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I Would Be Shocked If Bitcoin Prices Weren't Manipulated

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Are Cryptocurrency Prices Manipulated? (Shutterstock)

According the FT and Bloomberg the Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies.  Well, duh?  Of course they are.

Whether the activities meet the legal definition of manipulation  or can lead to a criminal indictment remains to be seen, but I’d be shocked if there wasn’t manipulation of prices occurring.  Never forget Rule #2 of the 3 Rules of Bitcoin – "There are no rules!"

I would expect to find problems with price manipulation because

  1. There are allegedly several very large holders of Bitcoin (and other cryptocurrencies).  The concentration of wealth gives them the incentive to push prices higher.  In the stock market, anyone holding a large proportion of the outstanding security is subject to additional rules and scrutiny.  No such protections exist for cryptocurrency.  The person telling you about how great it is, may be very incentivized to see the price go higher.  Whether or not this falls under the definition of manipulation that is being investigated, assume it occurs and assume it distorts price.
  2. Miners, some of which may have large positions, are also motivated to see prices rise as it should mean more money for them.  They earn bitcoins for mining, so it is logical for them to want higher prices at any given time for the same amount of computing work.  That is particularly true if mining activity is at all linked to price action.  Is there a correlation between activity, which should award miners with more bitcoins, and price? I don’t know, but if so, that would motivate the miners even more.  Again, I’m not sure whether this activity, if it exists, would meet a legal definition of manipulation for any charges to be brought.
  3. We have seen and heard of manipulation in actual markets – from LIBOR to FX.  Many are actually regulated.  Here, to my knowledge, regulation is light if it even exists.  Some traders took the time and effort to establish accounts on various platforms to ‘arbitrage’ price differences.  They should be (and likely have been) rewarded for their efforts.  In a fragmented market, where many participants only took the time to set up on  one or two exchanges and didn’t have the patience or willingness to do more work to ensure price transparency, they likely pay a price that goes to those who did that.  But, like much else about crypto, I would be shocked if it ended there.   Why not try and ‘push’ markets around?  Create the dislocations?  It seems completely logical that someone would try to do this.  Again, I’m not sure this is manipulation (unless done in the futures), just like I wouldn’t think it would be criminal manipulation to attempt to move the price of Beanie Babies on E-Bay (beannie babies ebay is apparently not an uncommon search).

I am more shocked that anyone would be surprised that manipulation likely occurs in cryptocurrencies and their pricing. I will be interested to see how this investigation can proceed on things that occur on platforms I don’t view as regulated  exchanges on products that I didn’t think were securities.

For now, this is yet another reason to expect cryptocurrencies to continue to drift lower.  They are losing support and more and more of the issues with them are being exposed – further slowing the rate of adoption.  Even knowing that manipulation occurs, whether indictable or not, doesn’t mean I can’t get bullish cryptocurrencies again, but certainly not right now.  I would be more confident the market can weather these times of headlines if crypto had been able to rally after the #Consensus2018 conference, but it didn’t.

I expect the headlines surrounding ICO’s and ‘tokenization’ in general will be equally problematic in terms of encouraging new investors to get involved or existing holders to add more.

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Are Cryptocurrency Prices Manipulated? (Shutterstock)

According the FT and Bloomberg the Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies.  Well, duh?  Of course they are.

Whether the activities meet the legal definition of manipulation  or can lead to a criminal indictment remains to be seen, but I’d be shocked if there wasn’t manipulation of prices occurring.  Never forget Rule #2 of the 3 Rules of Bitcoin – “There are no rules!”

I would expect to find problems with price manipulation because

  1. There are allegedly several very large holders of Bitcoin (and other cryptocurrencies).  The concentration of wealth gives them the incentive to push prices higher.  In the stock market, anyone holding a large proportion of the outstanding security is subject to additional rules and scrutiny.  No such protections exist for cryptocurrency.  The person telling you about how great it is, may be very incentivized to see the price go higher.  Whether or not this falls under the definition of manipulation that is being investigated, assume it occurs and assume it distorts price.
  2. Miners, some of which may have large positions, are also motivated to see prices rise as it should mean more money for them.  They earn bitcoins for mining, so it is logical for them to want higher prices at any given time for the same amount of computing work.  That is particularly true if mining activity is at all linked to price action.  Is there a correlation between activity, which should award miners with more bitcoins, and price? I don’t know, but if so, that would motivate the miners even more.  Again, I’m not sure whether this activity, if it exists, would meet a legal definition of manipulation for any charges to be brought.
  3. We have seen and heard of manipulation in actual markets – from LIBOR to FX.  Many are actually regulated.  Here, to my knowledge, regulation is light if it even exists.  Some traders took the time and effort to establish accounts on various platforms to ‘arbitrage’ price differences.  They should be (and likely have been) rewarded for their efforts.  In a fragmented market, where many participants only took the time to set up on  one or two exchanges and didn’t have the patience or willingness to do more work to ensure price transparency, they likely pay a price that goes to those who did that.  But, like much else about crypto, I would be shocked if it ended there.   Why not try and ‘push’ markets around?  Create the dislocations?  It seems completely logical that someone would try to do this.  Again, I’m not sure this is manipulation (unless done in the futures), just like I wouldn’t think it would be criminal manipulation to attempt to move the price of Beanie Babies on E-Bay (beannie babies ebay is apparently not an uncommon search).

I am more shocked that anyone would be surprised that manipulation likely occurs in cryptocurrencies and their pricing. I will be interested to see how this investigation can proceed on things that occur on platforms I don’t view as regulated  exchanges on products that I didn’t think were securities.

For now, this is yet another reason to expect cryptocurrencies to continue to drift lower.  They are losing support and more and more of the issues with them are being exposed – further slowing the rate of adoption.  Even knowing that manipulation occurs, whether indictable or not, doesn’t mean I can’t get bullish cryptocurrencies again, but certainly not right now.  I would be more confident the market can weather these times of headlines if crypto had been able to rally after the #Consensus2018 conference, but it didn’t.

I expect the headlines surrounding ICO’s and ‘tokenization’ in general will be equally problematic in terms of encouraging new investors to get involved or existing holders to add more.

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Disclaimer: Any opinions expressed are those of Peter Tchir. This info is for educational and/or entertainment purposes only, so use at your own risk. He’s not a broker-dealer or advisor of any kind.

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Disclaimer: Any opinions expressed are those of Peter Tchir. This info is for educational and/or entertainment purposes only, so use at your own risk. He’s not a broker-dealer or advisor of any kind.

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