Cryptocurrency market manipulation is very much similar to any asset manipulation that happens in the market. In fact, it is a deliberate action, that is unnaturally increasing or reducing the price of a cryptocurrency for personal benefit. Whether the price of crypto is to be increased or decreased depends upon the objective of the manipulator. Whenever the manipulator considers buying more, then they will try for a drop in price and if they are already owning a great number of cryptocurrencies then they will try for a rise in the price. By incorporating counterfeit orders or ignoring orders, exchanges will also be able to engage in this act.
Now let’s look at various types of market manipulation
In fact, several kinds of manipulation exist, all of which are illicit. The most common manipulations include:
- Pump & Dump
- Layering & Spoofing
- Wash Trading
- Cross Trading
- Whale Moves
As cryptocurrency is gaining acceptance worldwide, several institutional players are introducing more legality to the industry by creating relevant technologies for avoiding cryptocurrency market manipulation.
Now let’s look at how Bitcoin traders are able to prevent market manipulations.
- Consider HODL -Always make sure to get to know your investment and use techniques to minimize the risk. In fact, this market abuse mainly affects the short-term traders. If you are considering HODL, then market manipulation will be least capable of creating an impact on your position.
- Consider Checking the ratio between Long and Short Positions – it is also possible for short-term traders to safeguard their positions by learning to identify different kinds of market manipulation. This in turn helps reduce their impacts on your investments. Also, traders using bots can take advantage of cryptocurrency markets and avoid market manipulation. Trading bots such as https://kryptoszene.de/bitcoin-robot/bitcoin-fast-profit/ use a sophisticated algorithm to automate the trading behavior and generate high profits for their users.
One of the best ways to find market manipulation is by checking the ratio between the long position as well as the short position in the market. If the ratio of long positions to short positions is greater, then you can expect that a dump is going to occur. If the ratio of long positions to short positions is lower, then you can assume that a pump is going to occur. You have to keep an eye on the various periods to check if there is an immediate shift in any of the directions.
- Never Invest in a Single Cryptocurrency – You can minimize the risk by not investing all your money into only one cryptocurrency. It is advisable that all investors should balance their crypto portfolios so that their portfolios will contain a good combination of crypto assets. Even if, the market manipulation affects one of your cryptocurrencies, it will be only a small portion of your entire digital assets that are being affected.
- Choose a Reliable Exchange – You should always consider choosing an online exchange that has an excellent reputation for your trading purpose.
Similar to any other investment option, investing in digital currencies is also risky. In fact, the main reason for market manipulation to occur mainly in cryptocurrencies is due to that the crypto industry is not regulated. However, with the improvement of technology and when the traders become fully aware of it, doing market manipulation will become really challenging.