Crypto Market Manipulations: What You Need to Know About the Most Common Cryptocurrency Manipulations

An illustration depicting an investor during a down stock market.

The overwhelming rise in popularity of cryptocurrencies in the past two decades, compared to traditional investible has created an unrealistic notion.

Many investors believe that it’d be safer to invest a good proportion of funds in Bitcoin instead of stocks and bonds. This assertion or belief chiefly stems from the fact that traditional financial markets behave or operate differently from cryptocurrency markets.

The market for cryptocurrency, in stark contrast to the conventional stock markets, tends to be highly unregulated.

Additionally, cryptocurrencies are still in an emergent phase-the market has a long way to go before it becomes as stable as the long-established financial markets. The poor regulation coupled with nascence implies that cryptocurrencies are subjected to extreme price fluctuations.

No wonder, many financial experts and specialists strongly believe that the cryptocurrency markets could be prone to market manipulations. The markets could be vulnerable to manipulation in the following ways:-

Crypto Manipulation: Wash trading

The practice of wash trading involves registering high volume of transactions so as to generate hyped-up interest in a specific cryptocurrency. Traders usually resort to wash trading between and amongst selves for falsely hiking up an asset’s trading volume. Low transactional fees could encourage wash trading as traders’ operational costs tend to be less.

The altcoin cryptocurrency market experiences the highest volume of wash trading.

Crypto Manipulation: Spoofing

Spoofing entails the setting up of simulated large trade orders to create an impact on the market. The setup is a replication as traders don’t intend to carry out the orders to buy and/or sell. The ultimate objective of spoofing is to increase the demand for assets (through enhanced transactions).

Crypto Manipulation: Pump-and-dump

Pump-and-dump is almost synonymous with market manipulation. As the terminology clearly indicates, close-knit team of traders induces less experienced investors to purchase large volumes of an asset, thereby inflating its price. Once the insiders have earned a hefty profit they retrace or walk out quietly, dumping the asset.

Short Squeeze/Long Squeeze: Sizable Price Sways in the Short Run

Short squeeze and long squeeze are spin-offs from margin trading. A short and long squeeze means a surge or tumble of margin call orders that leads to upward/downward price spiral.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.