One thing that is quickly made apparent to anyone that has traded cryptocurrencies is the level of market manipulation that is at play. This manipulation often comes from the very wealthy, also known as whales, and here are three ways that these whales manipulate the cryptocurrency market in their favour.
Pump And Dumps
One common tactic that whales use to manipulate the cryptocurrency market are pump and dumps. A whale carries out this tactic by gradually accumulating a certain coin, usually over the course of several days, resulting in significant price increases on trading charts. These price gains will then attract a lot of new money to the coin, because these new investors don’t want to miss out on any price increases, otherwise known as FOMO (Fear of missing out). The influx of new money pushes the price of the coin upwards even more, and when the whale is satisfied with the profits that they have made, they will begin to dump. The dumping process will normally occur in waves. So, the whale will dump once, and investors will think it is just a temporary dip, and ‘buy the bottom’. By the time the whale has finished selling, they would have profited nicely, whilst investors that FOMO’ed into the coin will be left with nothing. This tactic is especially effective with low market cap coins because it is easier for whales to move the price of these coins due to their lack of liquidity.Sell Walls
Another market manipulating tactic in a whale’s arsenal are sell walls. A whale will usually have inside information that positive news for a coin is going to be made public, and the whale will know this information well in advance of the market. Thus, the whale will seek to accumulate the coin at a cheap price. To do this, the whale will place an order that will create a huge sell wall, investors will see this wall and begin to sell; investors must do so at a point that is below the sell wall, as investors would not be able to sell above it. The sell orders placed by investors are now filled up by the whale, meaning that they can now make a nice return when the inside information is made public.Dark Pools
One final way that whales are manipulating the cryptocurrency market is through the use of dark pools. Dark pools are private exchanges that allow whales, such as financial institutions to trade anonymously. Dark pool trading activity does not affect the publicly traded value of crypto-assets. Thus, whales can accumulate vast quantities of a coin without it being made known to the public market. It is by using dark pools that whales can engage in predatory trading activities such as throwing up huge sell walls.
Conclusion
The cryptocurrency market is a young one, which means that there can be a lot of opportunities to make money. However, it also means that the market is much more susceptible to manipulation when compared to more traditional markets. Care must be taken when investing in the cryptocurrency market, and never invest more than you are prepared to lose.