I Would Be Shocked If Bitcoin Prices Weren’t Manipulated

&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-1099193822&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1099193822/960×0.jpg?fit=scale&q; data-height=&q;659&q; data-width=&q;960&q;&g; Are Cryptocurrency Prices Manipulated? (Shutterstock)

According&a;nbsp;the &l;a href=&q;https://www.ft.com/content/5d8f06f2-5f3a-11e8-9334-2218e7146b04&q; target=&q;_blank&q;&g;FT &l;/a&g;and &l;a href=&q;https://www.bloomberg.com/news/articles/2018-05-24/bitcoin-manipulation-is-said-to-be-focus-of-u-s-criminal-probe&q; target=&q;_blank&q;&g;Bloomberg&a;nbsp;&l;/a&g;the Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies.&a;nbsp; Well, duh?&a;nbsp; Of course they are.

Whether the activities meet the legal definition of manipulation&a;nbsp; or can lead to a criminal indictment remains to be seen, but I&s;d be shocked if there wasn&s;t manipulation of prices occurring.&a;nbsp; Never forget Rule #2 of the &l;a href=&q;https://www.forbes.com/sites/petertchir/2017/09/13/three-rules-of-bitcoin/#6a8dbce418e8&q;&g;3 Rules of Bitcoin&l;/a&g; – &q;There are no rules!&q;

I would expect to find problems with price manipulation because

&l;/p&g;&l;ol&g;&l;li&g;There are allegedly several &l;strong&g;very large holders of Bitcoin&l;/strong&g; (and other cryptocurrencies).&a;nbsp; The concentration of wealth gives them the incentive to push prices higher.&a;nbsp; In the stock market, anyone holding a large proportion of the outstanding security is subject to additional rules and scrutiny.&a;nbsp; No such protections exist for cryptocurrency.&a;nbsp; The person telling you about how great it is, may be very&a;nbsp;incentivized to see the price go higher.&a;nbsp; Whether or not this falls under the definition of manipulation that is being investigated, assume it occurs and assume it distorts price.&l;/li&g;

&l;li&g;&l;strong&g;Miners&l;/strong&g;, some of which may have large positions, are also motivated to see prices rise as it should mean more money for them.&a;nbsp; They earn bitcoins for mining, so it is logical for them to want higher prices at any given time for the same amount of computing work.&a;nbsp; That is particularly true if mining activity is at all linked to price action.&a;nbsp; Is there a correlation between activity, which should award miners with more bitcoins, and price? I&a;nbsp;don&s;t know, but if so, that would motivate the miners even more.&a;nbsp; Again, I&s;m not sure whether this activity, if it exists, would meet a legal definition of manipulation for any charges to be brought.&l;/li&g;

&l;li&g;We have seen and heard of manipulation in actual markets – from LIBOR to FX.&a;nbsp; Many are actually regulated.&a;nbsp; Here, to my knowledge, regulation is light if it even exists.&a;nbsp; &l;strong&g;Some traders took the time and effort to establish accounts on various platforms to &s;arbitrage&s; price differences.&a;nbsp; They should be (and likely have been) rewarded for their efforts.&a;nbsp;&a;nbsp;&l;/strong&g;In a fragmented market, where many participants only took the time to set up on&a;nbsp; one or two exchanges and didn&s;t have the patience or willingness to do more work to ensure price transparency, they likely pay a price that goes to those who did that.&a;nbsp; But, like much else about crypto, I would be shocked if it ended there.&a;nbsp; &a;nbsp;Why not try and &s;push&s; markets around?&a;nbsp; Create the dislocations?&a;nbsp; It seems completely logical that someone would try to do this.&a;nbsp; Again, I&s;m not sure this is manipulation (unless done in the futures), just like I wouldn&s;t think it would be criminal manipulation to attempt to move the price of Beanie Babies on E-Bay (beannie babies ebay is apparently not an uncommon search).&l;/li&g;


I am more shocked that anyone would be surprised that manipulation likely occurs in cryptocurrencies and their pricing. I will be interested to see how this investigation can proceed on things that occur on platforms I don&s;t view as regulated&a;nbsp; exchanges on&a;nbsp;products that I didn&s;t think were securities.

&l;strong&g;For now, this is yet another reason to expect cryptocurrencies to continue to drift lower.&a;nbsp; They are losing support and more and more of the issues with them are being exposed – further slowing the rate of adoption.&a;nbsp;&l;/strong&g; Even knowing that manipulation occurs, whether indictable or not, doesn&s;t mean I can&s;t get bullish cryptocurrencies again, but certainly not right now.&a;nbsp; I would be more confident the market can weather these times of headlines if crypto had been able to rally after the&a;nbsp;#Consensus2018 conference, &l;a href=&q;https://www.forbes.com/sites/petertchir/2018/05/18/consensus2018-fails-to-pump-up-bitcoin/#4c527f5c2f4a&q;&g;but it didn&s;t&l;/a&g;.

I expect the headlines surrounding ICO&s;s and &s;tokenization&s; in general will be equally problematic in terms of&a;nbsp;encouraging&a;nbsp;new investors to get involved or existing&a;nbsp;holders to add more.