According to a recent article published on Forbes, many cryptocurrency exchanges listed on CoinMarketCap and other such platforms are faking their data to drive the price of bitcoin. Such cryptocurrency exchanges which fake their trading volumes in order to attract more investors and traders to join their platforms are one of the reasons for the surge in the price of bitcoin.
According to Gavin Brown, an analyst from Manchester Metropolitan University’s future economics research center, cryptocurrency exchanges gain/attract a lot of users or customers from faking their trade volumes as such investors or traders are attracted by higher liquidity.
This is the same theory which applies to the traditional stock markets as well, however, the regulations in such traditional markets are very strict and it is somewhat impossible to provide such fake data or even if someone tries to do so, the punishment applied is quite harsh.
According to Gavin Brown, faking volumes or wash trading is performed by exchanges using trading bots or algorithms. The exchanges put together a bot for adding different layers to trade structures and hence they themselves are not engaging in such trades.
Gavin also added that if we compare the data of cryptocurrencies that is actually being traded on exchanges with the data that the exchanges provide, the actual volumes would be just a small portion of the showcased volumes.
The trading bots set a large number of buying orders in the order book due to which a lot of other (Real) traders get attracted to the markets after seeing that so many buying orders are placed in the market. However, at the last minute, the bots withdraw these orders.
Apart from this, trading bots or algorithms also perform real trading. According to research by Crypto Fund Research, over the last 6 months, the cryptocurrency market is full of algorithmic cryptocurrencies that account to around seventeen in number. Out of these seventeen, around forty percent are the hedge funds that have recently come into view.
At the end of the publication, the writer explains that the recent surge in the price of bitcoin was because of such trading robots. It is being believed and said by Landsberg Sadie, CEO of BCP Group, that a single order to purchase 20,000 BTC was placed by an anonymous buyer who used trading bots or algorithms on three cryptocurrency exchanges namely Coinbase, Bitstamp, and Kraken. He also mentions about the synchronized volumes on the three exchanges which amount to around 7000 BTC in an hour of time (at the time when bitcoin spiked upwards).
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