Those of us who have watched the ticker tape recently have probably noticed something a little odd, however not unprecedented in Bitcoin's history. We look on with raised eyebrows as the orderbook is filled with coins on the sell side while large market orders wipe out existing buy orders, driving the price downward. In the past, large buy and sell orders have dominated digital currency markets and are a well-known manipulation tactic. We won't get into that too deeply here, but rest assured it does exist and saavy (and not-so-saavy) traders often use them to their advantage. Not only do large walls tip the scale of supply and demand in the trader's favor, but they act as psychological manipulation as well: Buyers who see a
BTC1000+ sell wall at the top of the orderbook will not believe the price will go up; furthermore they will feel powerless to do anything about it as that trader obviously has a larger bankroll. On the other hand, this manipulation puts a portion of the trader's coins at risk while revealing their tactics to the observant competition. It is a two-way street.
Market manipulation in traditional markets occurs by the big players. Here, Jim Cramer, former Goldman Sach's employee, admits to this (
http://www.youtube.com/watch?v=gMShFx5rThI). For a short primer on manipulation in the digital currency markets, one needs to look no further than The Book of Wolong (
http://pastebin.com/cqM71kes), written by an experienced trader who was responsible for the original Dogecoin pump and subsequent dump. Anyone who has traded altcoins has seen this playbook in action time and time again. Riding the coattails of these deep-pocketed traders and exiting trades before they do is rule number one. Knowing this, suggesting that manipulation is part of normal market activity is incorrect in many cases, especially with small market cap coins that have low liquidity and no real-world use. Trading altcoins, although highly risky, is useful for those who are curious about some of the greedier, nefarious players in these markets and what tactics they employ.
Bitcoin is more resistant to manipulation than altcoins due to its higher market cap, but experienced traders know that it does occur from time to time. With this in mind, we can focus again on the topic at hand. Who is the mysterious player that has pushed the market down recently? Unfortunately we will probably never know for certain. Whether it's one trader with deep pockets, a miner cashing out, a group of investors accumulating cheap coins on a private IRC channel, or simply an early adopter cashing out to buy a Porsche to impress his girlfriend, his actions on the market have been effective enough to raise the eyebrows of more than a few and cause further investigation.
What
is certain is the story that their activity tells on the ticker tape. Here's what I have noticed so far on Bitstamp.
- The player sells at major technical and psychological support levels (400, 380, 375, 360)
- The initial sign that he is working is a large market sell, in the neighborhood of BTC500-800. Sometimes they are split up into smaller orders, but they tend to occur within seconds of each other. This snaps up all of the buy orders immediately below the market price.
- Some time later come smaller market sells, on average 10 times less than the original market sells. These increase sell pressure and are intended to fool traders that a downtrend is imminent.
- Smaller traders eventually join in, effectively pushing the price down further.
- No evidence of buying or microbuying once the price evens out lower. He may be doing this on another exchange or OTC.
I've also noticed that when the price gets to a certain level, additional sales happen almost simultaneously. I saw this when the price level broke 370--instantly hundreds more coins were sold in two separate orders to push down further. Here's my half-baked theory: Either this player has one helluva trigger finger or he is using a bot. As someone with experience running algorithmic traders, the repeated strategy, "random" size of orders, and speed at which they are executed suggest that it is very possible. Just program it to wait for certain conditions in the orderbook, sell random amount x between z and y based on market price, wait a while, then sell x/10 as long as the price continues to drop. Give it a huge bankroll and let it go. The bot controller could analyze the market and set desired resistance levels for it to break while simultaneously shorting the market on other exchanges.
I am not one to believe conspiracy theories. This could be me overthinking in what is essentially a powerful bear market. I am one, however, to obsess about things that interest me, watch closely and gather evidence. I consider myself an honest and moral person. In an unregulated market I believe manipulation tactics should be called out and profited from. There is no doubt in my mind traders will figure out how to profit from whatever or whoever is causing this downward pressure on the market until this player becomes unprofitable. I have seen evidence of this already, indicating that those who can be fooled by this activity, have been. One thing is for sure, that another larger player is always off stage left, waiting patiently for his entrance.
