Crypto Market Manipulations: The Types to Look Out for and Ways to Avoid Them

The cryptocurrency market is easily manipulated due to high liquidity, which is also one of the reasons for the volatility of cryptocurrencies. In order to stay safe in the Crypto World, you need to be able to recognize and avoid manipulations.

In this article, we will find out how to do this.

Types of Market Manipulations

There are various ways to evoke emotion in traders and investors, but 4 of them are used most often. Let’s see what those are.

Wash Trading

This is a type of trading where large holders sell themselves a certain asset in order to mislead retail investors, creating the illusion of activity. There are two main reasons why people use wash trading:

1. Creating visibility of activity or demand for some currency/trading pair.

   
   

2. An artificial increase in trading volumes in order to pay the exchange, disguising it as a commission.

A good example of wash trading is the NFT market. 2021 was the year of the NFT fever, which created a perfect environment for both wash trading and money laundering through self-financing trading.

NFT purchases were often funded either by the sellers themselves or by those who funded the sellers. The number of such transactions reached several hundred, according to Chainalyses.

Pump&Dump

An eternal classic – pumpers spread information that creates a sense of a coin with great potential among investors which increases the demand for the asset and with it, the price. When the price reaches the desired level, pumpers sell the pre-stored assets to "greedy" investors.

The main ways to cause Pump&Dump:

1. The hype. “This is the next Bitcoin”, “Ethereum killer”, and other loud statements create optimism among investors, but in most cases, it is just speculation and is more of a red flag than a reason to buy.

   
   

2. Price jump. If a no-name token is growing rapidly in a short time, then you should be more careful. The sharp increase in the price is always suspicious since someone could make it on purpose.

   
   

3. News Cycles. Positive news coincides with major whale purchases. This creates a sense of “smart money”, successful event trading, and “insider whales”, which in turn forces traders to buy more.

Bear Raid

This is a type of manipulation when large players open short positions and begin to spread fake negative news about the asset. FUD will provoke panic among investors, and they will begin to close long positions, which will be good for short ones. How does a typical bear raid work?

1. Start FUD.

2. Open several large short positions.

3. Continue to panic.

4. Fix income.

   
   

To counter this type of manipulation, it is important to diversify your sources of information and distinguish between justified negatives and FUDs.

Spoofing

Spoofing is a method of manipulation through the placement of fake orders that are canceled before execution. Since one of the basic indicators of a trend for traders is the number of buy and sell orders, fake orders provoke decisions that are beneficial to the manipulator.

How to Resist Manipulators

The good news is that in order to receive income, investors do not have to fight against manipulators – it is enough to be able to protect themselves. There are some tips that will help you:

• Verify information: You need to research multiple sources. You can follow prices on TradingView, Coingecko, and Coinmarketcap, along with well-known publications, Telegram channels, and Twitter accounts. It is worth checking every piece of news that influences the investment decision.

• DYOR: Thorough self-research is what builds faith in an asset and helps to ignore FUD. Watching the news (taking into account the previous rule) will allow you to change your attitude toward the coin in time.

• Diversify: Diversifying your portfolio with stablecoins or strong assets will reduce the impact of price manipulation on weaker coins.

• Be rational: Since the main goal of manipulators is to play with your emotions, the investor must take everything that happens in cold blood.

• Strategy: You should have a clear strategy that includes entry and exit points, short-term and long-term positions, fundamental analysis, and faith in the chosen asset. All decisions must be made in accordance with the strategy.

These simple rules will help reduce the influence of manipulators and make emotional provocations less effective.

Conclusion

The main goal of participants in financial markets, and in particular, the cryptocurrency market, is to make income.

Different players use different methods for this: someone honestly reaches their goal through research, mistakes, and long-term strategies, and someone deceives investors in order to manipulate prices and get an easy and quick profit.

So, it is important to be able to resist manipulation and rely on verified information and in-depth analysis.