Bots Manipulating Crypto Prices
According to another report by Wall Street Journal, bots, also known as automated trading programs, are manipulating the price of cryptocurrencies on exchanges.
Automated Trading Programs in Crypto Markets
Automated trading programs – or bots, as they commonly known – are software programs that allow traders to set specific rules for trade entries and exits, submit orders to exchanges or market centers and then automatically execute these transactions at speeds much greater than a human can.
Such software programs are available for both traditional as well as cryptocurrency markets and get be used for both legitimately trading and to manipulate market prices.
According to the Wall Street Journal (WSJ), due a lack of proper regulations, bots are able to manipulate cryptocurrency prices at industrial levels. The co-founder and president of the crypto startup CoinList, Andy Bromberg told WSJ that using bots to manipulate prices is currently a rampant activity in the cryptocurrency markets. He also stated that these activities were hurting not just the market’s reputation but also individual investors.
How Bots Manipulate the Market
According to Virgil Capital, an $80 million crypto hedge fund that uses its own bots on multiple cryptocurrency exchanges across the world, they are in a constant battle against “enemy bots”.
Stefan Qin, the managing director of the hedge fund, said that their company lost money on Ethereum earlier this year due to these enemy bots. Qin said that the strategy used by these enemy bots is similar to traditional spoofing.
This is a trading practice where a trader enters fake orders and then later cancels them. This is done to trick other investors into believing there is a greater supply or demand of that asset. This type of manipulation was outlawed in 2010.
Another example market manipulation is the strategy used by the crypto trader Kjetil Eilertsen. He began trading in BTC in 2011 and developed a program he called Quatloo Trader. This program was touted as the best tool to manipulate the crypto market. Programs such as the Quatloo Trader uses special built in tabs called whale tools that can executive several market manipulation strategies at once.
Eilertsen takes a rather unique view to market manipulation. He told WSJ that is was a waste of time outlawing crypto market manipulation tools. It would be much better, in his opinion, to give small traders sophisticated manipulation tools so that the playing field would be leveled. His philosophy is that if everyone in the market is manipulating, then, ultimately, no one is manipulating.
Such tools are not allowed in regular trading markets. The New York Stock Exchange monitors trading operations regularly to ensure that no abusive trading or illegal trading is taking place on its platform.