For many, it is no longer news that the cryptocurrency rate is very volatile, in contrast to the classical forms of investment (for example, securities). The value of some crypto-assets may fall or rise in a matter of hours. Such manifestations of the change in course can be explained by the hypothesis of market efficiency, as well as forms of manipulation of the crypto-rate in accordance with it.
An efficient market hypothesis
They talked about the hypothesis of an effective market in the beginning of 1970, five years after its creation. The most popular supporter of the hypothesis is the well-known entrepreneur Warren Buffett, who, by the way, has repeatedly favorably responded to the creator of the hypothesis, the American economist Eugene Fama (Nobel prize winner in 2013, economics).
The market efficiency hypothesis is an economic theory set forth and formulated by Eugene Fama in 1965. The hypothesis says: all essential information immediately and fully affects the rate and value of securities (assets), and immediately affects the market.
From this we can conclude that the high volatility (variability) of the cryptocurrency market, the consequence of a large amount of information and the speed of its transfer between participants in the trading process.
Confirmation of the hypothesis can also be viewed from the list of today's manipulations in the crypto-market. Most of the manipulative technologies with the course are based on the dissemination of insider information, correlation with facts, as well as information about the actions of whales (large traders).
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Manipulations in the cryptocurrency market: technologies
1. Spoofing for crypto-course. Opening and placing multiple orders to buy or sell an asset, but without the goal of their full implementation. The order is closed until full execution.
- distribution of information about the popularity of cryptocurrency (token);
- user demand analytics on stock-exchanges;
- a positive impact on the course, as a result of the illusion of demand (if the purchase order), or vice versa, to reduce (if the sale).
2. Fictitious trading (mirror orders). Market manipulation when the seller and the buyer are the same person (group of people). The seller opens several purchase orders at a high rate, and then buys the cryptocurrency. In this case, the manipulation can be performed in several stages, reducing the time between transactions and increasing the number of orders and price.
- drawing attention to the asset (especially at the time of the first month of existence);
- price correction (liquidity), when the course cannot break through the psychological barrier (the price above which investors do not want to pay because of their own experiences, lack of confidence in the asset);
- artificially increasing the average daily trading volume to achieve a higher place in the ranking (especially important in the case of manipulations with the increasing popularity of a single stock-exchange).
3. Pump&Dump. Buying cryptocurrencies at a low price and psychological manipulation of the information space in order to increase popularity, demand and sell more expensive. One of the most popular manipulations, which fully confirms the hypothesis of market efficiency. To popularize the asset can be used: fake press event, facts correlation, psychological pressure on the public.
- а) personal gain
As can be seen from the points listed above, the cost of cryptocurrency is subject to high variability, which is explained precisely by the market efficiency hypothesis and the use of information to change prices. The human factor, as well as the fear or confidence of investors, are used daily by manipulators to influence the course.
Editor: Godfrid Brower