The price of Binance Coins is manipulated

[Knowledge] How cryptocurrency rates are manipulated

Price manipulation is unfortunately the order of the day with cryptocurrencies. Because crypto markets are still largely unregulated, measures that are prohibited in traditional financial markets can be implemented.

There are various techniques to manipulate the prices of cryptocurrencies. They are all based on the deception of inexperienced investors. Should you start to invest in cryptocurrencies, you should definitely have dealt with this topic once.

In this article I will show you why cryptocurrencies are manipulated and what manipulation techniques there are.

Table of Contents

Why are cryptocurrencies so often manipulated?

The question of "why?" is easy to answer. Of course, manipulating cryptocurrencies is always about one thing: profit! A lot of money can be made with crypto assets.

Projects with a low market capitalization but decent fundamentals can produce hundreds of percent profit if prices are driven up. Some manipulations even resulted in a tenfold or a hundredfold increase in the price of a crypto asset.

But how exactly is this achieved, which manipulation techniques do the masterminds of such actions prefer to use? Let's take a look at the three most popular of these methods!

What manipulation techniques are there?

Pump & dump

The pump & dump is probably the most popular form of price manipulation. In this method, the course is inflated by either an individual or an organized group of people. This comes about because this person / group of people buys into a certain crypto currency in a very short time.

This period can last a few hours or a few days. The price gain, which is triggered by the relatively small buy orders of the manipulators, attract other traders who want to join this trade. Now there is a snowball effect. The new traders who (unknowingly) join this pump drive the price up again.

This can quickly lead to parabolic price increases. But at some point the manipulators begin to crash their positions at market prices. What follows is a spiral of panic in which all traders try to sell as quickly as possible. In the end, most of the traders who got in too late lose a large part of their invested capital.

In addition to this simple example, there is also a further developed version of the Pump & Dump. The aim here is to discard the positions in cycles, i.e. in several pump & dump phases. While the manipulators sell off a part in the first dump, they wait until the price has fallen, only to pump up the crypto-asset again. In some cases, prices are even higher than in the previous cycle.

These pumps & dumps are organized by small groups who often use Telegram or the Discord Messenger. Quite a few of them are chargeable. The more you pay, the sooner you get the signal and in theory you can make higher profits.

Spoofing

Spoofing is a type of price manipulation that you've probably seen before but not noticed. This involves manipulating the order books. As is well known, these represent the trade orders of the buyer / seller side. Perhaps you have already noticed.

You place an order in the first layer of the order book because you think it will be filled out soon. But shortly after you have placed the order, you notice that within seconds orders were placed just above yours.

You should think that your previous order is no longer relevant and will probably not be served. So you are inclined to place a new order at a higher price. The manipulator thus exerts pressure on other traders to manipulate the price of an asset in the desired way.

Often these order blocks, so-called buy and sell walls, are used to push a price (large sell wall) or to push a price (large buy wall).

This technique is mostly used by whales, that is, by people with a large position on a certain coin or token.

Wash trading

The most common manipulation that occurs in the crypto asset markets is wash trading. Here, the trading volume of assets is increased in order to make them more attractive for other traders. Because a higher volume usually means a subsequent price increase.

Volume also ensures that small cryptocurrencies become interesting for traders with larger stakes. Larger crypto exchanges, which are faced with the decision to list a certain coin or not, will also look at the trading volumes on other exchanges. After all, they earn more money through trading fees if a listed coin / token is actually traded.

This leads to the fact that many parties have an interest in a high trading volume and makes it clear which parts of the trading volume of cryptocurrencies are possibly manipulated.

According to research conducted by Alameda Research, around 70% of all trading volumes reported by CoinMarketCap are rigged. In a separate report published by Bitwise Asset Management, Bitwise revealed that 95% of the reported volume of Bitcoin (the most popular crypto asset) is wash trading.

How can you protect yourself against manipulation?

Pump & dump

To protect yourself from a pump & dump, you should follow a few basic rules. On the one hand, you always run the risk of unknowingly participating in a pump & dump if you read about a fabulous investment opportunity on the Internet, especially on various social media channels.

Organized groups are mostly behind these announcements that a certain cryptocurrency could soon achieve undreamt-of returns. The groups that initially shop after consultation and then spread the signal to attract more dealers.

Pay particular attention to the trading volume. If there is an announcement from such a group, you will be able to easily see the increased volume of the past hours / days.

Spoofing

Spoofing techniques are very easy to spot. All you have to do is watch the order books of a certain cryptocurrency for a while. Are there orders / order blocks that always move when a new order arrives? Are there large orders (so-called “walls) that are supposed to keep you safe?

Over time you will not only learn to perceive spoofing, but also to be able to interpret it better and better. It is a popular tool for whales (individuals with a large position in a cryptocurrency) to play with traders' emotions.

While a large red sell wall triggers fear of a sell-off, a large green buy wall can keep you safe, although you should be on your guard.

Conclusion: high returns are nice, but security comes first

If you trade in cryptocurrencies like Bitcoin, you will of course be aiming for the highest possible returns. While this is perfectly normal, however, you should never let greed prevail over sanity.

It will be tempting to join what is known as a “pump and dump” group. You may even win a couple of times. At the end of the day, however, you will most likely have to accept heavy losses.

Learning to trade is a rocky road, and having a "get rich quick" mentality will not help you succeed.