Bitcoin price manipulation is the act of buying and selling Bitcoin to control its price. This can be done by governments, large investors, or anyone with enough money to influence the market. By buying and selling bitcoin at strategic times, these actors can control the price and make a profit.
How is Bitcoin Price Manipulated
The price of Bitcoin can only be manipulated to a certain extent by large malicious actors. This does not mean that any attempt will be tinged with success. Indeed, this type of manipulation is the price action we saw with GME’s naked shorts. Naked short selling was blamed for the crash in GME stock price. In a naked short sale, a trader sells a security that he does not own and has not planned to borrow. This can artificially lower the stock price because the stock being sold is not available for delivery to the buyer. In the case of GME, this may have been done to depress the share price so that it could be bought out cheaply. There could be the same type of companies that short-sell Bitcoin in an attempt to manipulate its price downward. However, there is always a risk that an opposing firm will understand this position and position themselves against it, then it becomes a showdown for the direction of Bitcoin price, and market forces always reassert themselves after some time.
Why is Bitcoin Price Manipulated
In the case of Bitcoin, there may be political motivations for certain positions. Bitcoin is a candidate for global currency status. Its volume may not be equivalent to the trading volume of USD, but its liquidity and accessibility are increasingly comparable. You can have Bitcoin almost anywhere in the world and successfully convert it to the national currency of the jurisdiction you are in. Some more hostile countries like North Korea have also stolen, hacked, and traded large volumes of Bitcoin. It is not impossible to sometimes see actions targeted by a large nation that has enough capital to induce one direction or another in Bitcoin prices. Several seldom thought of motivations can be involved in certain market positions. More recently, FTX’s empty books also demonstrate that Bitcoin’s price can be suppressed by some form of fractional reserve. In the case of FTX, over a billion Bitcoins were owed to client accounts, but the exchange effectively had no more Bitcoins in stock. This means that the price of Bitcoin was stifled by a sell-off that should not have taken place, unbeknownst to the real holders who had taken a HODL position. In this case, greed will have been involved in price manipulation.
Who are the Players in Bitcoin Price Manipulation
The players in bitcoin price manipulation are varied and include governments, large investors, and anyone with enough money to influence the market. By buying and selling bitcoin at strategic times, these actors can control the price and make a profit. There may also be concentrated group efforts that engage in pump and dump, a form of organized collective fraud that rallies a group of buyers to take stock of the exchanges, to create FOMO, and to entice investors to detail to do so. buys at the price appreciate, then dump it all on them and usually lets the price crash with all the stocks returning in abundance.
What are the Effects of Bitcoin Price Manipulation and How to Protect Yourself
Bitcoin price manipulation can have a number of negative effects on the market. These include reducing capital outflow, increasing inflation, and causing artificial volatility. In addition, players in the market can use bitcoin to manipulate prices in their favour, making a profit at the expense of others. In the long term, it is unlikely that manipulation can hold up over time. Typically this kind of manipulation takes advantage of momentum in one price direction or another or occurs over a short period of time. Market forces always end up reclaiming their rights. If you want to protect yourself from bitcoin price manipulation, there are a few things you can do. Firstly, it is important to understand how the market works and who the players are. Secondly, you should never invest more than you can afford to lose. Finally, always use a reputable exchange that follows security best practices.