The crypto market is still looking to gain mainstream approval. Until now, there are different approaches when it comes to regulating cryptocurrencies. There are countries that banned cryptocurrencies while there are countries that have a more open-minded approach to the crypto market.
Though it has slowly caught the attention of the general public, many are still hesitant especially regulators. There are a number of issues surrounding the industry from hacking incidences to scalability. But one thing that stands out is the possibility of price manipulation. In fact, if you will look at the recent Bitcoin ETF rejections, the reason behind the rejections was because of the possibility of price manipulation.
Is there really price manipulation within the crypto market? In the past, Tether was brought into the spotlight. According to finance professor John Griffin who also co-authored with Amim Shams, wrote in the paper that was released in June that “Tether seems to be used both to stabilize and manipulate Bitcoin prices”. Bitfinex was also in the spotlight along with Tether as both were even subpoenaed by the US Commodity Futures Trading Commission. But of course, this was denied by Bitfinex Chief Executive Officer JL van der Velde. He said that “Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation”.
Price Manipulation Speculation
Recently, Wall Street Journal reignited the debate whether or not there is price manipulation in the market. According to Andy Bromberg who is the president and co-founder of CoinList, told WSJ that bots are being sued in manipulating the market.
Stefan Quin who is the managing partner at cryptocurrency hedge fund Virgil Capital, makes use of bots. These bots are used in order to battle “enemy” bots on different crypto exchanges all over the world.
How exactly does a bot manipulate the market? Virgil has suffered a “harassing bot” this year. This bot targets Ether trades according to Qin. The hostile bot post and order to sell ether at a price that is lower than what the other sellers are offering. And before Virgil is to complete the purchase, the bot would then cancel the sell order. This means that there are buy orders that were never executed increasing the price of the cryptocurrency on other exchanges.
Spoofing Has Been Outlawed in the Stock Market
This is a practice that is called “spoofing” What it does is create the impression that there is a higher supply or demand for a particular asset. In US futures and the stock market, this practice has already been outlawed in 2010. However, there are allegations that this practice is already happening in the crypto niche.
Unfortunately, there are those who actually don’t oppose this practice. There are those who oppose regulation of cryptocurrencies. Trader Kjetil Eilersten has developed a program that is called Quatloo Trader. He dubbed it as the leading “cryptocurrency market manipulation tool”. He believes that it is pointless to outlaw market manipulation, but rather, he prefers to provide sophisticated market manipulation tools for small traders.
Price manipulation is something that can make regulators hesitate when it comes to legitimizing the crypto niche. And for this reason, it is important that the crypto market is free from any type of market manipulation.