Is Crypto Manipulated?
In a highly financial regulated world, is Bitcoin and crypto’s price volatility natural or forced?
With widespread anonymity in cryptocurrency markets, manipulation can easily arise. That is, when you don’t have clear disclosure of buyers and sellers, you open the doors for perennial problems of whales and market manipulation to occur.
When the U.S. Justice Department opened an investigation into illicit trading in late May, 2018, you had to wonder. Traditional frauds that occur in the stock markets surely have and are occuring in the cryptocurrency markets. These guys have jurisdiction over any transactions that occur in the U.S.
While Bitcoin’s price volatility has been anything but stable, it has meant the entire cryptocurrency market cap has been the ultimate playground for pump-and-dump scheming. US Department of Justice (DOJ) apparently have been on-goingly working with the SEC and CFTC to investigate market manipulation of Bitcoin price, particularly via spoofing and wash-trading.
The investigation is focused on illegal practices that can influence prices — such as spoofing, or flooding the market with fake orders to trick other traders into buying or selling.
As the price of many cryptocurrencies is speculative and not tied to actual assets the mainstream rhetoric has been that they are highly “risky”. However that hasn’t stopped millions of people around the world investing in them. The rise of Bitcoin futures seemed to correlate according to some with Bitcoin’s slide in Price after the anomaly of December, 2017, where Bitcoin has seen a 70% drop in price value, just seven months later.
Market manipulation of course is nothing new, there’s always been whales, scammers and price fixers. Market manipulators have always been present as long as there have been markets. Decades ago the Hunt brothers attempted to corner the silver market (but failed). In the late 19th Century, various “plungers” tried to control railroad stock prices. Crypto is a hotbed of innovation, but also rampant market manipulation that has fueled the rise of 1,800 altcoins, where nearly 650 display signs of coin and code death. That’s a pretty incredible turn-over rate. It turns out, there may be as much fraud and cyber hacking going on, as actual innovation in the space.
This is why corporate, government and banking associates speak of “blockchain” in a very different vein to “crypto”, and this is of course in part what has made Bitcoin’s legend (only 10 years old) so controversial and truly stunning to follow for both enthusiasts and skeptics alike. Nobody will contradict the reality that many ICOs have been fraudulent, however many startups that employ them have incredible use cases in the real world if they could ever get off the ground. Getting early-round and seed investments isn’t what it used to be for many early startups.
From breaches in cryptocurrency exchanges, to legal changes in countries as far as South Korea, India, or China, there are so many factors and variables likely involved in Bitcoin’s price volatility and the actual demand and artificial scarcity created by the limited number of available tokens — 21 million in the case of BTC.
We know that Federal prosecutors are working with the Commodity Futures Trading Commission, the CFTC, a financial regulator that oversees derivatives tied to Bitcoin. While the SEC has publicly stated that Ethereum is not a security, many if not nearly all of ICOs likely are.
It’s really hard to imagine that grey and black hat tactics banned in securities trading, and illegal in general, but not cracked down on in crypto trading, are NOT being used in crypto trading. Without legal regulation, and more transparency — cryptocurrency trading might remain viewed as practically criminal activities by Governments, as is basically the case in places like India and China. That’s not to say that these places aren’t hotbeds of blockchain startups, crypto mining or anything of that sort.
As the legalization of cryptocurrencies continues to play out with leaders like Malta and South Korea moving the world slowly forwards, in the U.S. Ad bans and investigations continue. Even as Japan seeks improved regulations against money laundering in its major cryptocurrency exchanges, the balance between regulation, anonymity and transparency remains fraught with breaches, fraud and market price manipulation.
When you look at the troubled history and credibility of projects that got massive ICO funding such as Tezos and EOS, you really do have to wonder at the leadership of the supposed competitors to the likes of Ethereum and NEO who they themselves seem far larger and more active communities of daily active developers who have established legitimate partnerships. If private companies such as Block.One or Dynamic Ledger Solutions, Inc hold the actual keys to projects like EOS or Tezos, what hope could they possibly have of actually being decentralized? Thus, crypto projects suffer from major credibility issues, where crypto advisors line their white papers, but common sense dictates most these projects don’t have much hope of long-term sustainability and aren’t commercially viable.
So while the ICOs will come and go and surely some will be prosecuted. The Bitcoin advocates and HODLers remain. Inspite of the hype and disrepute, the history of blockchain and smart contracts is not waiting for anyone’s permission, as dozens of use cases gain momentum each month, and new decentralized app platforms come into being. For every hundred crypto profiteers, there may be someone who actually does care about the evolution of blockchain to empower a better world.