Cryptocurrency and Spoofing
Understanding Cryptocurrency and Spoofing; Plus Advice on How to Avoid Getting Spoofed By Spoofers and Market Manipulators in General
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” (wash buying/selling), 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.
TIP: Loosely speaking, Spoofing can also called Ghosting, Wash Selling, or Layering. Those terms can have unique meaning based on context, but the concept is generally the same.
Spoofing and related techniques do a few things, they give the illusion of volume, consensus, and an active market and also guide the market toward or away from a specific set of prices.
However, that illusion of market movement is all smoke and mirrors designed to mess with your psychology on one hand and control the market on the other.
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 it’s to create volatility in the short term to make money around a current price. The goal changes with the strategy of the manipulator (it depends on if they are building a position, margin trading long or short, sitting on a giant futures contract, etc).
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) and it can be about price differences between exchanges (if a coin is cheaper on one exchange than it is on another, you might see what appears to be spoofing, but is actually arbitrage).
There are lots of ways this can work, and there are a lot of reasons to spoof or for traders to preform actions that are indistinguishable from spoofing.
Further, some reasons for this sort of trading are way more virtuous than others. For example, spoofing in defense of others trying to crash the price of a coin.
All that said, the general point I’m are making here is: “spoofing, and market manipulation in general, and especially in crypto, is a thing… and if you aren’t doing it, then you have to watch out as it could be getting done to the coin you are trading.”
With all that said, this page will focus on spoofing (placing orders with no intention of them being filled to control the price), 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 (and to make you aware of natural market movements that are easy to mistake for natural ones).
NOTE: Some of what looks like spoofing is everyone’s trading bots reacting at once and placing limit orders (if enough people use roughly the same strategy, on the same pair, on the same exchange… then this can occur). Essentially, strong buy signals or sell signals (like a very low RSI or a death cross) will tell a bunch of bots to set limit orders and this can create what looks like spoofing. Then, on top of that people who follow strategies will likely make the same moves. Then on top of this it sparks on natural buying and selling. Telling the aforementioned apart from spoofing apart isn’t always easy. Also, as noted above, arbitrage between exchanges can look like spoofing (as everyone rushes to take advantage of the spread). The bottom line is this then: if many bots/people are placing orders at once, it can push the market down or up. Thus, some of what looks like coordinated buying/selling is just people/bots reacting to the aggregated prices of coins on different exchanges. Further, 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 due to arbitrage (so keep in mind not only the price on the market you are on, but the price on all markets). 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 every odd movement in the market is manipulation.
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 and often work in groups. Bots can help explain how a small group of people or person can handle so many orders at once. All it takes is a bot, some exchange accounts, and the funds. See: Let’s write a cryptocurrency bot. (part 1) or High Frequency Trading on the Coinbase Exchange (or further, see: Meet ‘Spoofy’. How a Single entity dominates the price of Bitcoin). 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 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.” In this case then we get humans, who form pump and dump groups, who are sometimes using bots, spoofing, and using other market manipulation tactics. When you see artificial buy walls and sell walls, and you see coins being bought and sold at a specific price, when you see orders generally keeping a coin in a range or guiding it toward a range, and most of all when you see very large orders on the books that don’t seem to be intent on being filled (those giant orders that pop in and out of the order book), that could very well be spoofing. However, spoofing is hardly the only thing happening, the reality is there are a few different market manipulation techniques that are used to control the price to watch out for… and there are a few completely legitimate tactics that end up looking like spoofing (like a giant hidden buy order that you don’t really want to fill, but will let fill if need be; a legitimate risk being taken). Again, it’s hard to separate natural market behaviors that look like manipulation from manipulation, so although the manipulation is real, not everything that looks that way truly is. Anyway, at this point I’ll assume you get the bottomline here: 1. there is manipulation, especially spoofing… but 2. not everything that looks like spoofing is actually spoofing. From here forward I’ll stop saying that 😀
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).
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?… Can’t say that, can only say that some of what looks like whales is just the group behavior of people and bots.)
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.
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, margin trade each telegraphed movement, etc.
Not that any one person can generally pull all this off, but hopefully that paints a picture.
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. Anything that can be gained from that, is the desired goal.
In general the main reasons to spoof are:
- To ensure margin positions and futures positions. The biggest money to be made in crypto is from heavily leveraged short or long positions. If you can control the direction of the market, you can essentially print money (while taking a giant risk).
- To accumulate in a range.
- To ensure the direction of a market (as if you keep it in a price zone long enough, or in a direction long enough, the indicators will respond, meaning it’ll start messing with indicators like moving averages and RSI and cause a cascade of people and bots to react).
- To get people to buy or sell in a range temporarily for immediate profits (keeping a price high just long enough to sell off the bulk of your coins after a pump for example).
TIP: Anyone with funds and fingers can knock a spoofer out. Their orders are on the books, their leveraged positions are open. They may be manipulating, but they are also playing with fire and taking giant risks.
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 (or whales and krill; you get the point).
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 things are a little less clear cut.
Technically that which is not legal is not legal, and rules don’t magically only apply to stock markets. However, the anti-spoofing rules have yet to be enforced in crypto. To enforce the rule you have to prove spoofing, and thus there is this whole can of worms here.
The bottom line being, there are a few ticking clocks in crypto, one is the countdown until ICO and lending scams get cracked down on, the other is the countdown until the first crypto whale ends up in federal prison for committing a host of crimes that they didn’t perhaps fully realize were crimes (for example, someone who pumped up or dropped the price of Bitcoin to close a futures contract and margin trade, probably left a paper trail).
See an example of people getting in trouble for spoofing: SEC Announces Charges for Spoofing and Order Mismarking…. Google “SEC and spoofing.” As you can see, people in all sorts of markets get charged for manipulation tactics like this.
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. The general answer is simple, BTC is the main trading pair so everything reacts to it and it is the biggest volume coin in the market, so its chart often looks like that of other coins (like the S&P to a stock in the S&P). Still, the other point is worth thinking about.
Who is spoofing? First off, there isn’t one spoofer, there are many (Bitfinex has confirmed this; there may be a “Spoofy,” but there are other Spoofers and not all of them have the same goals). To spoof one needs millions or tens of millions or even hundreds of millions… but certainly not billions of value (this value can be in any form, so random tokens that were cheap and now are worth a ton, Bitcoin, Ether, USDT, USD, etc). Thus, while we know the spoofers have deep pockets, we don’t know what level of deep those pockets are (and it logically differs per spoofer). 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 any theory of manipulation.
Plus, on the flip side of all this, you have those who are using large orders they have no intention of filling to put in bottoms on exchanges. That helps the general investor from losing their money, and thus we get in another type of grey area.
Anyways, the point of this article isn’t to crucify anyone, it 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?”
The answer is, yes, to some degree, and until there is more volume and more big players it’ll just keep being like that.
So anyways, now that we know, we need to grapple with it.
In this respect, 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 (as good people are usually spot buying long positions, sometimes at the top, and spoofing and other manipulation tactics are one of those things that will psych people like that out and make them panic buy or sell).
So, my advice is this:
You shouldn’t let spoofers spook you. 99% of users buying and selling are real (or real people with bots who are earnestly trying to trade based on price and volume data), the prices are roughly real (although they swing up and down above and below their real range as people glom onto one coin and some manipulators take advantage), the value is certainly real (value in a more philosophical sense and in the sense of price to some degree), and the tech is clearly amazing (just a clear yes on that one).
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.
Instead, manipulators line their strats up with the news. So I don’t just crash the market, I wait for bad news, then I turn my crash the market bot on. Then, from there, it is others who do my work for me.
The bottom line here is this, when you see this obvious pattern, it is generally helpful not to overreact and think too short term (unless the short term pattern is giant red candle after an a too-good-to-be-true rally; in that case, you might want to read the tea leaves and get out on the next bounce).
Slight warnings aside, the best thing a novice trader can do is just keep to a simple strategy like don’t overextend, average in, buy low / sell high, or buy and sell based on basic indicators (like 2 hour candles MACD and RSI).
Once you see the Matrix, the larger picture of indicators and manipulators, you can start trading with a more sober perspective and you’ll do better.
If you see spoofing, a decent idea can be to try to determine which way the price is going and act accordingly. However, just ignoring it all and zooming out and thinking about the general movement of the chart and the fundamentals can be an even better 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).
NOTE: 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 (with every natural factor taken into account), there are clearly a handful of shady players looting everyone and controlling the price of cryptocurrency.
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.
However, two wrongs don’t make a right… plus, no one really knows who we are dealing with, what their intentions are, and how much capital they are working with.
The reality is, if someone is manipulating and doing proper capital management, you can’t take them out in one fell swoop.
Consider: Someone buys a ton of Bitcoin sub $1k, then pushes the price to $20k (margin long most of the way), then opens a futures contract short, then shorts the market down to $6k in waves, but then at $6k everyone spikes the price up to $20k before they can react (and thus eating their sell walls and liquidating their short position). Well, they still have a ton of money and are probably still sitting on a bunch of Bitcoin. Further, they potentially could have quickly opened a long position and made even more money. Further, they are likely using a bot and closed their short position and took their funds off the table. Further, a group of people just manipulated the market (two wrongs). Further, even if you forced them to sell a ton of Bitcoin and liquidated their last short position, they would probably still be doing well. Further, there isn’t one shadowy villain, there are many people with different intentions and different bots. You can take a quick jab at a manipulator who is getting cocky, but taking them out would take a long campaign and a lot of time, effort, money, and… would likely involve some grey areas. i.e. its totally unrealistic and rather unadvisable.
Thus, since taking out a spoofer isn’t something humanly possible for the average Joe, the more rational advice, since I’m not a disorganized collective of do-gooders with a specific code of ethics and unlimited capital, 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 enforced 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 playing a productive roll, the less corruption (the traditional stock market can’t be so easily distorted by bots and a few big players; because of its volume). 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