How is the crypto market manipulated? 6 ways to protect yourself – MUO – MakeUseOf

What do you think when a crypto price rises and falls almost immediately? This is only sometimes the result of regular market volatility. Often, market manipulators cause market prices to suddenly rise and fall to scam you. These bad actors go all the way and use different tricks to achieve their goal, putting you in a bad position in the market.

In this article, we will reveal some market manipulator tricks and show you some steps you can take to lessen the effect of crypto price manipulation on your trading balance.

What is Crypto Market Manipulation?

A deliberate attempt to influence the value of assets and interrupt a crypto market trend is known as crypto market manipulation.

In crypto manipulation, bad actors create illusions to inflate or deflate market prices in order to grab profits. For example, they could spread fake news, launch a series of pressing tweets, create fake orders, spread fake market signals, speak negatively about an asset to induce fear in traders, etc. Therefore, you need to know how to spot and fight these manipulators. tips, which you will discover as you go.

Market manipulation has caused great harm to crypto investors and the crypto market in general. This makes the market unnecessarily volatile and dangerous for investors, an issue that has caused many traders and investors to lose faith in crypto.

4 Ways The Crypto Market Can Be Manipulated

Below are popular ways to manipulate the crypto market.

1. Pump and dump

The pump and dump is one of the most frequently used market manipulation strategies. It happens when an individual or a group of people conspire to inflate the price of a crypto asset. Price inflation creates noise and entices people to buy the asset. Bad actors then abruptly withdraw their funds to make quick profits. The pullback deflates the price sharply and results in sudden losses for many who have been cheated. The main targets for the pump and dump are cryptos with low trading volumes.

2. Impersonation

Crypto spoofing involves manipulating the crypto market by issuing false orders. This method consists of placing large buy or sell orders intended to be cancelled. Spoofing makes the market favorable to trade, and as soon as retail traders send their orders and the market moves in the desired direction, they withdraw their profit.

Usurpers try to sow Fear, Uncertainty and Doubt (FUD) to get you to trade in their favor. Another way to do this is to try to influence people’s decisions and market sentiments through various seemingly unrelated social media posts. Spoofing was a constant problem in Bitcoin’s early days, and it’s still common on less regulated exchanges.

3. Wash the trade

Wash trade occurs when a group of traders quickly buy and sell cryptos to generate high trading volumes. This act is performed to attract traders and help such an asset to attract attention. Multiple entries feed the market with misleading signals that distort the value of an asset and further incentivize investors to trade based on the false signal.

Forex traders need multiple accounts to perform market manipulation. They sell crypto with one account and buy it with another account. Therefore, wash traders trade with themselves. This act is possible with unpopular cryptocurrencies and smaller exchanges with low liquidity and low trading volume, because their trading activities are not so much. The wash trade can help them increase trading volumes and earn more commissions.

4. Stop chasing

Stop chasing is an attempt to force traders out of their trading positions. The action can drag an asset below the price where traders have placed many stop-loss orders. Bad actors initiate multiple sell orders to drive down the price of crypto and hit stops. This leads to high crypto volatility and gives attackers a chance to buy at a lower price.

Stop hunting is a strategy that financial institutions and market makers use to make short-term profits. Once they discover a group of stop-loss orders around the same price, they will force the market to place the orders and move traders out of their positions.

6 Ways to Protect Yourself Against Crypto Market Manipulation

Below are a few ways to guard against manipulation of the crypto market to some degree.

1. Research and multiple consultations

Do your research before you trade by confirming prices from different reliable sources. By using multiple crypto exchanges, you can compare asset prices and data for a relative relationship. For example, if a price is skyrocketing on one exchange, cross-checking with another can reveal the true price and help you avoid a draw or a pump and dump.

The trend, they say, is your friend. Historical trends provide precision in trading because the data can be consistent and reliable. Bad actors often prey on recent market trends, but can struggle to misrepresent historical trends. Trading based on prevailing trends could help reduce the rate at which market manipulation affects prices – manipulated trends don’t last.

3. Always follow your trading plan and risk management practices

Following a trading plan can save you from trading based on momentum and social media hype. Your trading plan should include your guidelines for trade execution and risk management strategies. With this in place, you can trade based on a pre-determined market condition.

That’s not to say it can completely immunize you against market manipulation. However, this will put you in a better position than someone who trades on a whim.

4. Opt for long-term investments

Most market hype is short-lived, and those who HODL their crypto experience no negative effects from short-term traders.

5. Use trusted exchanges and coins

Make sure to trade on trusted exchanges that have a good reputation. New exchanges and coins with less trading activity are generally susceptible to market manipulation. This is not to say that attackers cannot manipulate market prices on exchanges with large trading volumes; they are only discounted from newer exchanges.

6. Diversify your portfolio

Given the issue of market manipulation, putting all your eggs in one basket may not be a good idea. Studying different crypto asset prices to get predictive patterns of their behavior to diversify your portfolio is a good idea. This not only helps you reduce the effect of possible market manipulation; it also helps to mitigate investment risks.

Your portfolio should be a healthy mix of assets in which you have some confidence. For example, we mentioned that low market cap coins are susceptible to manipulation. So, if you need to trade low cap cryptos, combining them with high market cap cryptos might be a safer option.

On the other hand, suppose you also need to use exchanges with low trading volumes and low liquidity for the need to trade a particular coin. In this case, we advise you to have another wallet with exchanges with higher transaction volumes.

You cannot totally avoid price manipulation

Not all sudden and major market price fluctuations are the result of price manipulation. The market is generally volatile and there is a lot going on every minute. So make sure you always trade with a solid trading plan and implement various risk management strategies.

The crypto market is still young and largely unregulated. As a result, as new cryptocurrencies are introduced, they are usually driven by market hype, while some developers also try different ethical and unethical methods to popularize their coins.

When trying to trade and invest in cryptocurrencies, prioritize and stick to your trading analysis and strategies, don’t follow the market noise. It is better to stay out of the market than to try to trade a loud and noisy market consistently.

?The information on this website does not constitute financial advice, investment advice or business advice, and should not be relied upon as such. MakeUseOf does not give advice on trading or investment matters and does not advise buying or selling any particular cryptocurrency. Always perform your own due diligence and consult a licensed financial adviser for investment advice.

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