of different cryptocurrencies on purpose... I can't believe there are none, as it is so an unregulated market, and unregulated just screams for abuse of the mighty and wealthy people "abuse me to get more money!" Thanks for sharing this nice post!

Thank you!
And yes, there definitely must be a lot of them! Unregulated = an opportunity for the clever and/or the rich to profit!

Bitfinex has not been my "go to" exchange. Nevertheless, I've always understood that the market can be maniplulated.. .just how much to the extent that it really affects me. But here's the dealings with Bitcoin really is only in regards to when i sell other coins. I'm more interested in many alt coins than bitcoin--the crypto currency. I think Bitcoin--the king of cryptos-- is fine but i really just use it in regards to tansfers to buy and sell other coins. A lot of problems we face as investors wont go away until many people come out of that bitcoin tunnel vision.

Agreed. I also focus mostly on altcoins, although of course Bitcoin is a good long-term investment.
But like you said, whatever you want to do with altcoins - you always have to go through the step of converting fiat to Bitcoin first. Bitcoin, being the "king of crypto" like you said so nicely, is always the middleman

EXACTLY!!!...And what have we always learned from middle men..they are always the most hated, yet it sometimes feel there is no way around them.

In my opinion spoofing isnt really as bad as it sounds.... the traders spoofing still have to take massive risks. And wash trading just costs them tons of fees.... as the market becomes more efficient and saturated with market makers it will become extremely expensive to manipulate.

Yes that's true, spoofing is very risky - especially with this type of money. But still, I think using tricks to manipulate others shouldn't be allowed. And it seems like his plans worked until now, because no one had enough funds to actually drop one of his fake orders.

Theres no such thing as a fake order... remember that.

Hm, good point actually!

Like the gold futures market became more efficient and saturated with market makers it became extremely expensive to manipulate?

Were far from being as hard to manipulate as gold in some ways... but the derivitive markets in bitcoin are shit, so its less profitable to manipulate.

It's not just Bitfinex. I've heard the same tactics are being deployed other exchanges.

poloniex as well

crazy! yes I think this applies to all major exchanges, because the possibility of making profit with this manipulation is simply too got not to try it for them.

That's not a good news. Had thought that it can't be manipulated. I will wait till pric is dropped to buy more. If this is indeed manipulated, price will most likely fall.

Like someone else commented above, these unregulated markets are a great opportunity for people to take advantage of it so they'll definitely take the chance.

This is a huge revelation that may affect people's trust on BTC in which on this trust why BTC gain. But with spoofy crime that revealed the result is not limited to btc price go down. In fact me, myself upon hearing this information, i am now planning to sold all my btc while its hot. But we also need some further evidence before making some action.

Yes, things like this definitely make people mistrust crypto again.. But if I were you I wouldn't sell allyour BTC. sell some now for a nice price, but hold some more for long-term because BTC will be rising even more in the future I believe.

Thanks for that advice @sirwinchester.

This is pretty crazy.

I've literally watched this happen before as I was watching trades in and out. It's crazy how this really works.

Yes I watched it too! Although not with $50 million, but still a few grand.. and then the order suddenly disappeared. it really tricks people's minds.

If you want to trade a decentralised market, then don't complain when there isn't a regulator there to enforce rules.

This is crypto trading. Adapt, die, or go back to futures.

Want to know how to fix all this? hodl. stop the daytrading.

Thank's for info

I would just recommend using another service instead. But really if you just opened up to exchanges or even reviewed the market cap data you would see the price at other exchanges to see if it is a legit jump or not.

Nicely written article. It is also a good warning to be ever vigilant in dealing with these crypto markets. If you are not a shark, there is a good chance you are the minnow.

Nothing surprises me . Maybe a huge short is being set up . No prob . Ill just buy more at the lower price .

Thank you, I understand this better now. Well written.

This is still all confusing to this dumb dog.

Stills is a market easy to manipulate for the whales, even people with a bit bitcoin can manipulate low volume coins

Thank you for sharing this

Really beautiful .. thanks information .. hope we can cooperate .. follow me @ kingsteem .. maybe we can be a good friend

Great article, thank you for sharing
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Right now, I don't think anything can or should be done about the manipulation. It's just part of the game!

Hope they can identify these people who are trying to manipulate the system, this is very disturbing new ,, but i thank you for sharing this great article

Thanks so much for the useful information!

Spoofing is a real tactic, it happens all the time in regular trading and its actually not illegal. It works both ways. There could be worse things, like trying to compete with high frequency traders, which is coming anyway.

Hi @satchmo. Cool name.

Loved your trumpeting skills.

LOL!!! you know it!

Thanks for the quality post! I assume these things are happening. It is one reason I do not buy crypto unless I plan to hold it long term. I'll leave the trading up to those with more and better nerve than me! haha

Upvoted and also resteemed :]

Great article,, I've noticed this myself by constantly analyzing order books,, i just didn't have a name for it--"spoofing" Thanks for that!

hi people, which would be a safe place to buy and store bitcoins in the US?

clear, well written post. I learned something today, thanks...following

Yeah, I actually knew of a guy that used to do this on low volume stocks on the NYSE, back when trading was still in fractions. Luckily he did not get dinged for it because it is a no-no on the exchanges.

That is one of the only positives of regulation is that you have a body governing the transactions to stop crap like this. The free market will eventually sniff and snuff this people out as well, but many people that are non the wiser will fall victim to this before that time comes.

Well this is highly informative... as well as highly annoying.

we need spoofy for steemit. it would do great for steem,lol

Sounds like a risky gamble to me. To make the price reflect on the exchange, some percentage of the order has to actually go through, so they are actually "paying for the baits". It is also possible for some even larger players to target and take advantage of Spoofy, like actually buy all the orders, pushing the price even higher and become the final winner.

well i certainly isnt me, i dont have 2 bitcoin to rub together

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Same stuff on GDAX as well, I assume they are using some kind of bot technology to do so. The changes are very quick and frequent. For example I saw a 1500 ETH order, keep dropping at last moment and then reappear at a lower price as the ETH price was pulling back later last night.

Wow, very interesting how professional criminals act and how many options they get offered with cryptocurrencies. It's like with an agressive investor who take a major stake and then manipulating the management at will.

Thank you for the insights!

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Spoofy must be working for the FEDS...because this is exactly what the feds do ........the wild west days are going to be coming to a close in the next few years.......

Bitfinex lost his bank relations because of that people didn't deposit or withdraw fiat for very long i don't think its fixed.

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Thanks for this info mate i'm new in this world and i have to know everything

Every trading is ZERO SUM game.
With few winners cashing out on tons of suckers bringing their hard earned money from real life into market .

There are only two groups of traders.
Group 1: - a tiny group of people who:
a) has enough money
b) know what they are doing
c) sell at peaks at right moment because they don't have to wait for miracle
d) buy at market crash bottom, because they can afford little bit of loss when the market crash even further
e) can wait because they are not dependant on value of their assets on market
f) have significant market share so they can steer market at direction prefered by them

Group 2: - a huge group of people who:
a) have invested all their spare money in market
b) can't afford to lose money so they dump all their assets with the first indication of market crash
c) don't know what their doing and are just jumping on and off the bandwagon ... with 1-3 day delay, never hitting the sweet spot.
d) cash out their lucky profits for their IRL expences so their portfolio is shrinking with all peaks and crashes.

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Great insight on how manipulation can and is happening in Bitcoin Trading, thanks!

great post , keep the good work
i don't think that a single trader can control the market because he don't own engouth funds to make this possible , think it is a groupe trader who is behind it

I see Spoofys everywhere I go, but $50m!!! That is ridiculous. Thanks for the heads up, I now have a name for them besides 'bl*dy [email protected]rds'!!

Thanks for the post. Useful!

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