Understanding Cryptocurrency and Spoofing; Plus Advice on How to Avoid Getting Spoofed By Spoofers
Spoofing is when traders create the illusion of pessimism (or optimism) in the market by placing big buy/sell orders without the intention of filling them. They often pair this with “wash sells and buys,” buying and selling their own orders for little or no profit or loss. Further, this generally pairs with large orders set strategically above and below the market price to control the price range.
This does a few things, it gives the illusion of volume, consensus, and an active market and also guides the market toward a specific set of prices.
However, that illusion of market movement is all smoke and mirrors designed to mess with your psychology.
It is manipulative snake oil designed to get you to sell coins cheap or buy coins high (and generally to affect market psychology so the market, not the spoofer, does all the work). With the ends being, the creation of a better environment for the manipulator to buy/sell in (it is about them, not you, but of course you being in the market makes it about you in that respect… especially if you have stops set, day trade, or buy/sell when it is happening).
Sometimes the goal is to drive the price up or down in general, sometimes its to create volatility in the short term to make money around a current price. The goal changes with the strategy of the manipulator.
With that said, this isn’t always about the coin being manipulated. In-fact, with crypto, it can be about that coin’s price relative to Bitcoin (for example, if one keeps a coin cheap relative to Bitcoin, this can result in giant gains for one who rides Bitcoin up only to pour back into the other coin later).
There are lots of ways this can work, but the general point we are making here is: “spoofing, and market manipulation in general, is a thing.”
NOTE: Generally speaking all action is human action. That is, behind every order is a human. However, people who run these strategies often use bots to trade. Bots can help explain how a small group of people or person can handle so many orders at once. All it takes a PHP script, some exchange accounts, and the funds. See: Let’s write a cryptocurrency bot. (part 1) or High Frequency Trading on the Coinbase Exchange. With that in mind, the vast majority of bots are somewhere between White and Grey hat. Bot trading is allowed on crypto exchanges, and some bots really help to stabilize the market. Just like in the movies, there are good bots and bad bots. This page is specifically about that other odd percent of bots and users who aren’t White hat.
NOTE: Not only are there generally “humans” behind this. There is often groups of humans (sometimes using bots) who are purposefully setting up for a pump and/or dump. These are “pump and dump groups, sometimes using bots, who are spoofing, and using other market manipulation tactics. When you see artificial buy walls and sell walls, and you see shares being bought and sold at a specific price, that could very well be spoofing. However, there are a few different market manipulation techniques to watch out for. Thus, this page will focus on spoofing, but specific tactics aside, the point here is to try to give you a sense of what sort of market manipulation to watch out for in general.
Bot Trading in action on Poloniex 5-11-17. This video explains the basics very well.
ROBO ALGORITHM BOTS INFECT GDAX PLATFORM (Coinbase) Manipulate BTC & ETH. I’m not the only one to notice this. Anyone who looks at the order book on a regular basis will notice the same thing.
Trade Ethereum on 3 exchanges with trade bots. This is how its done (to be fair, this is a White-hat video discussing that which is exploited by Black- and Grey-hats).
NOTE: Some of what looks like coordinated buying/selling is just people/bots reacting to the aggregated prices of coins on different exchanges. If you are on an exchange where the price of a coin is higher or lower than the average price on all exchanges, then there can be a lot of natural downward or upward pressure on the market. This is to say, not everything that looks like manipulation is. The idea here is to become more aware of what may or may not be occurring at a specific time, not to assume any odd movement in the market is manipulation.
Why Bitcoin’s Price Continues To Rise. Why is Bitcoin’s price rising even though volume hasn’t changed much and no fundamentals have really changed? Are spoofing bots manipulating the market? Will it all crash after the Segwit2x fork? Who knows? What I do know however is that this is a good video.
“Bitcoin is being manipulated by Whales” – Guy in above video (who can say if he is clearly right and you should be careful; who can say?)
Example of Spoofing
The image below shows a decent example of [what looks like someone(s)] spoofing Ether.
Normally you will see the price being controlled at the bottom too (with a large order placed at a specific variable point), and normally you will see big constant values flashing in and out near the buy/sell price but never actually filling (I’ll try to capture a better example with those aspects too to illustrate this; for now though, this and the videos will have to do).
These big constant numbers give us a hint that this is a single trader/bot (controlled by one or more people).
In any case, the idea of this image isn’t to try to prove that this instance was spoofing, or to show every aspect of it, it is only to show roughly what you are looking for… and to illustrate how someone might control crypto prices with only a few tens of thousands of dollars on each of the major exchanges (which would trigger aggregator sites to post that value).
NOTE: If you can tell from looking what exchange this is, try not to focus on that. This problem is not limited to a given exchange, and the problem has little relation to a given exchange. I just happened to screen grab this one (as I had to screen grab something). The point here is to become aware of a potential problem, not to start pointing fingers at specific exchanges.
TIP: This general strategy I’m describing is also called “layering.” The point is, the crypto market is being manipulated by tactics like spoofing/layering. Don’t believe me? To that I say “whatever; check your irrational mania.” Want to learn more, keep reading.
How Does Spoofing Work, What is the Point of Spoofing Cryptocurrency?
Spoofing works like this, drive price down, buy coins, drive price up quickly, sell coins, then drive price down buy coins, then drive price up quickly and unload. Each time on the way down, avoid reaching the last high so people have to hold the bag and sell lower, on the way up, aim for the opposite. Mind F everyone, take the price to one of the resistance zones, spur on stop orders (clean those up; enjoy that free money the investor paid a fee for), pick the pockets of those in the market to taste, sell lots of shares to yourself in the process to keep the illusion going, control the market with large buy orders and sell orders, get rich.
Spoofing is done by placing orders larger than the market average (by a good bit, so few real buyers/sellers can fill them) at price above the market price, below the market price, and then at the buy and sell of the market price. Then it involves adjusting this to create the illusion of an active market (i’m not going to over-explain it, that is the gist, you’ll know it when you see it; you can watch any exchange and see it in real time, I won’t point to specific ones).
TIP: Spoofing caused the flash crash of 2010… and that was the real big boy stock market. Don’t be foolish and think “it can’t happen here.” The average investor is a salmon swimming up stream, and the bull bears are hungry for sushi.
Flash Crash: How Spoofing Caused the Crash.
TIP: The major cryptos get spoofed all the time despite their volume. The alts don’t even stand a chance. They get pumped and dumped like crazy, often… with the help of spoofers.
Spoofing is a Crime in the Real World, But this is the Wild Wild West
Spoofing is criminal in the real world, but the crypto world is the Wild Wild West, and if you buy the snake oil, then its your fault you were green enough to let them pull one over on you (that is gangster logic; and you are dealing with gangsters here). NOTE: The other side of this is that they know they will spike the price up after it goes down or down after up, and they think, “we’ll if you are smart you’ll take advantage.”
In other words, you aren’t dealing with investors when it comes to many spikes and dips in crypto, you are dealing an investor, or a coordinated group of investors with deep pockets, with trading bots, designed to use manipulative techniques, including spoofing, to play with the market.
They have strategy and they have a plan. This means they have an algo you can crack, this means they have behavior you can detect, this means if they are communicating on the exchanges somehow, it means they have signals you can learn to read… and this means, if anyone had coordination and guts, they could pool their money together and stop these people in their tracks (finding that time when they feigning sell orders low and insta buy their whole stock on every exchange; just sayin’, that would result in both profit and justice).
Make no mistake, I’m getting meta and applying the concept of cryptography to out gaming spoofers spoofing cryptocurrency. In the Wild West, sometimes there is no sherif, see what I’m saying here.
The reality is, in the crypto world, spoofing happens constantly (unlike in the regular market where laws like Dodd Frank help protect against it). The reality also is, once people catch onto it, it is going to hurt the image of crypto and it is going to put pressure on crypto from governments (which is already a thing).
Or, let’s back up a second. Let’s put it this way, if you watch any exchange for 24 hours during a crash or price spike, and you can’t tell that the exchanges are being spoofed, I find that shocking… Honestly, I saw it happening and to Google and research the term. I took me about 24 hours to figure it out. I’m smart… but I’m not that smart. There is a ticking fuse here.
The above is to say, it is only a matter of time before the giant spoof fest that everyone thinks is actual supply/demand economics is public knowledge. To quote Dimon, “that is not going to end well.”
MUSING: Do all coins follow bitcoin… or do they just appear to when the entire crypto market is being spoofed by the same players. You’ll want to consider questions like this as you ponder the spoofer rabbit hole.
Who is spoofing? To spoof one needs millions or tens of millions or even hundreds of millions… but certainly not billions. Thus, while we know the spoofers have deep pockets, we don’t know what level of deep those pockets are. Don’t think it can’t be a major entity though. If you use $100 million to manipulate the market, you can do private sales for way more based on the current price (you don’t have to make your money on the exchanges). In fact, this is the best strategy if you are amoral and intent on this. Also, if the point isn’t profits, but instead is “money laundering” then a few hundreds millions circulating at a time is probably more than enough. So don’t discount the idea that it could be very big players, but it is at least medium big players (it can’t be small players, because it takes a good bit of capital to spoof even a low-volume market like the crypto markets).
WHO IS SPOOFING/LAYERING/MANIPULATING THIS CRYPTO MARKET/TRADERS?. As you can see, I’m not the only one who has caught on to this. Many are blinded by mania, but while I’m bullish as heck on crypto, even I can see the spoof through the trees here.
The Point of Telling You About Spoofing
I don’t care to prove my theory of crypto spoofing, and I don’t really want to politicize it or make enemies with that glorious spoofer(s) who is now very rich (congratulations, enjoy everyone’s money; I’m sure you believe you earned it)!
The reality is, I like crypto, and think it will be disruptive to prove that theory.
So then, the point of this article is really just to clue in new investors and crypto users who are all manic and want to know “Is the cryptocurrency market being manipulated?” I care only to give good advice to my readers, especially the good people who are at risk of getting burned by those looking to take advantage of them.
So, my advice is this:
Spoofing is obvious when you see the same big orders messing with the price of a coin on a given exchange. It is even more obvious when you see it happen to all major coins at once (and sometimes even to minor ones too). It is also obvious when you see big order flash in and out right before the price moves up or down. It is obvious when you see this same pattern all over.
I’m not saying none of that is natural, it is. I’m not saying the big players don’t have a right to buy/sell or run strategies, they do. I’m only saying that, all that aside, there are clearly a handful of shady players looting everyone and controlling the price of cryptocurrency.
So then the question is, “what do I do with this knowledge?”
First off, my advice is that you shouldn’t let spoofers spook you. 99% of users buying and selling are real, the prices are likely roughly real, the value is certainly real, and the tech is clearly amazing.
So, still go long, go short, buy alts, and embrace crypto… just don’t lie to yourself and say “this crypto price must be a result of something real that happened good or bad; excitement, Dimon, China news, etc.” Yeah, that affects prices, but that isn’t what is causing a lot of these spikes and dips.
Once you see the Matrix, you can start trading with a more sober perspective and you’ll do better.
If you see spoofing, a good idea is to try to determine which way the price is going and act accordingly.
Further, if spoofing is happening, buying dips and selling once you see any profit is a decent move.
You can’t beat a spoofer without millions of dollars. You can however watch their dance and avoid getting cut to ribbons (and if you are lucky, ride their spoof upwards when they shoot for the moon, and avoid their downward spoofing as they drag the price down to get more coins).
And whatever you do, don’t be afraid to take a loss on the way down, and don’t be afraid to sell early on the way back up. Don’t let the spoofers spook you into selling / buying at a bad price… but do know when to take profits /losses (or, just go long, and wait until you see stagnation near a high and sell some off).
And If Anyone Wanted to Bring Justice to the Spoofers
Sure, we-the-people could take out a spoofer easy, all we would need to do is coordinate a solid counter-spoofer strategy.
Pool funds, design a bot to beat their bot, take them out (or at least teach them a lesson).
However, two wrongs don’t make a right and of course… plus, no one really knows who we are dealing with, what their intentions are, and how much capital they are working with.
Thus, the more rational advice, since I’m not a disorganized collective of do-gooders with a specific code of ethics, and rather I am simply trying to offer friendly advice to casual crypto users: You need to know how to watch for spoofers and other manipulators so you can avoid getting spoofed on. Watch their moves (meaning watch what their bots do in most cases), find patterns, and learn to play within their frame, because they often control the markets (’tis the double edged sword of free markets with little-to-no regulation).
How the market can correct itself: One remedy for this whole situation is higher volume. The more natural buyers and sellers, the more bots play a productive roll (where the real organic market can’t be so easily distorted by bots and a few big players). That will happen naturally as crypto markets grow over time, and it will make manipulation harder. Another remedy is everyone using less exchanges and less coins. If all crypto users were on 2 or 3 exchanges, and if they traded only a few coins, and those exchanges maybe even banned accounts that spoofed and manipulated, it would likely correct the market (exchange level regulation, not government level, could help; not saying exchanges should do this, but it would help). This will likely all naturally happen as we move forward. But for now, bring your umbrella to the exchanges. And watch out for spoofing bears who want to eat your stops like salmon-sushi.
- Spoofing (finance)
- Layering (finance)
- 5 Things to Know About Spoofing in Financial Markets
- How to Catch a Spoofer