Bots are Manipulating Cryptocurrency Prices, says WSJ report

According to a Wall Street Journal (WSJ) report, automated trading programs which are also known as bots are manipulating the price of digital currencies.

Automated trading system (ATS) is a computer program which creates orders and automatically executes them at the crypto exchanges. The program automatically generates orders based on predefined rules for both entry and exit using a trading strategy most of the time the trading strategy is based on the technical analysis; it can also be based on input from other electronic sources. Automated trading programs can executive repetitive tasks at a magnitude which is greater than any human equivalent. In some electronic markets, trading curbs or circuit breakers have been put in place to deal with automated trading programs. These kinds of trading programs are available for both traditional and crypto markets and can be deployed for legitimate as well as manipulative strategies.

According to WSJ, because of the lack of proper regulations bots are able to execute abusive strategies on an industrial level. Co-founder and president of CoinList, Andy Bromberg said that “this sort of activities is rampant in the market right now. It hurts the market reputation, and it hurts individual investors.”

According to WSJ, the strategy of automated trading programs is similar to spoofing. Spoofing is a practice in which traders enter fake orders just to cancel them. The main goal of this practice is to tricking other investors to buy or sell an asset by falsely signalling more demand or supply. The practice was outlawed in the United States stock and futures market after the 2010 Flash Crash.

In the report, the WSJ states that Virgil Capital the $80 million digital currency hedge fund has its own bots and uses them several crypto exchanges all over the world. According to the managing partner of Virgil Capital, Stefan Qin Virgil’s bots are in constant cat and mouse game with enemy bots. Earlier this year the hedge fund lost funds on certain trades in Ethereum after a harassing bot targeted the fund.

According to the report, a trader Kjetil Eilertsen is also participating in the digital currency price manipulation. Kjetil Eilertsen started Bitcoin trading in 2011 and developed a program which is known as Quatloo Trader. The program was promoted as the best market manipulation tool in the world of crypto. The main goal of the program is to make the price manipulation easier by using built-in tools such as whale tools. Whale tools are known for executing several abusive strategies. According to Eilertsen, banning manipulation tools is pointless as they are more effective for the small traders. If everybody is manipulating then nobody is manipulating. You cannot ban anything from people who are dedicated to doing something.