Are trading bots manipulating 99% of the entire crypto market right now?

There’s an ongoing debate about the role of trading bots in the cryptocurrency markets. Some market participants, especially those in the regulated world, believe that these bots are able to manipulate the majority of crypto transactions and prices by using their access to information first and executing thousands of transactions at a time in order to move the market in their favor.

Crypto industry leaders, however, disagree and have issued formal denials that trading bots have any material impact on crypto price action or volume. So who’s right? Let’s break down this complicated topic with some hard facts...

 

How Bots Manipulate Cryptocurrency Prices

According to The Wall Street Journal, major changes to a small cryptocurrency called Ripple resulted in dramatic effects on other cryptocurrencies. 

When Ripple’s price rose sharply last week, it briefly became more valuable than Ethereum, whose blockchain network is considered among the most promising for enabling applications such as loans for small businesses and agreements for shares of companies. 

In fact, trading volumes shot up as much as five times their previous levels. When it comes to cryptocurrency markets, all eyes are on Bitcoin, which has been involved in about half of all ICOs so far and currently accounts for about half of all daily transactions globally. 

But as new currencies come online, they could be vulnerable to manipulation by sophisticated traders that use algorithms. In one well-known example from 2016, an unknown trader or group of traders used a bot to buy millions of dollars worth of bitcoin over several months, leading to sharp increases in its value—and then cashed out immediately after prices peaked. 

For smaller coins with fewer users and less liquidity, even relatively modest amounts can have outsized impacts on prices. 

These days many exchanges allow users to make trades directly from their wallets without having to transfer funds first—which makes them even easier targets for manipulation if hackers can gain access or find ways around security measures meant to keep them out.

 

Do Bots Create Fake Volume in Cryptocurrency Markets?

There are concerns that cryptocurrency exchanges are faking their trade volumes. An estimated 70 to 80 percent of transactions on some major exchanges may be bogus, according to former Reuters analyst Charles Hayter.

People have taken out mortgages to buy bitcoin, he told CNBC, adding: If all these people start asking for their money at once . . . there's a significant risk that prices will crash.

It’s not just small investors who are getting in on it. Investors with big wallets can manipulate markets by flooding them with fake orders and making it look like demand is higher than it really is.

This creates an illusion of momentum that lures other investors into buying coins too—and as more buyers come in, they push up prices further. It’s called spoofing, and regulators around the world have been trying to crack down on it for years.

But some traders are still finding ways to do it—and they could be distorting cryptocurrency markets even more than we realize.

 

Exchanges have incentives to keep using them

The exchanges have a conflict of interest in regulating their usage. It’s obvious to see. The exchanges make their money by keeping your money within their system.

They charge higher fees and transaction costs for using other ways to get money in and out, like a bank wire or PayPal transfer from your debit card.

They also charge higher withdrawal fees than if you were moving coins through one of these third-party services instead of directly on an exchange.

All of these things are true whether they are using bots or not. In fact, it’s much more likely that they are not being used at all because it would actually be cheaper for them to just use traditional methods rather than pay someone else to trade for them. So what is really going on here? Well, first we need to look at how exchanges work...

 

How Can We Solve This Problem

In an effort to fix the manipulation of exchanges and trading groups, we need to start by defining what a cryptocurrency is. A cryptocurrency is basically another name for digital money.

So, at its most basic definition, cryptocurrency is just a way of moving money from one account to another digitally—typically across borders in a very short period of time.

The technology that allows it all to happen isn’t centralized, which means there’s no specific party controlling these transactions and no government or bank involved either.

The currency itself can be used to purchase goods and services online and in person. It can also be exchanged into other cryptocurrencies as well as fiat currencies like USD, EUR, GBP, etc. As you can see, there are plenty of ways to spend your coins! But how do you get them?

Cryptocurrency is typically purchased through an exchange platform called a crypto exchange where users can buy coins using fiat currency (USD/EUR). These platforms allow people who want to buy cryptocurrencies (crypto enthusiasts) to deposit their cash into their accounts via wire transfer or credit card.

 

The Future for Trading Bots in Crypto Markets

The answer is no, they aren’t. The truth is that with the hundreds of thousands and millions (potentially billions) of people who are not just invested in crypto but actively trading it on a day-to-day basis, there is absolutely no way that all these people could be using a bot or any other software to manipulate trades (outside of pump and dump groups which are a different topic altogether).

But even if everyone was using them at once you still couldn’t say that it would actually manipulate anything – manipulations occur when you move markets through unauthorized use, force buying/selling, etc...; which as we already know isn’t possible because there are too many actors.

 

Conclusion

With all these inconsistencies being presented by experts, it's hard to say whether bitcoin is a legitimate currency or not. Trading bots manipulate prices, which results in price volatility.

This comes with a long list of risks, including legal and political risks which are out of control for those involved in bitcoin. Until these issues are addressed, I can't see how we'll move forward with bitcoin or any other cryptocurrency as a viable currency for everyday use.

One thing is for sure: no matter what your thoughts on cryptocurrencies are currently, chances are they will change as more news surrounding them is released.