You Can’t Fight This Manipulated Crypto Market
I concede. It was sheer luck when I bought my first cryptocurrency.
It was June 2017. I have been reading about Ethereum and Bitcoin for months now and was still in disbelief that the price of an ETH rose from $8 in March 2017 to almost $400 — a 5000% increase!
Armed with some knowledge about blockchain (it had something to do with immutable ledgers) and my successfully registration on CoinBase, I bought my first ETH when its price dropped below $200.
As the market continued falling, I thought of diversifying into Bitcoin. Do not put all your eggs in one basket, they say. So I waited for the price to go below $1,900, and bought $500 of it.
Wow, I can buy fractions of a coin, how cool is that!
The following week, my $500 investment had almost doubled so I sold it because I have absolutely no idea how to value a Bitcoin. I made a decent profit but missed the boat all the way to the peak of the market.
It was only later that I come to learn about hard forks and future contracts. It was only later that I realised that this whole market is manipulated.
How do you manipulate the market? You either have a lot of money or a lot of coins. If it is the former, you can buy up a huge volume of coins to cause prices to spike upwards. Then you sell at the highs, and wait for your next opportunity to buy in.
Alternatively, you could set massive buy orders at several notches below the current price so that prices do not drop below this level. This also leads us to the notion of support levels.
On the other hand, if you have a lot of coins, you can cause a steeper price drop by selling off your coins in a bear market. You can also set massive sell orders when prices hit your desired profit levels (which brings us to the concept of resistance levels).
And then, what if you have a lot of money AND coins?
The September 2017 regulatory incident with China presented a huge opportunity for anyone to enter the crypto market as prices were about halved. This was later followed by the launch of Bitcoin future contracts by CME and CBOE, which many people believe is the key factor for the insane bull run towards the end of 2017.
I am not drawing any links between the two incidents but merely suggesting that the September dip was a good entry point for anyone, including financial institutions, who had yet to enter the crypto fray.
If you are just a small powerless individual up against the immense wealth of institutional money or crypto whales, what can you do? Simply pool together your resources with other individuals so that your combined assets have a say.
Pump-and-dump groups pick out coins that have strong fundamentals so that the general public will buy into it. The cryptocurrency should also have a relatively low trading volume so that prices can escalate quickly past a certain threshold. Then it comes down to coordinating the buy and sell actions with all its members, usually done through social media chatgroups.
Buy low. Inflate its price. Wait for more people to catch onto it or do some publicity for the coin. Let prices rise further. Then sell.
Rinse and repeat with other cryptocurrencies.
If you are an upper level executive of a company and you have first hand information about its upcoming acquisition, you are not allowed to pass on that word or to buy up its stock. After all, if word gets out and the stock prices rise, the acquisition deal would become more expensive for the buyer and the deal might fall through.
Insider trading is illegal anyway, but less so in crypto. How?
Say you know that there will be an important partnership announcement or the cryptocurrency will be launched on a major coin exchange, such that prices will boom upon the official statement, you simply start buying up these coins on your anonymous crypto account. Then, sell those coins for a profit later.
It is harder to execute insider trading on traditional markets because of strict policies and regulations. However, crypto is relatively looser and unregulated. There are also no deals to sabotage should prices go up. Crypto is a perfect environment for insider trading, for now.
What Can We Do About It?
As the saying goes, “If you can’t beat em, join em!”
No, I am not recommending that you manipulate the market, or join pump-and-dump groups, or partake in insider trading. I am suggesting that you try to pick out these dirty behaviours so that you do not fall prey to them.
Learn the market patterns (technicals), which will give you a clue when prices are being manipulated. Do a thorough research of the coins you are buying and not just buy into the hype — it may well be the marketing effort of these manipulators.
Play the market and not be played by it.
Playing alongside these market makers is a short section in my upcoming book, Prospering In The Decentralised Economy. I also explore both the upsides and downsides of cryptocurrencies and offer some actionable investing tips and tricks for someone new to the market.
I have been a victim to many manipulative price actions and the crypto market had led to bouts of emotional toll. This is why I want to learn more and write about it so that others can learn from my experience (and to distract myself from the pains lol). Follow me or sign up for my monthly newsletter if you would like to read more of such content.