bitcoin price

Bitcoin Price Manipulation – How it Happens, How to Avoid it

Price manipulation is not a new phenomenon in the financial market, however in the unregulated coin market, it has the tendency to become prevalent if left unchecked. It is a known fact that regulators are aware this happens in the stock market but have not been able to eliminate it. Bitcoin price manipulation is especially a major interest in the crypto ecosystem.

Justice Department Probe

There have been speculations that Bitcoin price is highly manipulated. This is the reason for the recent Justice Department probe. The Department intends to find out if the price of Bitcoin is being manipulated behind-the-scene by individuals, groups or even exchanges.

Spoofing: Placing Order and Canceling Later

A little over a year ago, most people knew nothing about Bitcoin, those that were informed were not aware that the digital currency would become a valuable asset that would be subjected to manipulative tendencies. However, with the surge in price that saw the coin valued at nearly $20,000 by December 2017, all sorts of people developed interest in hodling and trading it, leading to a more complex market and price control.

John Griffin, a University of Texas finance professor is of the view that the absence of regulation makes Bitcoin a prime target for behind –the-scene influence. According to him, “There’s very little monitoring of manipulative trading, spoofing and wash trading,” Griffin said. “It would be easy to spoof this market.”

In spoofing, traders try to influence the price of Bitcoin by the placement of orders just to move the price. These orders are placed in exchanges with the intention to move the price in a particular direction. They are cancelled as soon as the market moves in the desired way.

For instance, last year, a crypto blogger flagged an order of $1 million as spoofy after the trader failed to redeem it. That was not an accidental occurrence, but a calculated attempt at nudging BTC price creating the impression that demand or supply is higher. This is to lure in other traders and then cancel the order when the price objective of the spoof has been met.

Wash Trading

Wash Trading is another way Bitcoin price can be manipulated. This usually entails traders trading with themselves. This could have marked effect on the coin market if exchanges are involved. This happens when the exchange carries out in-house trading just to boost trading volume.

Whales Are Big Price Influencers

The price of Bitcoin, like other commodities is dependent on market forces. When there is higher supply than demand, its price dips, when demand is higher than supply, the reverse happens.

Whales are hodlers of large amounts of bitcoins. These are entities whose holdings have the tendency of affecting the price of BTC whenever they move them through an exchange. This is called “whale sightings” in the crypto community. There have been speculations that whales intentionally move Bitcoins through exchanges to influence the price of the coin. Some even say that there might be a network of whales that communicate with one another, although there is no evidence this is true.

Bitcoin price manipulation happens because whenever money is involved, people would seek ways of taking advantage of the rest to earn more.