Hype: a manipulator of the Bitcoin market

From time to time some people get on their high horse about the potential for manipulating the price of bitcoin. And there may be a compelling argument for thinking this. Michael K. Spencer thinks there is, or at least there was.

He writes, “as Bitcoin’s volatility rose from a minority pre 2015 to a hype “get rich” story of 2017 and into 2018 that went a bit mainstream, it was clear to me Bitcoin’s price was and is, incredibly manipulated.” He cites the idea of a ‘Bitcoin World’ that “has its own terms, norms and what’s considered normal might not actually be accurate.”

In his opinion, “Bitcoin’s price was clearly manipulated and vulnerable to pump-and-dump schemes,” and then adds, “The positive social network effect had grave consequences to a sort of collective fraud taking place.” However, as he says, he has been willing to play devil’s advocate with this topic while personally being able to see both sides of the story.

Crypto turns from cool to not so cool

The downturn in the market price certainly had the effect of making Bitcoin less cool than it had previously seemed to many. There was also the issue of the media’s approach to cryptocurrency, which has been either exceedingly negative to overly positive, and in a nutshell, all over the place. There is also the accusation that the crypto-focused media is corrupt and that the mainstream financial media has created a series of clickbait articles that are deliberately negative about Bitcoin and have thus engendered mistrust of crypto amongst readers.

What Spencer is talking about is the manufacture of hype “in an era of existential innovation that always seeks to re-create the wheel, in this case the value, money, transactions, digital assets and investment communities on the blockchain.”

Did the hype scam us all?

He points to a Bitwise study that claims 95% of “spot bitcoin trading volume is faked by unregulated exchanges.” The takeaway question from this and the media behaviour is: Did the hype make the public feel that cryptocurrencies were bigger than they really are?

Spencer also points to another Bitwise finding. In a March 2019 report it said that “substantially all of the volume” reported on 71 out of 81 exchanges was wash trading. This refers to the practice of buying and selling the same stick simultaneously to give the appearance of market activity.

All these factors raise concerns over the potential for abuse of the manipulation of the price of Bitcoin, and as Spencer writes, “If a lot of Bitcoin’s movement was “faked” or was and is falsified data, than essentially companies like Coinbase and Binance grew up in the hype with a heart of a lie.”

It’s certainly food for thought, even if you are a crypto supporter.

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