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Yes. And it’s not just Bitcoin. It happens to other financial securities in different markets too. Be it forex, stocks, futures, cryptos etc. It’s a common money-making tactic which isn’t new, uncommon or illegal. Now, let’s drill down a little more into this whole manipulation business to get a better understanding. BUT HOW? First things first. It’s worth noting that a small volume trader without an overly impressive capital in his trading account won’t be able to manipulate anything. Not even all these new pump-and-dump groups, that are by the way getting traction in the crypto space, will have enough purchasing power to shift the needle by any significant stretch as they please – that’s why you should avoid them and stop wasting your time on this. Although, this of this example: I’m going to use unrealistic numbers, but it will all make sense in the end. A new cryptocurrency that has just been launched will have a tiny market cap (as it usually happens). For this new coin of ours, there’s 100,000 of tokens that make up the total supply but only 15,000 of them are circulating at the moment. However, there’s more tokens available to be purchased as we speak – exactly 14,000 of them but nobody wants them. The coin is currently worth $3.50 on the market and that’s how much you have to pay to buy just one (impossible in our unrealistic example, but let’s carry on). This dynamic creates a market capitalization of $52,500 for our coin. That’s extremely tiny and the price could be easily manipulated, right? As a simplified version of easily understood rule of thumb, remember this – the bigger the market cap, the deeper your money pockets have to be because it’s more difficult to manipulate the price in such circumstances. MARKET CAP CALCULATION = COIN PRICE * CIRCULATING AMOUNT = $52,500 There’s already $52.5k put into this coin in some way – someone had bought tokens or contributed in any other way that had helped to create the market cap of this size. At least in theory and it doesn’t have to reflect these numbers as some market caps could be inflated artificially. Now, I believe this coin is worth taking a shot and I’m planning to put $50,000 into it. I go ahead and buy just over 14,000 units of our coin at $3.50 each. This roughly amounts to the initial investment of $50k. The circulating amount now stands at 29,000 tokens after this purchase. The market cap grows to $101,500 with just one buy order on the order book. What do you think happens to the price of our coin? I will not, deliberately, answer this questions – please try coming up with your own answer in the comments below! 🙂 HOW ARE BITCOIN AND OTHER SECURITIES BEING MANIPULATED IN TERMS OF THEIR PRICE? We’ve already established that you have to be equipped with some seriously deep pockets to move the price and the depth of them depends on the market cap size. That’s why only big players (whales) or institutional entities (hedge funds, banks etc.) are able to manipulate the price of any security because they are able to put it a required amount to do so. If you’re a public company CEO and one of your responsibilities is to implement various tactics that aim to increase the cash flow on a regular basis, you would be required to do so also by taking advantage of your company being listed on a stock market. How? In the above accumulation cycle, you’re responsible to accumulate as much of your own shares as possible without pushing the price higher. You basically buy them back from the public at a low price point and try to do so in a timely fashion. You need to be careful not to buy too many too quick, otherwise you will fill all the sellers and push the price higher. You just need to be buying what’s being offered by the sellers within this very accumulation price range on the order book and nothing outside it because the price would start climbing. This can go on for as long as there’s sellers matching your buying price limit. Once you exhaust the vast majority of sell orders within the trading range, you’re ready to put it even more money on the line and start exhausting the bears outside the range. That’s when the price sky rockets in a short period of time on high volume as the supply is being absorbed by the demand and the price enters the markup phase. This supply absorption takes a while to find the balance between the sellers and buyers. During this phase, the price will continue to climb until it either hits a somewhat equal amount of sellers that decide to get rid of their holdings to capitalize on attractive gains (to even out your buying orders) or the large buyer himself decides to stop. The latter usually happens when large players are confident enough they could squeeze out more by implementing the same tactic with occasional stops just to initiate a re-accumulation cycle (without changing the market sentiment). Now, rinse and repeat until the sentiment is affected to the point it could cause an enormous sell-off among the market participants tempted by their recently made gains. There’s an extreme accuracy required to execute this properly and, apart from a huge capital, you need to have a solid team to calculate the current market book situation (sell orders vs your buy orders) so you don’t cause a global sell-off which could result in a drastic price drop. Once you think you’ve reached the absolute top, you now start selling your shares to the public at a high price point (making those bucks). This is called a distribution phase and since you’ve accumulated so much that you could, somewhat and to a degree, cover the majority of buy orders in this new trading range, you can literally exhaust the buying side on the order book to initiate the markdown phase which usually begins when you’ve sold-off most of what you had previously accumulated. How can you spot that on a chart? First, you need to identify an accumulation trading range. This is usually found at the bottom of a substantial downtrend where the price starts moving sideways. Secondly, look out for any significant volume spikes that’s not being reflected in the price. An example of that would be a situation when the volume soars but the price stays untouched or moves just a little. In normal circumstances, an increased volume is usually followed by a sharp and substantial price movement. When you see volume spikes like those, next thing you look out for is the volume contraction over the next few candles This is quite common as the institutional/whale buyer needs to reassess where they are on the order book against the sellers to make sure they don’t start filling sell orders from outside the range. Because of this “waiting period”, sellers continue to put downward pressure and because the large buyer temporarily disappears from the order book, the price tends to rapidly travel to the bottom of the range on increased volume. If you’re charting with Japanese candlesticks, here’s three typical candles that occur on such volume spikes that might indicate the accumulation phase: Small real bodies with long wicks on top and bottom (spinning tops) Medium real bodies with long wicks on top or bottom Large real bodies with long wicks on top and/or bottom Dojis I use these very spikes as my ultimate confirmation that the price confined within a trading range could be manipulated by institutions/whales. As I’ve mentioned earlier, it takes a lot of resources to be able to pull it off properly and not even then is it guaranteed. Go too far on one end, and you will exit the range. Go too small on the other end, and the sellers will push the price below the range. And everything happens in real time. That’s why we observe such weird candles with long wicks on the chart because it’s extremely difficult to calculate an accurate ratio of buyers vs sellers for a market of this scale. The above diagram represents this behavior on the Bitcoin/USD pair from late June early July last year when Bitcoin had reached its $3,000 all-time high. Because the price had begun to consolidate for more than a month (which might be perceived as abnormal as most assets go through a decent correction after reaching an ATH), one could have presumed that BTC had entered the Wyckoff’s accumulation phase. They wouldn’t be wrong to start viewing the market this way considering the volume spikes/contractions, weird candles and price action that doesn’t reflect the volume and is confined within a range. Such rapid moves are usually accompanied by increased volume in normal circumstances. Logically thinking, that’s because a lot of people should be getting involved on the bullish side of the order book. That’s not the case in our example. As you can see on the chart above, the volume expands a little (as more people join the large player and hop on) but it doesn’t reflect the actual price movement. Bitcoin pushes above the trading range and goes from $3,000 to $5,000 to score another all-time high over the course of one month. That’s a 70% move up north. To put this into a monetary perspective: If you were required to use $150,000,000 of your own cash to be able to pull this off, you’d end up with $105,000,000 net profit. Not bad if you ask me. Now, I don’t know how much money had to be put on the line to cause the price to go up like it did in our example. Perhaps the move was caused by the growing popularity of Bitcoin at the time and not because someone’s manipulation. Who knows. It’s not like anyone will tweet about it anyway. However, what I do know is that the above chart paints a classic Wyckoff’s accumulation cycle. We can spot the buying climax, automatic reaction, secondary tests, spring, last point of support and then supply and a substantial rally on mediocre volume. This is enough for me to recognise the cycles and initiate feasible trades at the right time. Whether it’s manipulated or not. Conclusion They say money is power. Sometimes having enough money is enough to manipulate financial markets. It’s not necessary a good or a bad thing. Traders and investors should continue to educate themselves and be prepared for any situation they could potentially profit from. If one is aware that markets are being manipulated by large players, one should strive to learn how to spot it as soon as possible and take full advantage to benefit from it (rather than dwell on how unfair it is). Good luck! submitted by /u/RuthlessWolf to r/Buttcoin |