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Market manipulation: Is it really Elon Musk’s fault?
“How strong is the market, if one actor can generate billion dollars loss to investors?”
Events of recent weeks have confirmed the hypothesis about the real trading behavior behind market prices. Elon Musk posts on Twitter that Tesla will no longer accept Bitcoin due to its disruptive effects on our environment and the market collapses. This tweet seems to be quite funny, as it’s really hard to imagine that Elon Musk has just now realized that the PoW based Bitcoin network consumes extreme amount of energy for mining. Or maybe Tesla has a team that defines the level of energy consumption at which they need to announce the rejection of Bitcoin? I don’t think so. If I need to dive into speculations, I would say that Musk wanted to buy more Bitcoin and that’ why he tweeted against it.
Of course, these are all just speculations. What seems to be more realistic for me is that top exchanges are the ones, who can really benefit from a tweet like this from Elon Musk, as it opens up wide opportunities for shorting. But, what’s even more interesting is that what if this statement will actually implicate a selling wave that worth billions of dollars. Is it possible? For sure, in theory, it’s absolutely possible. But let’s see at how many billions of dollars the market loss will end up after a statement like this. Is it possible that the loss is so high because the reported market cap was actually based on false numbers?
We know that exchanges use market makers, with whom they can easily manipulate markets. There are many companies offering MM services and even the projects themselves operate free accounts to generate volumes. Whether this is good or bad, well, I leave it to you to decide. In my opinion, this is not good for the market in long term. Unfortunately, the operation of exchanges is not regulated thus, we have very limited or no information about the real volume behind tokens.
Yet, we know that upon appearing on the top exchanges, a new project will immediately have millions of dollars in daily volume. To be honest, I have serious doubts about the actual performance and results behind these high numbers. I tend to think that people are more likely to believe in high volume figures when it appears on exchanges like Binance, Kraken or Bittrex (just picking randomly three out of the top exchanges currently operating on the market).
I have no intention to accuse anyone of anything, but I find it quite interesting, that top exchanges demand millions of dollars from projects for getting listed and upon being listed they start to generate a daily volume of millions of dollars. Such things could not happen on regulated markets. In my opinion, the fact that the price of Bitcoin or Ethereum can fall by 30–40% in few days, undoubtedly shows that there is no actual performance behind the numbers. It’s enough to check what’s been going on in the past few days to understand what I mean. The price of Ethereum has dropped to almost 2000 dollars. Binace coin went under 300 dollars. And Bitcoin was not far from dropping under 30.000 dollars. Of course, in case of falls like this, more and more buying positions are being opened at the lowest prices possible. All this can be true, but I have serious doubts to believe that sales worth hundreds of millions of dollars would appear on the market just because Musk tweets something.
I think, this is nothing else but a well-planned and conscious game of the top exchanges, as their motivation is to boost buys and sales. To reach this, they need to get the market into motion. There would be serious penalties imposed for such acts on the exchanges of traditional products, but as the market of cryptocurrencies is not regulated at all, sanctions cannot be applied either. For how long economies based on democratic values will allow this type of trading? Not for too long, I think.
Many people say that regulation would destroy the market. Well, maybe they’re right. Yet, on the other hand, maybe a regulated market would attract investors who currently stay away as they don’t want to trade under such chaotic conditions. Of course, the situation is not that simple, as currently the market is dominated by Chinese exchanges, mostly with off-shore backgrounds. Actually I don’t know what type of regulation would be the most beneficial. Of course, countries could apply local regulations, but it’s difficult to predict the actual effectiveness of such steps. It would be interesting to see, what would be the impact on global trading if for example the US administration decided to regulate cryptocurrencies, knowing that a tweet from Elon Musk leads to a 30–40% drop in case of Bitcoin and Ethereum. If this is really so, a SEC regulation would definitely crush the whole market. So, to make the long story short, it worth considering whether we believe it that the market is being moved by the statements of Musk, or these statements are just ideal for some players as an explanation of market movements, providing perfect conditions for shorting.
