June 8th, 2018

EXCLUSIVE: Dark side of CRYPTO

How exchanges & whales manipulates the market

EXCLUSIVE: Dark side of CRYPTO

June 8th, 2018

How exchanges & whales manipulates the market

I started investing in cryptomarket in late 2015, almost immediately began actively trading cryptocurrencies and since that moment I have dedicated all my time to it. In early 2016 we created a crypto community named “DeCenter” and that’s the second reason why I saw almost everything in the crypto market.

You already know that the most valuable thing for an investor and a trader is their knowledge, yet the experience is still more precious especially losses.And those experiences I have had plenty.

You we’ve been thinking about tokens, economic models, etc, but you didn’t touch on one important topic – does it even work or all this is just one big manipulation? Fair question, I think.

In my opinion, right now Tokenomics DOESN’T WORK the way it should. Tokenomics really is the future not only for the crypto market but for economics and financial markets as well.

Anyhow, we are kind of far from that now. All because cryptomarket is the wild west and you know why?

Two words: M – MANIPULATION & F – FRAUD.

Is that true?

We predict that by 2022 the market volume of crypto-currency and blockchain technology will grow several times and float into more spheres. Most importantly, we think that 90% of the market will be occupied by the projects with a clear and proven economic model. In fact, no need to wait, tokenomics already works in the present, just not enough people understand this. One of the reasons is the hype on the market that has been driving people mad for 2 years now along with the thirst for easy money. Projects that were built on vague too far-fetched models will suffer first.

Still, cryptomarket is the wild west for the economy and here’s why:

Cryptocurrency trade: expectations vs reality

First of all, we should talk about investors and traders because they are the main players.

Investors expect the price to depend on various points:

  • The quality of the project, which includes token economics
  • How much the project needs blockchain
  • Future of the market  

In other words, it’s quite common when people try to predict future prices using fundamental factors, the way it kinda works on the stock market. In reality, current crypto market behaves in a different way and has its own rules, so in some cases price movement is a pandora box, meaning, we have no idea what actually made the price move the way it did.   

Many investors try to predict token price movements by researching the project. Usually, people start analyzing the whitepaper, trying to make some conclusions from it, read about the market making assumptions for the potential future of the project. Some investors even build special models for the token, like investors do for the stocks!

That’s all great, but let’s talk about the real factors affecting the price of tokens.

First off – whales. ESPECIALLY whales. Their intentions significantly influence said prices as they can easily manipulate the market by buying cheap tokens, for example.

Next – good PR. How the project spreads their news, the way they are seen in the crypto community – it really matters. Hype is the king of the 21st century, thus, of course, it plays a huge role in crypto. If the project has hype around it, more and more people talk about it on Twitter, in chats, on forums leading to more and more inexperienced traders following the shill just like a perfect snowball effect.

Third – market cycle. Most of the coins simply procycle moving in the same way main coins move. No matter if the project is good or bad, if both tokens decrease, the market decreases.

Last but not least – money and effort, that the project itself spends on pumping the coin.

I’m sure it won’t be breaking news for most of you, but we should still keep it in mind.  

All this, yet I didn’t even mention the main problem in crypto yet. We all know, that investing, especially trading is a zero-sum game, which means one man’s gain is another man’s loss. Nothing bad about it though, trading ideology is pretty fair. If you make better decisions, you earn money. Unfortunately, the crypto market itself isn’t that fair.

You play not only against other players but also against the exchange, the whales and even against the project itself. Actually, manipulation and fraud are essential to all financial market, however, with crypto, it has been taken to the extreme.

The problem is that most of these opponents have better information and they can manipulate the market, making investing and trading more like gambling which as a business is always in profit. To explain it further, let me move on to some real cases with real people losing their money:

DAO hack

I specifically picked this example, because it is extremely well known. What really happened back then none of us will ever know: was it a pre planned scheme, a well-thought-out request to make a deal with big investors or just a coincidence? Was it fraud on the part of the project? Let me assume it was an independent hacker. Yet, if so, did the exchanges help the fall of the Ethereum in order to knock out the marginal traders and stop limits?

As you see, there is a lot of noise around it, but I do know one thing – those breaking news came at a very convenient moment – in time for much needed panic. You may say it was a long time ago, however, many projects still suffer from similar obstacles every day: only a few still fake scams, some became smarter while others just bluntly take money and leave.

Bitfinex

It is not news that Bitfinex is connected to USDT and they really like to make money from marginal traders (not only marginal, by the way). Just look at the chart from December.

What you see here is called flash crash. Just for a moment the price collapses and then goes back to normal. This is nonsense for a standard financial market, but not for crypto. As you can guess, because exchanges sell your coins at minimum levels, if something like this happens, all marginal traders lose their money. I, personally, know people who have lost more than 10 million dollars this way. Luckily, I wasn’t one of them at that moment. Some may call it an accident, but think how much money did exchanges and those connected to them earn that day.

Bitcoin Cash insider trading on Coinbase

Recently Coinbase was hit by the lawsuit. Team members knew that Bitcoin Cash trading should start in a month prior to the actual date. It was 19 of December even though the exchange an announced it to start somewhere in January. Then, as you can predict, on December 19th, Coinbase tweeted about Bitcoin Cash trading, which was going to start shortly after the tweet. Of course, nobody was prepared as this came completely out of the blue, but somehow the minute trading was launched there were already more than 4000 orders which made the price skyrocket by 200%. The Coinbase trading lasted only 2 minutes. More facts – hours before the tweet somebody started buying Bitcoin Cash and significantly pushing the price up.

The funniest thing about this story is the reaction of Roger Ver, I think most of you heard about him.

He just said that insider trading is not a crime.

TRON is a good example of why fundamental analysis doesn’t work and how you can get your coin into the top 10 using money and media resources in just 3 months.

When I first read about this project, I thought they had no future man, and it won’t make me a lot of money.  But at some point its token price was sky high. Why this is a telling example? The idea isn’t that unique and the technical part isn’t something groundbreaking. Actually, the English white paper was composed of other projects white papers, no joke. Howbeit, the CEO of Tron is a famous guy, with almost half a million Twitter followers. How did that help? Just in 3 months token made 100x  from ICO. Of course, they couldn’t develop the product that fast, so there wasn’t many fundamental changes. It was all about PR, pumping the coin by themselves and hyping it up anyway they could: they even paid McAfee to shill the coin on their Twitter giving Tron twice as much Twitter mentions as Bitcoin and pumping the coin themselves made inexperienced traders fear missing out on a great opportunity.  As the result, a lot of people invested when the price was at peak and after the plummet, many became HODLers, because nobody wanted to sell after such tremendous losses.

What we discussed earlier were just specific cases that can teach you a lot about the dark side of crypto. If we assess the situation on a global scale, the main instrument of economics is information. Yet crypto, exchanges and different resources can provide incorrect information from the get go. THAT’S EXACTLY WHERE TOKENOMICS STOPS AND MANIPULATION STARTS.  You have probably seen the latest research on several exchanges faking volumes (as an example, one of the biggest exchanges OKex faked up to 93%). Just look at this beautiful chart made by god knows who. 

I think it’s pretty obvious if you look at the chart. I’d like to mention ICO ratings. Most people use them to choose projects and many continue viewing them even after ICO ends. I suppose, most of you are familiar with a very popular resource ICO bench where experts publish their rating for projects. However, it’s very important to know, that some of those experts often sell their ratings for money and to be frank, supplying users with wrong information is not a rare case in crypto world.

As you can see, the average rating (calculated by the platform itself) is rather low, but the expert rating is quite high.