Systemic Risks of Rampant Price Manipulation in Crypto MarketsLooking at charts you can get a strong sense of price action based on the understanding of healthy market behavior. But what if the market behavior is fundamentally unhealthy? No amount of technical analysis would have predicted that Enron would have gone to zero. And this is why it's critically important to understand the presence of systemic risks, that is, fundamental problems in the market that could lead to something going to nothing. When systemic risks hit a critical point very little can be done to reverse the price action as the market simultaneously realizes they're standing on air (like in a cartoon there's a pause before the freefall happens) and prices come crashing well below previous expectations of a "bottom." See Enron, Lehman Bros.
Various pundits have weighed in on Bitcoin and cryptocurrency being variously a "pyramid", a "ponzi," a "fraud," etc. and I have previously felt like those commentators just didn't understand this new technology. I still think that blockchain and cryptocurrencies could be invaluable, but at this moment, we're on the verge of what could be a serious problem due to the fundamental risk of a market that could be wildly overvalued while the "charts" and "TA" suggest a technical level for a reversal. If nothing bad happens then perhaps this will happen. If the other shoe falls with Bitfinex and Tethers then the ground will open up and swallow us all.
We know from well documented analysis, that Bitcoin prices were heavily manipulated in 2013 and this is discussed in this paper:
weis2017.econinfosec.org
as well as here (by the same authors) in less formal terms:
voxeu.org
and a more TL;dr version here:
www.inverse.com
And we know now in 2017 that Bitcoin prices have been heavily manipulated in China and all across exchanges globally. The systemic risks apparently were bad enough in China that they shut down all exchanges. The data on this isn't so great, but we do know that China inspected exchanges for price manipulation prior to shutting them all down.
This piece summarizes the China problem:
thebitcoinnews.com
which boils down to this: Chinese exchanges are using wash trades and algo bots to pump up volume and price to attract more users/traders.
And this Redditor cites here one Chinese exchange owner calling out two others as inflating volume through wash trades:
www.reddit.com
Naturally, this widespread scheme led to the banning of cryptocurrency in China. Should we see more revelations of such practices the regulatory risk will be extreme. But that's really only the tip of the iceberg.
The problem now is Bitfinex and the degree to which they may have inflated market prices for Bitcoin and due to extreme correlation in the crypto market, everything else including ICOs which were already extremely inflated from speculation.
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