Cryptocurrency and Market Manipulation – Whales and the Sell Wall

 

Cryptocurrency, Market Manipulation, Whales and the Sell Wall
Because of your interest in trading cryptocurrency and the crypto market the chances are high that you have heard about the suspicion regarding market manipulation in the mainly unregulated crypto markets.

In this regard you probably have heard about Whales.  People regularly blame whales for (huge) drops in prices of cryptocurrency. A whale is a person or a group of people cooperating to hold a significant percentage of a cryptocurrency to use it to their advantage. Hereby manipulating the price of cryptocurrency.

In the same regard you probably have heard about Sell Walls. We will specify a Sell Wall in combination with the action of a whale in the following example. In the following example a whale uses a sell wall to manipulate the market.

 

Bob, Jake and Richard, a Sell Wall and Crypto X
Bob, Jake and Richard, are a group of friends. Bob, Jake and Richard each have $1.000.000 to invest and after doing some due diligence together they would like to have $3.000.000 of Cryptocurrency X (Crypto X).  The group of friends decide to cooperate together to get a good price for Crypto X.

The group of friends all take $250.000, combine it to a pool of $750.000 and buy Crypto X. Now they have $750.000 worth of Crypto X and place a huge sell order. The group made sure Crypto X has the right volume and marketcap to make an impact with the sell order on the order book.

The huge sell order might cause (slight) panic with buyers/sellers in the market. This might happen because the buyers/sellers expect difficulties for buying pressure to take down this new (huge) sell wall. Another reason could be that buyers/sellers in the market might assume that there is new information available that caused this sudden sell pressure. In the (slight) panic that follows the assumptions people decide to sell Crypto X. People selling Crypto X is followed by even more selling who respond.

Now Bob, Jake and Richard, the group of friends, can buy crypto X for a lower price.

 

Something to consider is that whales don’t always buy cryptocurrency in the known exchanges. There are possibilities to engage in over the counter trading and through dark pools, private forums for trading cryptocurrency. Buying cryptocurrency this way makes it possible to buy significant amounts of cryptocurrency without being noticed by the public eye. It could be part of the strategy of the whales to not make the general public notice very large buy orders. This because perhaps they don’t want to give away signals of the potential market manipulation.

 

 

If you are interested in understanding how trading bots are able to manipulate the market in crypto please take a look at this article

For an explanation of cryptocurrency / Bitcoin CFD trading click here.

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