Bitcoin is ripe for market manipulation for a few reasons, but is it a factor that needs to be considered?
Bitcoin has become unavoidable in really the last few weeks. It has been bubbling under for a while now, in terms of mass appeal and understanding, but its recent wave of adoption has sent it spurting out into mainstreet.
However, despite the influx of individuals, the core of Bitcoin users, holders and influencers remains a small, tight-knit community. The early adopters, the technology fanatics and the bold entrepreneurs of a few years ago hold most of the sway.
These are the Whales of the Bitcoin pond, and according to Bloomberg, as few as 1,000 people may own around 40 percent of all existing Bitcoin.
In that respect, how much control do these 1,000 or so people have on moving the market? Either purposefully or not. What if they cash out simultaneously? And now, what about the new Whales joining the pond via futures?
Cashing out, dipping down
The latest dip, that came after a monster rally for Bitcoin pushing it towards $19,000 saw the digital currency cool down to a more reasonable $14,000-ish. That represented about a 15 percent drop – nothing in a normal day for Bitcoin – but the catalyzer for this dip was put down to stock taking and some cashing out for big profits.
This form of minor market manipulation shows how someone with a few thousand coins can actively move the market should they make a big buy/sell. Also, this manipulation is all part of the process and not exactly a coordinated front. But what if there was one?
A tactical strike
Many people, of course, fear the dips and the ‘crashes’ that come almost like clockwork with Bitcoin. The market is volatile, but also predictable in that fact.
There are those who welcome a dip though, seeing it as a discount sale on some more Bitcoins. Thus, a coordinated strike by an ost of Whales, selling off enough coins to cause a flood in the market, could lead to a manipulation to lower the price.
“I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.”
The case of ‘Spoofy’ back in August, was an occurrence of this – seemingly. Rumors were swirling about a trader with nearly unlimited funds who was manipulating the Bitcoin markets.
While there has been no evidence of a coordinated strike at the Bitcoin price from these Whales so far, there is danger entering the waters as of this week.
The arrivals of Future trading through the CME and CBOE has allowed a different breed of Bitcoin investor to enter the market, a type that can dwarf many of the current Bitcoin Whales.
These Wall Street-types can now with protection be a part of the Bitcoin wild ride, but can they also manipulate it?
The manipulation that would be seen by the future traders is also different as, for the first time, there is a reason to be a shark; a killer whale; and drive the price down in order to profit.
With Future trading, there is protection for a big price drop, and inadvertently, an opportunity to profit just as much from a drop as a rise. This means that there is incentive, for those who can, to manipulate Bitcoin’s relatively small market with some big money.
This manipulation will also be downward facing meaning that there could be a wild ride in store.
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Author: Darryn Pollock