March 1 vs Coinbase had filed a class action lawsuit. To see the court documents here.
Financial Supervisory service of South Korea
Even the regulators are suspected of insider trading. Financial Supervisory service of South Korea (FSS) knew in advance that there will be introduced new restrictions on trade cryptocurrencies. However, this did not prevent its employees to perform certain transactions to a public statement.
On January 18 the head of the FSS Choi Hyung Sik confirmed that violations had indeed taken place. Despite the fact that he was caught red-handed, another employee of the FSS stated that “on the cryptocurrency market do not exist specific rules, violation of which is punishable”.
The above mentioned examples are just some of the many high-profile cases. Insider trading is widely prevalent in the cryptocurrency space. Very often prices and the trading volume increase prior to favorable announcements.
For many investors, insider trading is no longer something unusual, and they treat it as a necessary evil associated with the unregulated market.
Kit — is a collective image of the investor that has significant capital and is able to manipulate the markets.
Most ordinary investors are whales like ghosts. They never saw them, but sure they exist and swear that those are for large market fluctuations.
In some cases there is strong evidence of the correctness of the ordinary
investors. A recently published study showed that large-scale manipulation of prices in the market do happen. For example, in 2013 an organization has failed to encourage bitcoin price from $150 to $1000 just a couple of months. Another article shows how large amounts stablon Tether was used to manipulate the quotations of bitcoin.
Here are a few strategies that used by whales to manipulate prices:
Hunting for feet
Whales are deliberately pushing the price down to trigger stop losses. They occupy the second party in the transactions, buying coins on the cheap and wait for the market recovery.
The strategy works well in the case of cryptocurrencies, low trading volumes and low liquidity. After collecting sufficient coins, the whales can bring down their price a lot of sell orders at market price.
To understand how this works, imagine the following scenario:
- A cryptocurrency is worth $150;
- Range from $110 to $150 focus a buy order for 10 BTC;
- Range from $90 to $110 focus a buy order for 10 BTC.
The goal is to move the price below $100, which is a psychological level for individual investors, setting stops just below.
Kit can proceed as follows:
- To place a sell order for 10 BTC. After that, the price dropped from $150 to $110.
- To increase pressure for money that investors started to dump.
- When you puncture the $100 level will trigger stop losses. This will only accelerate the price to fall.
- Buy all the bitcoin at $90 and below.
- To wait for market recovery and sell it at a bargain price.
This is another form of market manipulation, however it is only available for exchanges. Let’s see how it works on the example and Bitmex bitcoin:
- Suppose that a trader trades with a 100-fold leverage. Having $100 in the account, he can open a position of $10 000.
- The liquidation price is set at $9900 (market price minus the Deposit).
- Bitmex sets the forced closing price of $9950 (only 0.5% below the entry price).
- If the market price decreases to the closing price, Bitmex automatically places an order to sell at liquidation value ($9900).
- As a result, the investor loses the entire Deposit and pays a large fee for a compulsory closing a position.
To trigger forced position closure, the price is quite slightly shifted in the right direction. Upon liquidation, the investor loses the entire Deposit and pays a large Commission.
As the exchanges know exactly what levels will cause massive liquidation, they have both an opportunity and financial incentive to engage in price manipulation with the help of bots.
User /u/arsonbunny finds it suspicious that the low volumes and lateral movements followed by bursts of activity and directional movement of the prices. Often these movements coincide with the massive amounts of liquidation.
However, there is no evidence of involvement of Bitmex in this scheme. However, it is doubtful that the quiet periods are replaced by a furious burst of trading activity. When this happens, the exchange is forced to close the positions with the lever, leaving traders with only depression and “fat” Commission.
Thank you /u/arsonbunny for the study of this phenomenon.
Spoofing is another common strategy for manipulating the market. Its essence is to put up orders to buy/sell and cancel them before execution. The goal is to give false signals to investors.
Here is an example of such a strategy:
- Spoofer places a large order to buy, sending the market a bullish signal.
- Having signed a few small deals, the spoofer cancels his application.
- When the price starts to rise, the spoofer sells the purchased coins.
This method also works in the opposite direction. Placing large sell orders, spoofer send bearish signals to the market, encouraging investors to dump the cryptocurrency at a low price.
Another strategy is fictitious trade. The investor opens a long and short position. This strategy is used for:
- Artificially high trading volume, to send to the market a bullish signal.
- Price manipulation in markets with little liquidity.
Usually to prove the fact of fictitious trade is extremely difficult because these transactions are no different from the real one.
Once Bitfinex, very unwillingly, supported the bogus trade. It happened during the branch Bitcoin Cash (BCH) from bitcoin. After the fork of the bitcoin cryptocurrency, the owners were to receive proportionate to the number of BCH.
To account for margin positions, Bitfinex was to develop a methodology for distribution. On July 27, the exchange said:
“BCH will be distributed depending on the balances on bitcoin accounts at the time of establishment of the first branch unit, which occurrence is expected on 1 August 2017.
The methodology will be as follows:
— All wallets with bitcoin will receive BCH.
— Margin long position on BTC/USD and short on couples XXX/BTC will not receive BCH.
— Margin short position on BTC/USD and pancake on XXX/BTC will pay BCH.
Creditor VTS will receive BCH.
Due to the difference in the net amount of bitcoins associated with margin positions during branching, the above methodology can lead to the fact that Bitfinex will face a surplus or deficiency BCH. This discrepancy is resolved using the generalized coefficient distribution. For example, currently the platform more long positions than short, and the coefficient is equal 1,091 (in other words, each owner will receive 1 bitcoin 1,091 BCH). The final ratio will be calculated at the time of distribution.”
It turned out that these rules could be circumvented. Because Bitfinex did not deter BCH with open short positions, the trader could just buy, for example, 10
bitcoins and to open a short position by the same amount. Thus he would have received an additional amount of BCH without putting themselves at risk. If bitcoin fell, a short position would cover the losses for long and Vice versa.
On July 27, the platform had more long positions than short, and the split ratio was 1,091. However, by 1 August it had fallen to 0,7757.
Before the branch was opened a huge number of short positions. But instead of reducing, which usually occurs after such a dramatic increase in the short interest, the price actually increased.
Additional doubt has caused closing of short positions on the 24 th immediately after branching.
Here the manipulation was so obvious that even Bitfinex was forced to admit it.
Group Pump & Dump
Pump & Dump is a form of manipulation of markets, involving buying a cheap asset, the artificial inflation of its price and sale at higher value. Here’s how the circuit operates Pump & Dump:
An example of such a “buy signal”
If the cryptocurrency markets are so easily manipulated, what do ordinary investors?
The answer is simple: to cease active trading on the stock exchanges. Trying to outsmart the market usually end in failure.
Speculative trading is a zero-sum game. To one investor could outperform the market, others have to keep up with him. Unfair on the private investor market with high probability will give way to players who have an unfair advantage and manipulate prices.