Crypto Volatility May be Here to Stay — Unless the Market Clamps Down on Abuse

Andrej Kovačević
Jun 24, 2019 · 4 min read
Photo: Rybindmitriy / Adobe Stock

When the cryptocurrency market first began to garner widespread attention in 2017, everyone from market insiders to the general public seemed to believe that prices could go nowhere but up. By 2018, everyone had changed their tune because of the massive crash that wiped out more than $600 billion in asset value almost overnight. Since then, however, the cryptocurrency market has revealed its’ true nature — speculative, untamed, and unbelievably volatile.

Most observers believe that this is just a temporary condition. They predict that cryptocurrency markets will stabilize as they mature, especially as so-called stablecoins grow in popularity and influence. What if, however, all of the volatility isn’t a bug? It’s entirely possible that it’s a market feature that’s not going away anytime soon. Here’s what could be causing it, and the effect that it might have over the long run.

The Rise of the Whales

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Right now, the cryptocurrency market is increasingly dominated by a few large investors and institutions. As any financier can tell you, with size comes power, and that could be at the heart of some of the market’s historical swings. It’s a problem that’s most obvious in Bitcoin trading, where less than .08% of addresses control almost 65% of the whole market. That leaves the whole trading ecosystem vulnerable to price manipulation, as those with the power engineer price swings for their own advantage. Researchers at Imperial College London have already discovered that pump-and-dump schemes executed by those with enough clout to do so may account for as much as $7 million in trading every month — explaining many of the mysterious spikes and selloffs common to the market.

Automated Trading Takes the Bait

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While the whales work their will on the market, there’s a whole other class of investors that get pulled along for the ride: the people who rely on automated trading systems to manage their accounts. Today cryptocurrency trading bots are used as a set-it-and-forget-it option by scores of casual investors. They’re lured by the promise of big returns, like the ones you’ll find in this BitCoin loophole review. Of course, no matter the sophistication of the available trading bots, they are vulnerable to falling victim to price manipulation. It’s an issue that even the older, more traditional stock market hasn’t managed to beat, and it’s under far heavier scrutiny than cryptocurrency markets are.

The Illusion of Action

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On top of the outright market manipulation that seems like a fixture in the cryptocurrency world, there’s also the possibility that much of the market movement that investors base their trading decisions on is a complete fabrication. At least that’s the conclusion reached by Bitwise Asset Management, who studied the Bitcoin market and found that as much as 95% of all trading volume in the currency is faked by the dozens of unregulated exchanges that comprise the cryptocurrency market. That can shape the perception of the value of the cryptocurrencies being traded, and causes other investors to make moves they otherwise wouldn’t have considered — and all of it is an illusion.

A Market in Need of Oversight

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The bottom line here is that any financial market that features price manipulation, false data, and automation that amplifies every market movement can’t ever be stable. It won’t matter how many stablecoins enter the fray, nor what real-world assets they’re linked to. One look at a historical price chart should be enough to prove that where Bitcoin goes, so goes the whole cryptocurrency market, so if something isn’t done to rein in the shady market forces it won’t be long before cryptocurrencies end up in the dust bin of history — done in by their own hands.

how hackers start their afternoons.

Andrej Kovačević

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