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It also constitutes interference with the fair and free operation of the market. The unregulated digital currency realm is fertile ground for every type of asset price manipulation. It is common to pump a digital asset by buying massive quantities of it and then dumping it at the high-point of the resulting price-spike.
Anyone with the means to buy up significant quantities of coins can do it. Some perpetrators will use the basic pump and dump in combination with tactics such as shilling, spoofing, and wash trading. Despite the apparent simplicity of the technique, it is not easy to make money with it.
It lends itself best to well-coordinated entities such as exchanges. Wash trading refers to the simultaneous buying and selling of coins, for essentially the same price, by the same entity.
The short answer is: volume. Wash trading makes it look like large quantities of an asset change hands over a short time. That, in turn, can mean increased investor interest, which can lead to a price spike. Following the crash of the bitcoin and altcoin markets, the notorious volatility of the vertical has lost some of its bite for now. The spot markets no longer offer the sort of gains on bitcoin investment they did during Bitcoin investors thirsting for action have thus turned to leveraged trading and high margin bets.
Their spot trading fee-based revenues dropping, exchanges have started compensating. Some have increased their trading fees. Others have begun manipulating asset prices.
Some 4. When a true whale begins to throw its weight around, price ripples, or rather, tsunamis follow. How does one with the proper financial means become a bitcoin whale these days? The answer is dark pool trading. Dark pools are private trading forums. Digital assets change hands in vast quantities at a set price on these forums. YouTube is rife with talking heads pushing one altcoin or another.
These fans constantly talk up the virtues of these altcoins and attack their competitors. The oft-declared goal of such shills is to pump the price of their chosen digital asset through sheer hype. Manipulators who spoof the markets launch a massive number of buy or sell orders. These orders are then canceled before execution. Spoofing is akin to a faked pump and dump. It never really pumps or dumps anything, but it tricks the market into believing that it does. In fact, it is safe to assume that those who can manipulate the market may try at one point or another to do so.
It truly is a free-for-all out there. Exchanges are without a doubt in the best position to manipulate prices. A forensic study on bitcoin's boom has found that nearly the entire rise of the digital currency at the time is attributable to "one large player," although the market manipulator remains unidentified.
Finance professors John Griffin and Amin Shams — instructors at University of Texas and the Ohio State University, respectively — analyzed over gigabytes of data for the transaction history between bitcoin and tether, another digital currency. Tether is an asset known as a "stablecoin," which has its trading value connected to the dollar. Griffin and Shams were able to follow the clusters of data to a source: "One large account at Bitfinex.
The study found that, through Bitfinex, the single player was able to manipulate demand for bitcoin via "extreme" flows of tethers. The Wall Street Journal first reported on the updated study's results on Monday.
This study appears to lend credibility to that argument," Cowen analyst Jaret Seiberg said in a note on Monday. Cowen said Griffin and Shams' study will likely add even more scrutiny of bitcoin and cryptocurrency at large, especially from regulators and lawmakers. Libra is Facebook's cryptocurrency project, which has seen several major backers drop out in the past month.
While the latest study doesn't identify the manipulator, the professors suggest those running Bitfinex either knew of the operation or were even possibly assisting the scheme.