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The crypto market is a dynamic financial system that is constantly changing, has its ups and downs, as well as operating principles. One of the most interesting topics related to the cryptocurrency market is manipulation. In this article, we will look at this phenomenon in detail. You will learn what the essence of manipulations in the cryptocurrency market is, who carries out the manipulation and for what purpose.
First, let’s understand market manipulation, both in the fiat and cryptocurrency markets. Manipulation in the crypto market is an attempt to influence the price of an asset or the situation on the market artificially. Manipulations in the market can be carried out by both individuals and entire groups of individuals. By manipulating the fiat and crypto markets, they can essentially fraudulently make big profits.
The main difficulty in regulating the phenomenon of manipulation in the cryptocurrency market lies in the fact that in this market, in principle, there is no regulatory system. It is a decentralized system that manages itself.
So in 2018, the United States Department of Justice attempted to investigate the existence of manipulations in the production of bitcoins. Since the cryptocurrency market is a relatively new system compared to the classical financial system, fraudulent transactions are quite difficult to trace. Unfortunately, artificial influence on the market hinders its development, so every crypto trader needs to learn how to analyze the market and identify manipulations in order not to lose a significant part of their assets.
What phenomena can be confused with the manipulation of the cryptocurrency market
Let’s look at the difference between such basic concepts of the financial system as market manipulation and currency manipulation.
It is important to understand that currency manipulation is completely legal. This can be done by the central banks of the country, the government and authorities. In some situations, other countries may challenge such actions, but they still remain legal. Currency manipulation can be carried out in order to increase the competitiveness of the country’s currency in relation to others. This phenomenon is known as currency devaluation.
Basic Strategies for Manipulating the Cryptocurrency Market
Pump and Dump
This strategy of manipulating the crypto market is one of the most popular. What is its mechanism? To implement this strategy, several people are united in an organized group. Their goal is to artificially inflate the value of any coin, and then drop the price sharply. As a rule, such operations are carried out with coins that have a low capitalization. As soon as an artificially inflated coin attracts a lot of attention from investors and traders, it is abruptly dumped. The organizers of such a strategy remain in the black.
Whale Wall Spoofing
This manipulation strategy is backfiring in the near future with Pump and Dump. Its essence is to create an illusion in the market that any coin has lost its value. To do this, large players place large orders to sell a certain coin. Smaller investors notice this and start selling their coins sharply at a reduced cost, as they are afraid of losing money. Without understanding why a major player suddenly put up for sale their assets, they repeat his action. However, this is a total mistake. Since it is at this moment that this major player immediately cancels their orders to sell the coin and buys coins at a reduced price. This strategy is most often used by manipulators who operate on smaller exchanges where there is less regulation from moderators.
This market manipulation strategy is implemented on the collective fictitious acquisition of the broad coin trade. Several people or an organized group start buying and then immediately selling the same coin. This provides a margin of artificial fluctuation in the market. This attracts the attention of other people who do not have demand, why the popularity of a certain coin has increased dramatically and also buy it. These manipulations allow organizers to access their exchange and their coin of greater reach, as well as profit from receiving commissions from the exchange where the discovered items are found.
How manipulation actually affects the cryptocurrency market
Manipulating the cryptocurrency market negatively affects its condition. First, manipulation increases asset volatility. Second, the market is becoming more chaotic. The third reason follows from the first two — the strong volatility of coins and randomness makes the market unpredictable and repulsive for users. All unlikely events are hesitant to enter the market. Unfortunately, despite the fact that the management of large markets is getting smaller, you can still run into them on small crypto exchanges. It is important to understand that manipulators do not always act according to the strategies described above. Often, significant major players in the cryptoasset market simply give interviews or post on social networks a call to buy or sell this or that coin in order to buy back these coins at a low price or in order to profit from a particular exchange. Many inexperienced traders and investors fall for the bait of «secret listings and forecasts of cryptocurrency rates. In social networks and instant messengers, you can find such communities where they publish fake forecasts for the growth or decline of the cryptocurrency rate. Thus, manipulators control the actions of inexperienced market participants, causing artificial changes in the price of assets. Unfortunately, this practice is very common and is not regulated in any way by the laws of the countries.
In order for you to make your assets secure, you need to share a lot of free time. To do this, you need to increase your level of knowledge in economics and finance, analyze current and past situations in the market, derive cases, act in conditions of cold reason and never rush into situations.
How to stay afloat: effective strategies for safe investment in the crypto market
Remember that the purchase of each asset must be approached responsibly. In order not to lose money, you need to be careful and attentive. This will help you recognize possible manipulations and avoid getting hooked. In order to ensure the safety of your assets, you need to master several important behavior strategies that will help you save your capital and increase profits.
1. Trust your sources, but check them for accuracy.
If you want to purchase an asset, you should not rely solely on the reliability of the order book. This is an untrusted data source. To find out exactly whether it is possible to buy any asset, study the information in the blogs of leading crypto exchanges, investors and traders.
2. Analyze asset history.
Large market players can artificially influence the price with the help of fixed transactions. This can create a false impression of the capitalization of the coin. In order to determine artificial manipulation from a natural change in the price of a currency, it is necessary to analyze the history of its development. Look at the situation more broadly, and not just at a particular moment.
3. Your portfolio should be more diverse.
The main rule of investing, which was not mentioned only by the lazy — do not put your eggs in one basket. Your portfolio should be diverse and contain assets with varying degrees of risk. In this way, you can protect yourself from manipulation, because even if you fall for the trick of the manipulator, you will not lose all your assets.
4. Be sensitive to sharp fluctuations in the exchange rate.
If you can’t rationally explain why there was some sort of spike in the value of a currency, chances are it’s manipulation. It is necessary to wait for time, and only after a full assessment of the current situation, make a decision to sell or buy this currency.
5. Track bots.
There are situations when you can track the same type of template deals in orders. This is a sign of bot intervention, i.e. artificial influence on the asset price. In this case, you need to refuse to work with this currency.
6. Everything has a reason.
Every phenomenon in the market has its own explanation. Therefore, if you want to successfully develop in investing, you need to be in the know. If all of a sudden the market started to rise sharply, but no one can give you a rational answer why this is happening — this is manipulation. It is important to say that you need to critically evaluate both good and bad news, this will help you weed out unnecessary information and assess the situation sensibly.
7. Do not take risks if you are not confident in your abilities.
If you do not have a clear strategy of behavior in a situation where the market is being manipulated, sell your assets. In this case, it is best to observe the situation from the side.
Of course, any investment in cryptocurrency carries a certain risk, but the game is worth the candle when you conduct your activities consciously and carefully. Thanks to the active development of the market, as well as the emergence of ways to track and regulate manipulations, transactions are becoming safer, but you should not lose your vigilance. Every competent investor and trader must be careful, not make decisions in haste, not succumb to general panic and approach the matter responsibly. Only a cold mind, proper asset allocation and in-depth analysis will help you succeed in the crypto market and avoid the unpleasant consequences of manipulation.