Cryptocurrency exchanges often manipulate markets by exploiting long and short positions to trigger liquidations, stabilizing prices and profiting in the process. By intentionally pushing prices up or down, exchanges can force traders into liquidation, particularly those using leveraged positions. This not only stabilizes volatile prices but also allows exchanges to collect substantial fees from every trade and liquidation event.
Liquidity hunters, large players who exploit price movements, also benefit from this manipulation. They actively seek out price zones where liquidations are likely and push prices into those zones. When this happens, a chain of forced liquidations occurs, creating further volatility, which increases trading volume and profits for both the exchanges and liquidity hunters.
This practice raises concerns about fairness. Exchanges, which should serve as neutral platforms, often appear to act in their own interest, engineering volatility to trigger liquidations deliberately. The lack of regulation in the cryptocurrency market allows these actions to go unchecked, leaving retail traders at a disadvantage.
Without regulatory oversight, exchanges continue to profit from market instability, manipulating prices while creating an uneven playing field for traders. Retail investors, especially those using leverage, are most vulnerable to these tactics, often losing significant amounts due to unexpected liquidations.
In this environment, it becomes increasingly clear that exchanges aren't merely facilitators of trade but active players in a system skewed in their favor.