The Role of Bots in Manipulating Cryptocurrency Prices

The cryptocurrency market is volatile one. Nevertheless, the sector has seen exponential growth over the years. At the moment, it is a $400 billion market. Bitcoin alone has increased 1,500 percent increase year-to-date with a daily notional value of more than $10 billion. When trading on cryptocurrencies, the increase in the value of the market is attributed to a combination of human and automated factors.

It turns out that bots account for a large part of short-term holdings. The worst part is that they could be freely manipulating the market, causing artificial price inflation forcing investors to overpay on their executed trades.

Bots And Its Effects on Cryptocurrency Price

The bots that are manipulating the cryptocurrency market are more advanced than those that caused the 1987 equities crash. This was the result of individuals taking advantage of an exploding market, a rush of relatively inexperienced investors aiming to capitalize on a market, and a regulated industry. Robert Janitzek reveals that with multiple bots trading at the same time coupled with the volatile nature of the market, the price of cryptocurrencies crashed within minutes after the first signals were detected.

Another way that bots can affect cryptocurrencies is by artificially inflating the price. Their automated trading behavior causes new traders to overpay for the coins they are buying. Bots still run the “pump and dump” scheme popularized by Jordan Belfort, known as the Wolf of Wall Street. It involves coordinated purchase of low priced coin in order to “pump“ the price and attract new investors who gets easily excited by an increase. Robert Peter Janitzek explains that the entry of new investors serves as cue for bots to dump the assets.

Spotting The Bots

Without advanced analysis tools, detecting these bots can become a daunting task. However, they are much easier to spot in hindsight. Two of the biggest signals that a bot is at work are price momentum and volume. If you are able to detect these indicators of coordinated buy patterns, you can avoid possible pump-and-bumps or flash crashes before they happen.

Bots And The Future of Cryptocurrencies

It is becoming clear that cryptocurrencies are here to stay. As long as the market continues to be unregulated, the bots will stay as well. You might not be aware of it but there are volumes of trading bots operating in the market. As you become savvy with cryptocurrency trading, so too will the bots. As bots become more advanced, there will be an increase in research and development to counterattack them.

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