A new Wall Street Journal report has stated that automated trading programs and bots are beginning to manipulate the prices of cryptocurrency on digital currency exchanges.
Automated trading software, a program that is uniquely designed to allow traders set specific rules for entry and exits of trades automatically is increasingly been deployed by sophisticated traders to take advantage of cryptocurrency market trends.
And while these trading programs are available for both traditional and cryptocurrency markets with many traders using them legitimately, there are now people who use these programs to manipulate the market.
Speaking on the cryptocurrency markets, the Wall Street Journal stated that lack of proper regulation has allowed automated trading programs to execute abusive strategies on a wide scale. Giving his opinion on the matter, Andy Bromberg, the president of CoinList noted that “this sort of activity is rampant in the market right now. It hurts the market’s reputation, and it hurts individual investors.”
Furthermore, WSJ stated that even $80-million digital currency hedge fund, Virgil Capital who are known to legitimately use automated trading software to trade on a number of exchanges around the world always have to deal with manipulative enemy bots.
In a recent report, Virgil was reported to have lost out on certain trades in Ethereum, after a manipulative bot targeted the fund. Giving an insight on the strategy used by manipulative bots, WSJ stated that
“The bot’s strategy was similar to ‘spoofing,’ a practice in which traders enter fake orders only to cancel them. The tactic, aimed at tricking other investors to buy or sell an asset by falsely signaling there is more supply or demand, was outlawed in U.S. stock and futures markets in 2010.”
Another example of manipulative trading in the cryptocurrency world cited by WSJ is the case of Kjetil Eilerstne who began trading Bitcoin in 2011. Having traded for some time, Kjetil developed a market manipulation tool dubbed “Quatloo Trader” Using this tool, he was able to execute several abusive strategies.
Eilertsen speaking with WSJ, noted that it would be quite pointless to ban manipulation in cryptocurrencies, instead he suggest that these manipulation tool should be made available to traders. According to him, “If everybody can manipulate, then nobody is manipulating. You can’t ban anything from people who are dedicated to doing something,”
It is important to note that similar programs aren’t allowed on traditional securities exchanges. As a matter of fact, the New York Stock Exchange regularly monitors its operations to fish out illegal trade activities, while punishing erring offenders.