The majority of crypto traders believe that markets move randomly and is based on a collective wisdom of investors, however the truth is quite the opposite. Markets are often manipulated by few players. Big market participants – the so called whales - and insiders control and manipulate markets up and down to maximize profit. Market manipulation is undeniable and unavoidable, so don’t ignore it. It is not only the unregulated crypto market that are subject to manipulation it happens across all financial markets (stock, bonds, currencies, commodities, etc.). However, the crypto markets are much more prone to manipulation. There are two market characteristics that makes cryptocurrencies particularly vulnerable to market manipulation.
Low market liquidity / volume
The total liquidity (total traded volume) of the vast majority of altcoins are relatively low, which increases the risk of manipulation. When the liquidity is low (and even lower on individual exchanges) is it possible for larger traders – whales – to move the market in either direction. Whales contribute 70-80% of the traded volume on most of the altcoins, which enables them to manipulate the price either higher, by buying, or lower by selling.Lack of intrinsic value
Cryptocurrencies is the perfect asset class for speculative bubbles, since there is no intrinsic value of the individual coins. In comparison if somebody were trying to manipulate the stock price of a company, it will always (in theory) revert to the intrinsic value at some point, because everybody agrees that the value of a stock is the present value of all future cash flows. In contrast the market price of bitcoin is determined by supply and demand, without a common reference point on how to value bitcoin.
Most retail investors are quite meticulous when entering a trade, analyzing whether the market price they are about to buy or sell is too high or low. You often base this analysis on technical analysis or a more fundamental understanding of the token’s application. This is a quite common strategy, but it does not apply to the whales. Whales are ruthless, a price will never be too high or low for them. The prices might go up +200% but it will never be too late for them to manipulate the price even higher and vise versa.
This is also known as pump and dump.
So what can you do and make sure you are not getting eaten by the whales? There are two strategies, an active and a passive strategy.
The active strategy is called “whale watching”, which might be obvious based on the name, where you monitor the trades of the whales. The purpose is to understand the pattern of the whales and put you in slipstream of the smart money which will enable you to ride the roller-coaster on the same side of whales.
The passive strategy is not to panic and get fooled when the whales initiate pumps and dumps, stay patient and hold.
Very few people are aware of this so please share the message!