Crypto Market Manipulation: Recognising Signs and Protecting Yourself

Crypto market manipulation refers to the act of artificially intentionally influencing the price or behaviour of assets within the cryptocurrency market.?

This manipulation is usually carried out by a single person or a group with the aim of creating a false impression in the market, enabling them to benefit financially from the consequences of their actions.

Four Common Ways The Crypto Market Can Be Manipulated

Here are four common ways crypto markets get manipulated:

1. Pump and Dump Schemes:

Pump-and-dump schemes are a common type of manipulation in which the price of a cryptocurrency is artificially boosted through deceptive tactics like spreading false information, hyping it up on social media, and scammers coordinating large purchases of that coin or token.?

When the price hits a high point, the schemers sell all their coins, leading to a sharp drop in price.

Unfortunately, unsuspecting investors who bought into the hype and purchased the cryptocurrency during the pump phase are left holding onto coins now worth significantly less than what they paid for.?

This leaves them with substantial losses while the manipulators walk away with profits, having caused the price to rise and fall for their own gain.

2. Spoofing and Layering:

Spoofing is a deceptive trading practice where traders place large buy or sell orders in the market without the intention of actually executing them.?

These orders are meant to give the impression of significant demand or supply for a particular asset, thereby influencing other traders' behaviour.

Layering amplifies the effects of spoofing by adding multiple orders at various price levels.?

Traders using layering will place a series of orders at different prices, creating the appearance of depth in the market.?

This strategy is designed to manipulate market sentiment and mislead others into believing that there is strong support or resistance at specific price levels.

These tactics can deceive other traders/investors by presenting false signals about the true demand or supply levels in the market.?

Traders may be misled into making decisions based on these artificial cues, leading to potential losses for them.

3. Wash Trading:

Wash trading is a deceptive trading practice in which traders repeatedly buy and sell the same asset (cryptocurrency, in this case) to create the appearance of high trading volume and activity.?

The primary goal of wash trading is to give the false impression of increased liquidity and market interest in a particular asset.

By repeatedly trading the same asset among themselves, traders can artificially inflate the trading volumes reported on exchanges.?

This inflated trading volume can mislead investors and market participants into believing that there is genuine demand for the cryptocurrency and significant trading activity happening in the market.

The illusion of high trading activity and liquidity created by wash trading can attract unsuspecting investors who may interpret the increased volume as a sign of genuine interest in the asset.?

However, in reality, the trading activity is manufactured by the traders participating in the wash trading scheme.

4. Insider Trading:

Insider trading is a form of unethical and illegal trading activity in which individuals, typically with access to privileged or confidential information about a cryptocurrency project or exchange, use that information to gain an unfair advantage in the market.?

This privileged information could relate to upcoming announcements, partnerships, regulatory decisions, or any other information that has not been disclosed to the public.

Individuals engaged in insider trading might exploit their access to non-public information by making trades based on this confidential knowledge before the information is officially announced or disclosed to the general public.

?By acting on insider information, these individuals can capitalise on price changes that are likely to occur once the information becomes public knowledge.

This practice of insider trading not only gives these individuals an unfair advantage over other market participants but also undermines the integrity and fairness of the market as a whole.

?It can distort market prices, erode trust in the cryptocurrency ecosystem, and create an uneven playing field for investors.

Regulatory bodies often have strict rules and regulations to prevent and punish insider trading, which is considered a serious violation of securities laws.

By acting on confidential information for personal gain, individuals involved in insider trading risk facing legal consequences, reputational damage, and potential penalties imposed by regulatory authorities.

Investors should be wary of the potential risks associated with insider trading and ensure they engage in transparent and ethical trading practices.