Entrance
The cryptocurrency market is known for rapid price changes and speculative movements. While some of these fluctuations are the result of natural market movements, some can be manipulated by institutional investors and large investors known as whales. In this article, we will examine how such manipulations occur, their effects and ways to detect such events.
Who Are Whales and Institutional Investors?
Whales: Individual or institutional investors with significant assets in the cryptocurrency market. Generally, those who own more than 1% of a cryptocurrency's supply are considered in this category.
Institutional Investors: Investments made by large funds, banks and other financial institutions. These institutions generally operate in the market with large amounts of capital.
Mechanisms of False Risings
Pump and Dump: Whales and some institutional investors make large purchases (pump) to rapidly raise the price of a particular cryptocurrency. This sudden increase encourages other investors to buy. When the price reaches a certain level, whales quickly sell (dump) their holdings, causing the price to crash.
Wash Trading: Whales buy and sell large amounts of cryptocurrencies among themselves, creating a fake trading volume. This gives the impression that the demand for that cryptocurrency is increasing in the market and encourages other investors to buy it.
Spoofing: Large investors manipulate the price by placing fake buy or sell orders on the market. For example, you can push the price up by placing a large buy order, and the order is canceled when other investors start buying as well.
Real World Examples and Evidence
Bitfinex and Tether (USDT) Manipulation Allegations: In 2017, Bitfinex exchange and Tether company were accused of manipulating the Bitcoin price. Research has shown that USDT minting correlates with Bitcoin price increases.
Mt. Gox Collapse: In 2014, Mt. Gox exchange caused huge fluctuations in the Bitcoin market. The sudden sales of whales caused the price to drop rapidly.
How Can We Detect Such Manipulations?
Abnormal Volume and Price Movements: Sudden and large volume transactions in the market may be an indicator of manipulation. Such movements are rare under normal market conditions.
Anomalies in the Order Book: It can be useful to monitor large and sudden order changes in the order books to detect spoofing and other types of manipulation.
Blockchain Analysis Tools: Tools used to track large movements on the chain can be helpful in detecting large whale movements.
Conclusion
Fake rallies in the cryptocurrency market caused by corporate and whale greed are inherent risks of the market. It is important for investors to have a good understanding of market dynamics and manipulation techniques so that they can recognize such manipulations and take precautions. Conscious and careful investing is the key to minimizing such risks.
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