Cryptocurrency market manipulation. Part 7 — Battle of monsters.

In the last articles, we told how an evil monster manipulates trustful traders. But what happens when a monsters collides with each other?

In our opinion, such situations are rare, because playing with an opponent who knows all the nuances and possesses the same colossal resource is incredibly difficult and costly for both opponents. But of course, it all depends on the size of the opposing monsters and the financial situation.

It happens that a player that is weaker in financial terms, knowing that another larger player is playing its game against the crowd long time and has almost exhausted its resource of money or assets, can intervene in the game and bite off a tasty morsel. For example, if the manipulator A for a long time restrains the fall of an asset and the stock of its money is already coming to the end, then the manipulator B, having a large volume of the asset itself (coins) on its balance, can collapse the market, thereby putting the manipulator A in the same situation that they usually do with the crowd :). Long live financial intelligence and insider trading!

If the monsters are approximately equal, but still faced foreheads in the market, then for the victory each of them wants to attract a crowd of traders to their frontline. At the same time, in the situation when there is the only one manipulator in the market, it is easy to manipulate the crowd, in the conditions of the struggle it is much more difficult because each of the opposing sides will interfere with the other. In this case, an important role will be played the technical superiority of a monster, which includes properly configured trade robots, the speed of receiving information from the exchange and the speed of submitting orders. It’s not a secret to anybody that the largest founds try to put their computational power as close as possible to the exchanges, in order to reduce the distance for data transmission, since it all depends on milliseconds. The robot must analyze the situation on the market, manipulate, earn on the crowd and close the deal before another robot ruins the game. The opposing robot should be able to manage and, most importantly, have time to counter these manipulations.

A sign of such collisions is a sharp increase in trading volumes, multiple increases in the number of transactions, big movements of asset prices to both directions in a short period of time.

The above described is more technical manipulation. There are also multi-way, well thought out schemes. As an example, I will explain one of the most beautiful trick performed by Porsche with Volkswagen shares in relation to large speculators — hedge funds playing on a decline. This story is well known among professional traders, but I think few of our current readers know about it and you will be very interested:

The company Porsche at one point (2005–2008) decided that it would not be bad for her to become the owner of Volkswagen. By the way, the situation on the market was favorable, as VW at that time was not in its best position, was unprofitable and the price of its shares fell sharply. The only problem is to take the company under control, it is necessary to own 75% of its shares, but 20% belong to the government of the German state of Lower Saxony, which was against the emergence of a new key owner in the form of Porsche and could easily shuffle all the cards if they took some steps (for example, buying up the missing 5% from the market blocking full control).

The company Porsche was more efficient. Having opened credit lines in several banks for up to $35 billion, the company’s representatives began to buy Volkswagen shares from the market methodically for several years (note the term of the game!), Carefully concealing it from the whole world, buying for unrelated persons/organization. At first, it was possible to hide everything from the outside, as there was many stock offers, but as the number of sellers decreased, the price of shares began to grow, increasing several times.

This fact attracted large funds into the game, which decided that the price for the share was significantly overestimated and it would not be bad to play for a decline, i.е. take a share from someone, sell it and buy it back cheaper (Part 6 — margin trading :)). They did not know the current situation, which looked like this: Porsche has 74% of shares, the German government has 20% and only 6% in free circulation (the importance of financial intelligence!).

Nevertheless, the funds began to borrow shares on the stock exchange (as you guessed in fact from Porsche) and sell in hopes of bringing down the price to the bottom, but Porsche became the buyer of all the sold shares because no one could break through his wall of bids to buy. In fact, Porsche shifted shares from one his pocket to another. This went on for a long time and in fact, funds owed more than 12% of Volkswagen shares to Porsche, while only 6% remained in free circulation. An interesting situation isn’t it? ))).

At some point, the funds realized that they are in a very unpleasant situation. Some decided to close positions, buy back shares and give back their debts, but the shares in the market are twice less than the amount of debt, and Porsche does not sell them. The only way out of this situation was the purchase of securities from the market at absolutely any available prices, otherwise, they will be bankrupts. The stock price for several hours/days soared almost 5 times!!! At that price Porsche began to sell shares to the market funds, which in turn gave them back to Porsche, extinguishing their debt (in fact, the crafty Porsche again shifts shares from one his pocket to another).

As a result of all manipulations, Porsche retained 74% of the company’s shares and received according to various estimates up to 25–30 billion dollars of profit from these transactions, well, accordingly, the funds have the similar loss.

This is an example of a well-considered long-term struggle of one relatively small player with larger giants such as Goldman Sachs, Morgan Stanley, and so on. (they are called among the losers). On the Porsche side, there was an unbreakable trump card in the form of a finite number of shares.

One of the saddest endings in this story was the suicide of German billionaire Adolf Merkle who lost his fortune in the game against Porsche. And how many more small speculators have lost their full funds do not count at all.

That’s right, it happens that professionals are mistaken and lose. From this situation, you can draw a lot of conclusions, but two of them are obvious:

  • do not engage in margin trading, especially in decline game! The number of any asset is finite and nothing prevents bad guys from doing the same with you;
  • take a closer look at Porsche’s strategy, it was a long-term game, they played and won. It is to such investments that we call. No matter what happens now, the goal to which you aspire is important.

If you have any questions — don’t hesitate, write to us at https://t.me/fidcom.

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