Regarding price manipulation in the cryptocurrency world, is it possible to achieve it mathematically? (Thought experiment)

Assume that a person or entity meets the following conditions:

1. Have sufficient idle funds (more than 1 billion U);
2. Ability to trade at zero cost (extremely low or no fees);
3. Ability to obtain position information of a large number of users in real time;

Then follow this strategy:

For example:

The current price is $100. Through big data calculation, we estimate the stop loss and liquidation price of all short orders in the futures market. We find that the peak price is around $112, and $200 million of short orders will be passively closed (liquidation, stop loss).

Next, calculate the funds needed to raise the price to $112.1 if spot purchase is used, set as X;

If X is greater than $200 million, then no action will be taken. When X is much less than $200 million, a large amount of spot will be bought, and the total amount of funds required to close the short position at $112 will be monitored in real time to see if it changes, and whether the amount of funds required to pull the price from the latest price to $112 increases significantly.

If there is no change, then continue to buy spot, and this process must be very fast, until the price rises to $112;

At this time, immediately place an iceberg-ordered futures short order above $112, with a value equal to X. Since X is less than the potential amount of funds for closing the short position (stop loss, margin call) at this price, it can be ensured that the short order can be executed.

Subsequently, the price triggered forced liquidation of futures short positions. A large amount of funds from short-selling pushed up prices while also completely filling the previous iceberg orders.

At this point, you have a spot with a value greater than X dollars (because the price has risen and the early chips are in a profitable state) and a short order that is exactly equal to X dollars.

Therefore, you can sell off a portion of the spot to gain profit, making the spot value completely equal to the short position and completing the hedging.

This completes a cycle, and there is no risk regardless of whether the price rises or falls, and the excess profit from the spot becomes net profit.

The same operation can also be used to dump the market with low risk and make a profit. The main profit margin comes from the difference between the cost of pulling up/dumping the market and the potential scale of the short or long explosion.

The end.

I don’t know if this logic is reasonable, but I feel that it is a sure win. As long as retail investors flock to set stop losses or their positions are liquidated, there will be arbitrage space!

The process of implementing this operation must be fast! And there must be a lot of data behind it to conduct real-time evaluation and quantify risks, especially to calculate whether the market orders that continue to appear during the pull/dump process exceed a redundant range.

Unfortunately, ordinary investors cannot do this at all, and there are almost no people who can meet these initial conditions...

Okay, that’s it for this week’s thought experiment!



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