How to Identify Crypto Market Manipulation

When discussing cryptocurrency safety, we often talk about watching for signs of market manipulation. But what is market manipulation exactly?

Market manipulation is the artificial movement of cryptocurrency prices for a nefarious reason, and it can be done in many ways. Read on to learn more so you don’t become a victim of market manipulation.

What is Market Manipulation in Crypto?

Market manipulation is defined as any investment practices which are done for the purpose of deceiving potential investors. This includes everything from artificially changing the price by trading deceptively, or creating hype based on transactions that aren’t actually happening.

If you think market manipulation sounds bad, that’s because it is. Not only does it lead to millions of dollars of losses each year, but it can also bankrupt individuals and companies from all walks of life. What’s worse is that it is very hard to prove, meaning many perpetrators get away with it.

How Does Market Manipulation Happen?

Market manipulation happens by using several deceptive trading tactics, which we mention below. It is important to note that the more popular a commodity is, the harder it is to manipulate, which is why cryptocurrencies are especially vulnerable, as most are small enough to be manipulated.

1. Pump and Dump

A pump and dump scheme is one of the most common market manipulation tactics in crypto. Investors hype up a token they own to encourage others to buy it before ultimately dumping their investment—leaving those they convinced holding an empty bag of worthless cryptocurrency.

2. Poop and Scoop

The poop and scoop is the opposite of a pump and dump scheme. Investors purposefully talk down about a commodity in hopes that the price will drop and they can buy several shares at a discount.

3. Wash Trading

Wash trading is the practice of buying and selling the same cryptocurrency or commodity over and over to create artificial demand and drive up the prices. Once others join in, the original trader stops, often after selling their crypto for far more than they paid for it.

4. Order Spoofing

Order spoofing is the placement of several commodity orders used to move the price of the stock, but cancelling them after other traders have made decisions based on the new prices. This is the most common type of market manipulation in the traditional stock market.

Why Does Market Manipulation Happen?

Market manipulation happens as the result of greed. It is usually perpetrated by creators or early investors of a cryptocurrency or commodity, who invested solely to make a profit and not because they believed in the product they were investing in.

Unfortunately, market manipulation happens even more in the cryptocurrency world than in the fiat trading world. Make no mistake, though, market manipulation is illegal in both crypto and fiat trading; it is just harder to prove in crypto, meaning some individuals get away with it.

However, when individuals are caught, it doesn’t matter where or how they were manipulating; most end up in jail and with hefty fines. Justin Sun is a prime example of this, and he has (and still is) being investigated for his suspected involvement in a variety of pump and dump schemes.

Signs of Market Manipulation

There is no “sure” way to spot market manipulation, but there are several signs that can indicate it may be happening. In our opinion, only one of the following being true may just be chance, but if the cryptocurrency you want to buy is experiencing 2 or more of the oddities below, it is likely market manipulation and you shouldn’t buy.

1. A sudden, unexplainable spike in price.

2. Increased activity/mentions of the cryptocurrency on social media

3. Celebrities randomly mentioning a cryptocurrency when you’ve never heard them mention crypto before.

4. Grandiose claims of how much return you can expect to receive in a specified time frame (no real project can promise this!)

5. Someone is pressuring you to buy the token “now” before you understand what it is you are buying.

6. The token is popular, but no one can explain what exactly the token does.

7. Unusual spikes in trade volume you can’t explain.

Again, none of the above proves market manipulation; they are just red flags that may indicate it. If you see any of these, don’t ignore them, especially if you spot more than one.

What to do if You Suspect Market Manipulation

If you suspect market manipulation, the most important thing is that you need to ensure you don’t purchase or invest. If you are already invested, cash out immediately, before things get worse.

After that, warn your friends and family. If you’re close to them, we recommend calling them and advising them to cash out. If too many are involved, a social media post might be a better idea, just know that some websites work to suppress financial-related posts in an effort to suppress market manipulation—meaning your message could get lost.

After that, you should report the suspected market manipulation to your local law enforcement. Most countries have a website or hotline where you can report scams or fraud, and market manipulation DOES qualify. If you can, before making your report, do what you can to gather evidence. This can be something as simple as a screenshot of the social media posts you’re seeing, or the promises the token creators are making. Sadly, these investigations take months, which is why we recommend cashing out first thing—because you may never get your money back otherwise.

Not to mention that the government won’t persecute all the cases reported—there are simply too many. Rather, they will only persecute the large perpetrators who are easy to find and leave the rest to flounder on their own (they will warn the public). This is also why we recommend calling friends and family directly, because by the time they hear of the government’s stance, it will likely be far too late for them to save themselves.

Remember, if it sounds too good to be true, it probably is. Don’t invest.