“Market Manipulation is a serious crime in the regulated markets such as stock markets but, in the unregulated markets such as crypto market manipulation is extremely difficult to identify and monitor. It is the novice retail investor that loses the most in an event of market manipulation and thus decoding the common market manipulation strategies can help retail investors in saving their investments.”
What is Crypto Market Manipulation?
Crypto Market Manipulation in simple terms means to artificially influence the crypto market’s behavior and making profit in the process. The market manipulation can be done by an individual who is a very large investor in a crypto asset or a large group of investors. The price of a crypto asset can be pumped or dumped to create FOMO or panic in the market. This drives the novice retail investors to either buy a rising asset at peak price or sell a bottomed asset at the lowest price and manipulator then suddenly selling at the peak or buying at the lowest price to quickly reverse the market and make profits.
Effect of Market Manipulation
The crypto market is an unregulated and a highly volatile market and even a small market manipulation can have a ripple effect on the retail investors thus making them ‘FOMO Buying’ or ‘Panic Selling’. The market manipulation is done to ensure that the new money is invested into the crypto market by the new investors and the manipulators take all that money after driving the retail investors out on losses. Market manipulation can quickly result in a huge dump in the price of an asset and even the whole market can flash crash.
Common Market Manipulation Strategies
There are various common market manipulation strategies that are used by the manipulators and they are decoded below:
Pump and Dump
Pump and Dump is the most common market manipulation strategy and involves pumping of a cryptocurrency price quickly and then dumping it afterwards. The pump and dump strategy works better on the low cap cryptocurrencies as the price manipulation is easy. It involves a group of people to create a FOMO (Fear of Missing Out) about a low cap cryptocurrency and the insider members buy the currency early in large quantities. The FOMO drives the people to invest heavily in the crypto thus pushing the price up rapidly. As more and more people invest at the increased price, the insider members sell their currency quickly at a profit thus causing the price to fall sharply. Social media has boosted this market manipulation technique in recent times as it is very easy to influence the social media groups with this technique.
Whale Wall Spoofing
This involves a Whale (Very large investor in a crypto asset) placing a fake buy or sell order in the order book of an exchange to create panic in the market. A whale can place a very large sell order at a particularly low price. This creates panic in the minds of the retail investors and they start selling their assets. As the selling pressure makes the price fall, the whale removes the sell order and quickly buys a large amount of crypto assets at a discounted price.
Wash trading is a technique more often performed by small unregulated exchanges. A group of people quickly buy and sell a crypto asset on the exchange to manipulate the volume of trading. This entices the retail traders to quickly buy or sell those crypto assets thus increasing the volume further. The exchanges thus profit from the trading fees for the orders placed on the exchange.
This strategy involves whales to drop the price of the crypto assets to a limit where various retail investors have set their stop losses. As per the technical analysis, the stop loss orders are kept at a similar level by the investors and the Whales start selling the same amount of assets that is required to dump the price to execute those stop loss orders and thus buying large quantities at the discounted price.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.
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