Dirty secrets of the crypto markets
Nick Carter, partner at Castle Island Ventures and co-founder Coinmetrics.io, shared his thoughts on the key drivers of the cryptocurrency market and the reasons why you can’t trust anyone.
In this text I intend to consider the key drivers propelling the markets of cryptocurrencies and scriptactive, and explain why in the near future they are not going anywhere. I intend to describe in detail the factors because of which the sites involved in market statistics, to include in their reports unreliable data.
The main players here are, of course, crypto currency exchange, the team behind cryptocurrency and fork, as well as the sites that supply the market statistics. Together they are working to get the money of another category of players – from private investors. Inexperienced investors provide a constant flow of capital. Nothing sensational. But I think it fair to reveal the relationship of these parties to help investors understand what they’re doing, and what are the rules of the game.
The following diagram illustrates the relationship between these four groups.
To understand it immediately difficult, so I’ll explain the role each of the groups.
The crypto currency exchange
In the industry there are two types of cripture: adjustable stock exchange with Fiat and Aldon casino (p2p exchanges are decentralized exchanges yet will not touch). Fiat exchanges are often governed by trying to meet the standards of KYC/AML. Sometimes they even keep track of trading activity on their sites and actually behave like banks. Typical examples are Coinbase and Gemini. But now we are not talking about them exchanges this category mostly play by the rules and seek to curry favor with the regulators.
The exchange, on which I want to talk about is Aldon casino. Their activities are poorly regulated or not regulated at all, most often they are based in exotic locations like the British virgin Islands, Seychelles or Malta. They can change the jurisdiction, when you feel that too became familiar to the regulators. A typical example is the Binance. It is difficult to negotiate, they don’t care about KYC/AML, fictitious trading and reporting. They may not be at par with the Fiat traders use bitcoin or ether to buy them chips in these casinos.
To use the services of these exchanges quite difficult. So historically that they have not enjoyed one of those who are interested in utility-tokens and their capabilities. Ordinary people are not the target audience of these exchanges. To buy bitcoin for Fiat on a regulated stock exchange, to register at an unregulated, where only cryptocurrency traded pairs, you can recharge your account in bitcoin, understand the orders to bargain, and this is not entangled in private keys and wallets… For most beginners it is too difficult. The end users of these exchanges professional traders and gamblers playing in online casino, accessible from anywhere in the world 24 hours a day. Sometimes appear on the horizon whales, but the majority of clients are small investors who dream about the “x’s”. Nothing new under the sun.
Team and the developers of altcoins
Support of crypto currency exchange mutually beneficial relationship with the developers of altcoins and those of their releases. Let’s call them marketers. In principle, to create altcon is technically difficult. Many altcoins created using Forkgen or one of the many token generators ERC20 (1 2 3). The main difficulty here is not technical but social in nature. This, of course, involves increasing the number of buyers of the token or coins and to make the existing owners of the coins even more fanatical supporters.
The creation of the community here is synonymous with marketing. This is done by using a variety of channels and a description of the process is worthy separate big article. For a developer it’s quite a fine game – to create something innovative (or, as often happens, an illusion of something innovative), suggesting to investors that the project is moving towards achieving the goals at a good pace. Developers support HYIP, make new partnerships, declare new goals, generate different news occasions. Any unexpected news becomes a nice surprise that encourages investors to continue to buy, and confirming that their previous investment was made wisely.
The most joyous event for investors is a listing of the coins or tokens on the new exchange. Because of the crypto currency exchange represent fragmented pools of liquidity, and each wants to expand the portfolio of traded assets through new acquisitions, the sudden inclusion of the asset in the listing at the stock exchange actually causes a sharp rise of its price. For anybody not a secret that the developers and marketers pay (read: bribe) cryptomeria for inclusion in the listing of their projects. Many of the projects lay in the budgets of fee for the listing, beginning with pre-hashing. Binance has built its business model on tapping out fees for the listing of the developers. But how to make sure that there willing to pay big money to a specific crypto currency exchange for the listing? Very simple: it is necessary to form the image of the popular crypto currency exchange that has no problems with liquidity.
In the end, the issuers themselves usually are the largest holders of its own coins, and they are also interested in growth when added to the listing. It often happens that the inclusion in the listing on a crypto currency exchange like Binance becomes to team insiders a great opportunity to reset their coins and successfully exit from a project. Therefore, the developers and promoters of altcoins have a vested interest to pay for the listing (usually it is about payments in bitcoin in the amount of hundreds of thousands of dollars). And exchange, this applies particularly to players of the second echelon, are interested in creating the image of not having liquidity problems, to be able to charge a Commission.
Sites ratings of cryptocurrency
Then comes the moment when the game come sites specializing in market statistics. With them all is not easy. Formally, they provide necessary information to investors, there is little in return (unless you consider the income from advertising). But the coin has a reverse side. The game, which results in the flow of money from retail investors into the pockets of the teams altcoins and operators cripture, and rating sites are playing not the last role.
What is the business model of the sites that publish the ratings of cryptocurrency? CoinMarketCap, CoinGecko, CoinRanking, Cryptoslate, CryptoCoinRankings, CoinCodex, CryptoCoinCharts, (etc.) sell advertising. Sometimes post links to affiliate with cryptomeria. Some of them sell composite price API experienced traders who need reliable data on prices. Most of the exchanges has its own affiliate program, their referral links can be a good source of income if you act as an intermediary between the trader and cryptomeria.
Sometimes sites combine both approaches by placing advertisements of kryptomere or trading platforms, accompanying her referral link. It’s good money, if the link works.
Investors go to these sites and follow links to the exchange where they can trade coins at its discretion. This is particularly useful for small projects, where liquidity is not very much. Since most investors regularly visit such sites, their target audience is already practically formed, and monetize the placement of affiliate links is fairly easy. CryptoCoinCharts and CoinCodex put direct affiliate links on their websites. Some aggregators allow you to enter into transactions of sale and purchase of cryptocurrency directly, you don’t even have anywhere to go.
But cryptobinary not the only one. Everybody who had to go on CoinMarketCap from April to November 2017, saw the banner BitConnect, welcomes guests of the website. BitConnect is a classic fraudulent scheme, largely depends on the actions of its affiliate program. In fact, the pyramid exists as long as there are new users following referral link. Support BitConnect was not limited – CoinMarketCap has placed banner ads and other Scam projects. Just in case we user Twitter BCC Ponzi fixed.
Ethconnect now also with a banner on @CoinMarketCap pic.twitter.com/ChnPZgpPgo
— Madoff wasn’t on the blockchain (@bccponzi) November 6, 2017
“Ethconnect now also placed a banner ad on CMC”.
The CoinMarketCap™ experience: not one but three actual ponzi schemes being advertised simultaneously. pic.twitter.com/70myPLVK4N
— nic carter (@nic__carter) November 19, 2017
“The strategy of the CoinMarketCap™: simultaneously advertise not one, but three Ponzi schemes”.
SMS also distinguished by the banner with referral link on Bitpetite clone BitConnect. This is a screenshot directly from the website Bitpetite.
Coinmarketcap is making some decent money on their Bitpetite banner, these are 24h/weekly/monthly total referrals for them (min 10% fee) pic.twitter.com/6lgYmrVrEl
— Madoff wasn’t on the blockchain (@bccponzi) October 26, 2017
That is, redirecting traffic to frankly fraudulent project, you can earn six figures. Yes, this is the one. CoinMarketCap data which is used by millions of users and dozens of foundations. And then even more interesting. BitConnect relied on data sites such as CoinMarketCap, without a twinge of conscience host data confirming the mass demand for the WSS token. Of course, all this had nothing to do with reality. The lion’s share of trades in the token BCC (over 95%) were in the one and only “exchange” on the domain bitconnect.co.
Openly publishing inaccurate data on the volume of VSS without any warning, CoinMarketCap has provided direct assistance to the functioning of the pyramid BitConnect, which investors eventually lost about $100 million (my own estimate).
More details of this history can be read Trad:
Of course, our source for price, volume, and supply, comes from… Bitconnect”s own exchange. Hosted on its own website. pic.twitter.com/0hrK5d4kf8
— nic carter (@nic__carter) October 13, 2017
“Of course, our rate information, trading volume and market capitalization are based on the… private exchange BitConnect registered in his own domain”.
Thus, the largest and most popular aggregator data CoinMarketCap not only contributed to the work of fraudulent schemes, placing their advertising, but in some cases participated in their affiliate programs, by placing their referral links directly on the banners.
If you don’t consider fraudulent schemes and make a profit from them, is itself CoinMarketCap — in fact an Amateur project run from an ordinary apartment in long island city, has proven to be its inability to give a balanced assessment of the level of liquidity of a particular exchange. But enough about him, let’s try to look at the whole problem entirely.
So, what do we see? The main problem lies in the interaction between the rating sites, cryptomeria and issuers of coins, especially when it comes to trading volume. We can say the following:
1) Issuers want to be listed on reliable exchanges to successfully withdraw from the project or to provide a pump of its assets;
2) crypto currency exchange I want to show that they have no problems with liquidity that issuers are more willing to agree to pay them for the listing;
3) Aldon casinos are mostly crypto currency exchange, which activities are not regulated and not monitored, therefore they can afford much;
4) Many exchanges are actively involved in fictitious trading, in order to inflate trading volumes, thereby creating the impression of a liquid and popular trade sites;
5) the Rating sites to earn advertising and referral links and do not have enough resources to monitor every exchange. Therefore, include in their ratings data kryptomere without any analysis.
6) Fictitious trade allows cryptomeria to occupy a higher place in the rankings, successfully advertising themselves and their services.
7) Profit kryptomere, issuers of crypto-currencies and rating sites provides the investor, even in the short term he may win.
The reasons I write this text – negligence-ranked websites. All other aspects are well known and documented. At that time, as regulated exchanges gradually become professional market participants, wishing to satisfy the requirements of regulators in the activities of Aldon casino does not change anything. Arbitrary attempts to change the methodology of rating sites – a risky undertaking, especially after the incident with the South Korean data exchanges, however, are deeply Amateur approach these sites is often ignored. Partners cryptocurrency hedge funds, perhaps shook would be if they knew that many of the funds form their positions based on data from CoinMarketCap. Which, in turn, simply consolidates the data supplied by Aldon casino, without analyzing them. The main issue is the acceptance on faith of these kryptomere, which are often highly questionable. The issue of the epidemic of excessive volume of trading sufficiently studied Sylvain Ribes.
Innovation applied CryptoExchangeRanks, namely the comparison of the traded volumes of Internet traffic kryptomere revealed the most egregious exaggeration.
For investors in search of a reliable data source there is not many options. They can either trust individual exchanges, or try to collect and process the data yourself, or trust sources like Blockstream/ICE.
The market is entering into a professional stage of development, and I hope that projects such as CoinMarketCap, will remain in the past.
The future of the market
The interests within the triangle “Aldon casino issuing altcoins rating sites” intricately intertwined, and users know about them too little. In most cases, the use of the word “exchange” in relation to these sites is incorrect. They are more like underground the-counter brokerage firms of the 1920s, illegal Bureau for selling high-risk securities the 1980s or poker sites the early 2000s that gave insiders the opportunity to see the cards of all players.
Simply speaking, most exchanges in cryptocurrency pairs have nothing to do with these exchanges, like the NYSE or NASDAQ. Of course, some investors know whom they are dealing, but most trust them too, and even keep in their wallets your coins for a long time. A crypto currency exchange, in turn, advertise yourself and do not hesitate to inflate their trading volumes using fictitious transactions. However, to close them or be forced to follow the rules is difficult – in the end, we are talking about calculations in networks of Bitcoin and Ether, which are not answerable to anyone.
These exchanges continue to exist because there is demand for the services of Aldon casino, working without breaks and are available from any point of the globe. And while investors use data made on the knee of the rating sites, crypto currency exchange will advertise themselves by providing exaggerated data on trading volumes. While these exchanges will include in the listing chipofya projects, helping issuers to withdraw from the project at a profit, they will try to mislead investors, drawing their funds in outright duds. Investors should be aware of the true motives of the participants in this scheme and make only informed decisions about participation in a particular project.
English original material here.