Cryptocurrency market manipulation. Part 2 — manipulator, crowd, punctures.

First, let’s see who this mythical manipulator is. A manipulator is just a big player who has such a resource (money) that allows him to move the price of an asset to the right side or keep the asset at the right level while making sales/purchases. Everything depends on the market, the liquidity of the asset, its price and quantity.

For example, John issued his coins in the amount of 100 pieces at a price of 1 dollar apiece and brought them to the stock exchange. All coins belong to John, and he and his friends begin to resell them to each other, pushing the price up to 2, 5, 10 dollars. John is a manipulator specifically in this coin, he can move it as he wants and where he wants. The only problem is that nobody needs the coin and John s going out of business.

Bitcoin, Ethereum and other popular coins with a capitalization of tens of billions of dollars are very different story. There in a role of a manipulator can be an investment fund, just a large investor, Vitalik Buterin :), etc., those who have the same tens of billions of dollars. At the same time, it should be noted again that the market of cryptocurrency relative to the world financial markets is insignificant. Large stock markets of stocks and bonds have portfolios that are many times higher than the value of all cryptocurrencies for today and, therefore, if they want they will draw any graph they want to. They will set absolutely any price in absolutely any asset in the cryptocurrency world.

These funds are constantly in the search mode of profit, and we are sure that they have already come to the cryptocurrency market. The main technology of their work is to force the crowd to sell at low prices and buy at high prices. For this they use various techniques and algorithms of psychological impact:

Puncture — a sharp and very strong price movement in any direction, with a rapid subsequent recovery.

A vivid example of such manipulation was the collapse of Ethereum on the GDAX exchange on June 21, 2017, when the price dropped to the level of $ 0.1 per coin. Of course, the exchange said that it was a technical failure, but it’s hard to believe. This exchange provided loans to its participants in the marginal trade, was aware of all the positions of its customers and their level of the debt burden. Firstly the fall of the asset to almost 0 led to the massive margin-call of those who used to trade borrowed funds and, consequently, to automatically sell all their assets, and secondly to the triggering of stop-losses for those who were reinsured from falling prices and again selling all of their assets. This decline was made possible because the large player simply drastically poured into the market a huge number of coins, fulfilling all bids for the purchase. From the side, it may seem that he lost money selling coins of $ 200, $ 100, $ 50, $ 10, but this is far from the case since he bought them back much more and at much lower prices. It is worth noting that in this case only investors from this exchange have been affected, and such a puncture became possible due to the relatively low liquidity of a specific asset specifically on this exchange at a particular time.

The conclusion is that on a thin and relatively illiquid cryptocurrency market don’t work with borrowed funds (don’t use margin), do not place automatic stop-loss, and manage the portfolio manually.

This was an example of purely technical impact for momentary gain. From the psychological point of view, punctures are made to expand the range of the usual, psychologically important, for the crowd prices for the asset. When the crowd no longer believes in the possible growth or drop in prices to some level, manipulator using colossal means (sometimes even at a loss) makes a puncture and shows that the price is possible. After the expansion of the range, as a rule, the crowd begins to move the asset to its specified goal, because it no longer seems unattainable. Imagine that tomorrow you will be shown the price of Ethereum in the area of 600–700 dollars, albeit very briefly, and all news portals will blow about it nonstop. Don’t you want to buy everything for 300 now? :) While the crowd starts to sweep everything on the way to $ 600, a large player will gradually sell out his giant portfolio, fixing profits, and then repeat everything exactly the opposite.

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