After Genesis and DCG entered the spotlight, most recently with the bankruptcy filing, Binance has been enjoying a welcome retreat. Criticism dwindled and things became quieter – until today. Head of Product Business Operations at Coinbase Conor Grogan made some serious accusations against Binance.
The world’s largest cryptocurrency exchange Binance was in the crossfire of critics for a long time after the FTX collapse. In particular, there was harsh criticism because of an opaque proof of reserves issued by the auditing firm Mazars, which paused the cooperation with the exchange shortly thereafter.
Market manipulation is an attempt to artificially influence an asset’s price or the market’s behavior. This typically involves a single individual or group looking to create an illusion in the market, so they can profit from the aftermath. For example, a pump and dump may involve a person pumping a penny stock’s price with fake news and then profiting at the peak. You may recognize that example from Wolf of Wall Street, the true story of notorious stock-market manipulator Jordan Belfort.
In 2018, the US Department of Justice (DOJ) launched an investigation to determine whether spoofing price manipulation had occurred in the Bitcoin network. The crypto market is still young and growing, which means bad actors will find ways to exploit the lack of regulation. Manipulation does not help the market, and it produces more harm than good to its participants. Although it’s illegal in most cases, manipulation is not always easy to spot for regulators and authorities. In this article, you’ll learn the basics of crypto market manipulation and how to identify and combat common market manipulation strategies.
The crypto market’s most prevalent offender is the pump and dump, which involves a group of people working together to artificially inflate a coin’s value. Pump and dumps usually target low-market cap coins that are available on limited exchanges. The group’s insiders will buy a coin early and dump it once there is enough attention from traders and investors buying in. In recent years, pump and dumps have become more accessible via social media communities like Reddit, Telegram and Discord. You may have recognized them from names like Moon Pumps. In these situations, the leaders typically profit while most of the participants end up taking a loss.
Market manipulation increases volatility in the crypto market, making it appear chaotic and unsafe to new investors. If crypto market manipulation continues to have grey areas, regulators and governments will continue to scrutinize the nascent sector. The low volume of specific coins is easy to manipulate, and the large spikes followed by a drastic drop are all too common, especially on smaller crypto exchanges. Sometimes, whales don’t even need to buy or sell the asset. They can send out a cryptic tweet and cause an asset to soar or—even worse—plunge to the bottom. If you want to protect your crypto holdings from market manipulation, keep reading to learn four different strategies you can add to your trading toolkit.