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.

Why Coinbase listing didn’t boost XRP price

There was a general feeling that when Coinbase announced it was listing XRP on its Coinbase Pro platform there would be a corresponding leap in the value of Ripple’s native token. There was some movement on the day of the announcement (25th February) with XRP shooting up by 10% in value, but that is about as exciting as it got.

Furthermore, when Coinbase then announced on 28th February that it was adding XRP to Coinbase.com, as well as the exchanges’s Android and iOS apps, the response was flat.

The analysts’ analysis

While crypto consumers might be somewhat surprised by this lack of activity, analysts were less so. According to crypto expert Charles Bovaird, writing at Forbes, several analysts were of the opinion that they had never expected anything else. Jeff Dorman, cofounder and head portfolio manager at Arca Funds told Bovaird: “I’m not surprised by the lack of price action for XRP. First, XRP has been plagued by negative press this year and as a result, the token has been lagging the broader market all year.”

Dorman also explained that the 10% rally on the 25th February had amounted to much more, because “those gains were quickly erased when the people who bought before the news sold into those buying after the news.”

Marouane Garcon, managing director of crypto-to-crypto derivatives platform Amulet, shares Dorman’s view. “I can’t say that I’m surprised by the lack of movement. Throughout this entire bear market news and public developments haven’t been able to spark any sort of uptrend.”

However, Garcon did explain what he thought would move XRP’s price — adoption. He said, “In XRP’s case, I think banks utilizing XRP in their daily operations is what’s going to move their market.”

Big announcements don’t always bear fruit for XRP

Joe DiPasquale, CEO of cryptocurrency fund of hedge funds BitBull Capital also claims that he and others have noticed something ‘interesting’ about XRP’s price movements: “We’ve noticed the market anticipate many of Ripple’s moves, resulting in what might seem as counter-intuitive pricing over major events,” he told Bovaird, adding, “For example, during both of their last two conferences, where they announced major business development deals, the price of the XRP token dropped.”

The crypto ecosystem is the ultimate decider

All the analysts seem to agree on another viewpoint, “the different digital currencies that make up the broader market tend to move in tandem.”

So, the reason Coinbase didn’t move XRP’s price upwards as much as might have been expected is down to Ripple also being subject to the waves within the larger crypto pricing ecosystem, and these don’t always work in harmony with big announcements.

Coinbase counsel predicts crypto regs push in 2019

Marcus Hughes, the British lawyer and lead counsel for San Francisco-based crypto exchange Coinbase, predicts that 2019 is going to be the year that we see big changes in bitcoin regulations.

Hughes remarked, “Within the next year or two, we’ll see big developments, and regulation will take shape this year, particularly in Europe.”

He pointed to the fact that the United Kingdom’s Financial Conduct Authority (FCA) is in the process of carrying out a consultation regarding crypto derivatives. This could see a ban on the sale of derivatives based on cryptocurrencies such as bitcoin. Furthermore, the British government has pledged to empower the FCA to oversee all crypto assets.

An article in the UK’s Daily Telegraph at the end of 2018 also revealed that the FCA is investigating 18 companies “in connection with cryptocurrency transactions amid escalating concern over the threat posed by Bitcoin and other digital assets to the integrity of financial markets.” But that is not all: the FCA has opened 67 inquiries since November and is clearly stepping up its scrutiny of all firms involved with crypto in any manner.

Nicky Morgan MP, who hairs the influential Treasury select committee, said, “t is clear that the government and the FCA share the committee’s concerns on crypto-assets, including the lack of regulation, minimal consumer protection and anonymity aiding money laundering … The committee will keep a close eye on these consultations and will continue to press for regulation.”

And the European Banking Authority is calling for standardised regulations for cryptocurrency operations within the European Union. This is to remove the potential for “unfair regulatory arbitrage while protecting bitcoin and cryptocurrency investors across the bloc.”

Hughes said about this scenario: “We could end up with E.U. member states creating their own crypto laws, but it’s certainly possible we’ll get a unified approach in Europe. It would make life for companies like Coinbase a lot easier.”

He also has his own views on the future of bitcoin, which also reflect those of Coinbase: “We need to move beyond the speculation phase of bitcoin and cryptocurrency to the utility phase. The utility phase will mean bitcoin and crypto becomes more widely accepted and understood.”

He also commented on the arrival of institutional investors in the crypto sphere, saying: “I would be surprised if other traditional financial services executives didn’t make the move across to the bitcoin and cryptocurrency world. As the industry matures and is better regulated it will need the talent and experience to manage it.”