Bitcoin [BTC] gave birth to probably the most volatile market in modern commerce, following which several millionaires were created overnight from scratch. As the crypto-ecosystem witnesses further mainstream acceptance, the market’s inherent ‘swing’ nature is now being questioned, primarily by the users who suspect deliberate price manipulation. Against popular belief, however, one of the main reasons behind the occasional spikes can be attributed to large buyers/sellers making transactions on an exchange.
One such market volatility speculation surfaced on Reddit and alleged that whale transactions were a medium for big traders to leverage low liquidity. Consequentially, a transfer of a few million dollars by a single whale could move the entire market by +/- 5%, the Redditor claimed.
The graph above shows the average transaction value and its direct impact on crypto’s value. The peak of the graph also coincides with the exact time BTC breached the $9,000 mark.
The main reason behind such behavior is that whales cannot sell 10,000 BTC on an exchange. They could, however, buy 2000 BTC on an exchange, cause a rise in price, then sell their now 12,000 BTC on OTC at the manipulated price. With respect to manipulation, mostly only extremely large investment groups get in to add liquidity to the market. Since such a maneuver is commonplace in the cryptospace, whales end up making profits in USD while opening up the sold BTCs to be available for sale on the open market.
Whether or not the seller/buyer intends it, several other ways exist to manipulate the trading price, at least until extremely large investment groups remain to add liquidity to the market. On the flip side, the past has shown that $100m of trading has caused the market to pump by 25% from $4,000 to $5,000 in an hour. As a suggestion, if the OTC market has dried up and low liquidity means you can’t sell, it means it’s time to margin hunt.
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