The issue of potential widespread market manipulation is sometimes bought up in relation to the cryptocurrency market. However, these theories are often nothing more than speculations bordering on conspiracies.
Most cryptocurrency exchanges supposedly manipulating the market
Nevertheless, the co-founder of Zurcoin, Daniel Mark Harrison, has now publicly claimed that most cryptocurrency exchanges are doing this.
Specifically, this news comes in a fresh Medium post from Harrison. In it, Harrison alleges that most major cryptocurrency exchanges are actively engaging in the manipulation of digital asset markets.
The post suggests that cryptocurrency exchanges are, therefore, effectively stealing from their customers. Moreover, this is said to be done through suppressing cryptocurrency prices and artificially lowering them.
Following this type of price decrease, consumers oftentimes abandon their cryptocurrency holdings. According to Harrison’s Medium post, this allows cryptocurrency exchange to increase their cryptocurrency asset holding through a backdoor method.
Harrison’s thesis rests heavily on his view that the current market situation is ”impossible.” More precisely, he argues that the decreasing capitalization should not translate to increased trading volumes, according to rational market behavior.
Harrison: Increased volumes during decreasing market capitalization ”impossible”
Harrison’s conclusion is that this can, therefore, only be the result of exchange-led market manipulation. Furthermore, Harrison suggests that this is being done with the singular aim of gaining custody over users’ cryptocurrency funds, through playing on retail investors’ psychology.
Although this concept can appear a bit nebulous, Harrison supplied an example of his reasoning. In December of 2017, Bitcoin’s trading volume was around $14 billion whilst its market capitalization was around $284 billion.
However, a year later the market capitalization is just shy of $60 billion, and the trading volume is $4.3 billion. This means that the trading volume has increased from around 4% of the market capitalization in 2017 to 9% in 2018.
According to Harrison, this type of behavior is highly irregular – and can supposedly only be explained by cryptocurrency exchanges exerting deliberate downward pressure on cryptocurrencies.
Moreover, Harrison also goes on to suggest some of the supposed reasoning behind such manipulation.
”The cause of this behavior is clearly that running an exchange is by and large and extremely cost-intensive, highly competitive, low-margin business, which holds next to appeal for entrepreneurs wishing to cash in soon the new digital gold rush. Instead then, such entrepreneurs manufacture cryptocurrency volumes in the form of virtual currency trades represented uncollateralized on their exchanges, in the hope of obtaining (selling) the majority of their customers’ cryptocurrency over time,” Harrison writes.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.