Experienced traders have long learned to use programs that facilitate the process of trading. These can be either semi-automated trading advisors, with the help of which it is possible to make the right decision or fully automated bot programs, and they have caught the attention of journalists.
On October 2, The Wall Street Journal published an article about how automated bots manipulate the prices of digital assets. In this case, they were talking about crypto exchanges.
For those who trade on Forex, trading advisors, bots, robots, and the rest are no novelties. These programs, as a rule, track the price chart of an asset and find the optimal point to enter the market. Fully automated software does not involve the intervention of the trader in the bidding process. It is noteworthy that on traditional stock exchanges (securities trading) such actions are prohibited. The New York Stock Exchange regularly monitors the correctness of trading operations and punishes violators.
In the process of development, crypto exchanges have taken a lot from traditional exchanges. Crypto traders use technical analysis in the same way and are using software. On crypto exchanges, however, robots are not always used for legitimate purposes. The Wall Street Journal believes that automated advisers have usurped crypto exchanges and successfully manipulated the price of virtual assets: “Everyone knows about the hard Bitcoin swings, but not everyone knows that unscrupulous traders are sometimes behind this.”
Andy Bromberg, co-founder and CEO of the CoinList startup, told The Wall Street Journal that “This sort of activity is rampant in the market right now. It hurts the market’s reputation, and it hurts individual investors.”
The bots strategy in the cryptocurrency market, as a rule, boils down to the creation of "fake" orders. Orders are formed with one goal in order to provide the illusion of a rush around a digital asset. Thus, the price is manipulated in the right direction, deceiving other investors. The fake orders are simply canceled at the right time. This situation is hard to imagine on regulated traditional stock exchanges. Back in 2010, stock and futures exchanges outlawed such trading tactics, but on the crypto market, it is almost the norm.
Malicious strategies have forced more than one investor to part with a large amount of money. For example, the Digital Virgil Capital hedge fund lost a lot of money in ETH at the beginning of the year due to the actions of its competitors' automated trading robots. After that, the fund, worth $80 million, had to acquire its own bots.
Stefan Qin, managing partner of Virgil Capital, told The Wall Street Journal that the fund currently uses software bots on many crypto sites. And the main task, in this case, is to beat the bots of the competitors.
A well-known crypto trader Kjetil Eilertsen, who has been trading Bitcoins since 2011, is confident that the ability to use automated advisors on the crypto market should be made publicly available. And regulatory issues have nothing to do with it. “If everyone has the ability to manipulate the price, no one will manipulate it.”
Kjetil Eilertsen himself developed the Quatloo Trader bot program. The advertisement said that it is "the best tool for manipulating the crypto market."
On the one hand, the program simplifies the interaction of the trader with the market by offering built-in tools, which is a generally accepted and completely legitimate practice. On the other hand, the developer himself admits that he added several “manipulative” functions in relation to the price of an asset and called them “whale tools.”
Bots on crypto exchanges have attracted the attention of New York prosecutors. Attorney General of New York, Barbara Underwood, expressed the view that there were too many manipulators in the crypto market. At the moment, the whole market is very vulnerable and subject to numerous risks, and its integrity is in danger because unfair actions occur everywhere.
This problem is now more urgent than ever since there are no rules prohibiting the conduct of manipulative trading and the use of fraudulent trading strategies.
According to The Wall Street Journal, just last week, $90 million of illegal funds were sent to crypto markets through various exchanges.
It seems that crypto exchange owners need to seriously think about preserving their own reputation and introduce internal rules and restrictions following the example of traditional trading platforms.