There is always that fear that cryptos are being manipulated. And probably, there is truth to this. It is possible considering the reality that it isn’t even regulated especially in 2017. In fact, to give you an idea, 28% of bitcoins are controlled by 1600 anonymous whale wallets. Now, that could easily be alarming and could actually affect the market in case they perform a pump and dump strategy.
In addition to this, there were regulators that are looking into possibilities of price manipulation. In fact, a recent study made by finance professor John Griffin along with grad student Amin Shams of the University of Texas posted a paper that suggests crypto prices are being manipulated. And recently, it has received so much attention. In fact, it even caused Bitcoin price to go down.
However, it is important to scrutinize if there is really something in this paper. For instance, there are a number of things that don’t add up.
So Is It Really True That There’s Price Manipulation?
One, the author suggests that Bitfinex buys Bitcoin using another cryptocurrency which is Tether in order to push Bitcoin’s price up. The next question is how much? If Bitfinex wants to push four basis points per 100 bitcoin, this would easily mean that if Bitcoin during that time was at $10,000, in order to get to $10,004, Bitfinex must spend around $1 million.
In addition to this, according to the authors of the paper, purchases are not random and they occur often after Bitcoin prices dropped. What they failed to point out is that more than 100,000 bitcoins are usually traded in just an hour especially during periods of high volatility.
The authors also took a closer look at the 87 hours with the largest flows of both Bitcoin and Tether. What they discovered was that 50% of these instances followed a bullish run for Bitcoin. So what exactly is wrong in this particular observation? The authors failed to discuss that the rise was from $1,000 to $8,000. The researchers used compounded returns. It means that returns in those 87 hours only averaged 1.2 %. Though it may look big for S&P 500 Index, for Bitcoin, this isn’t actually surprising at all.
Still a Good Hypothesis
What it means is that it can only be a hypothesis. It can only be an observation that there could actually be an instance of market manipulation. This means that you should only take their conclusion merely as a suggestion and nothing else. But of course, since crypto trading dynamics isn’t actually fully understood considering the fact that it is new, this is something that can be considered valuable.
It is important to be vigilant still considering the number of crooks and those who simply want to make use of cryptocurrencies in order to make the most money in the shortest time possible. We can always consider that these efforts can be a contribution in order to improve the crypto market in general. It can also be a deterrent to problems such as market manipulation especially when the industry still falls under a grey area.