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Blockchain Semantics Blog Why Everyone Is not Getting Rich By Investing In Cryptocurrency

Why Everyone Is not Getting Rich By Investing In Cryptocurrency

By Abhishek Singh | July 31, 2018, 2:49 p.m. GMT

This post is the third part in a series on why you shouldn’t expect to reap high benefits while working with crypto. Here, we will cover the remaining 2 methods of how whale traders are manipulating you. Click here to read the previous post of whale traders. 


Spoofing is the process where a whale trader puts a bid or an order but doesn’t let it fill. He will withdraw it before it gets filled. By doing this, he will send a false indication to the investors. He will spoof that a bull or bear run is near, making other investors invest accordingly.

So, when the trader wants to sell, he will increase the prices by putting large buy orders and when the trader wants to buy, he will put large sell orders. This can only be done by a whale trader because executing this requires a large amount of assets; enough to spoof other investors.

Let’s see how spoofing is executed:

  1. Here, the whale trader wants to sell his coins. To do this, he will try to create a bullish market to help sell his coins; thus, placing a large buy order just below small buy orders.
  2. As soon as the small orders are filled, he will cancel his order.
  3. When the price starts rising, he will sell his coins.

The effects of spoofing can be more severe if there are multiple whale traders executing it. In Bitfinex, there is a trader who does spoofing(spoofer), mostly in Bitcoins. What he does is: 

  1. The spoofer will place a large buy order(up to $2 million) for Bitcoin, below some small orders. As the small orders are fulfilled, the spoofer removes the large order.
  2. The spoofer will then place a large sell order when they want the prices to go down.
  3. Sometimes, the spoofer leaves the order in the order books for hours with $50-$100 below the current price, but the order is large(4000 BTC).



Wash trading

Wash trading is another kind of market manipulation wherein a trader buys the same order only after he places a sell order. By doing this, he creates a fake volume and misleads the other trader. So, to increase the volume and to fake the demand of the coin, a trader will use wash trading. The primary aim of wash trading is to create a bullish market for the asset. It is very difficult to identify wash trading because it always looks normal to a 3rd party trader.

This is mostly done using 2 accounts in cryptocurrency because most of the exchanges don’t allow wash trading to happen on their platform.

However, Bitfinex, wash trading can be performed using a single account as well.

If you place a sell order on Bitfinex and then place a matching buy order, the trade will be executed as there is no check for wash trading on Bitfinex. During the Bitcoin and Bitcoin cash fork, this was the distribution policy of Bitcoin cash (BCH) in Bitfinex:


Since Bitfinex did not charge BCH while shorting BTC and more importantly, people could do wash trading; traders started buying BTC by selling their own BTC. By doing this, they collected free BCH. One trader, wash traded 24,000 BTC in shorts. Bitfinex accepted their fault and proposed a resolution for it.


Unfortunately, Bitfinex still hasn’t worked on a solution to fixing the wash trading issue.

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