While trading cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), the allure of quick profits can put investors at risk of trading on manipulated crypto volumes. Sadly, several cryptocurrency exchanges engage in this dubious practice, which leaves traders exposed to severe losses.
Every trader who wants to guard their investments against such dishonest behaviour must first understand how to identify such manipulations.
Manipulated Crypto Volumes: Understanding Market Dynamics to Spot Red Flags
The crypto markets depend on market makers, who create the required liquidity through their buy and sell orders. However, not all market maker activities help the average trader. Using a strategy known as spoofing, some market makers can artificially demand or supply near current prices, therefore influencing pricing. They might also engage in wash trading, selling and buying the same assets to falsify volume numbers.
These market makers often have advantages like reduced fees or access to tokens that regular traders do not have, giving them undue influence over market prices. By understanding the dynamics of how market makers operate and the mechanics of order books, traders can spot potential red flags that signal manipulated volumes.
Manipulated Crypto Volumes: Practical Indicators to Detect Artificial Volume
Crypto market traders must stay vigilant against manipulated crypto volumes. Understanding market dynamics, analysing trading patterns, and using advanced analytical tools are key strategies to avoid falling prey to deceptive tokens.
To avoid falling into the traps of manipulated crypto volumes, traders can also employ these three practical indicators:
Traded Volume vs. Order Book Depth
One effective method is comparing the depth of the order book with the reported daily trading volume. For example, if a crypto pair shows an order book depth of £50,000 at a 5% price level but reports a daily volume of £2 million, this mismatch could suggest manipulation. The volume may not reflect genuine trading interest but could instead be artificially boosted.
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Consider the case of the Akash (AKT), where the volumes significantly exceed the 2% order book depth on exchanges considered reliable. In contrast, the DYDX token, which has a similar market capitalization, shows far more consistent and believable trading figures across multiple platforms.
Analysis of Free Market Capitalisation
Another critical indicator is the relationship between daily trading volumes and the free market capitalization of a token. If daily volumes regularly surpass 30% of the token’s free market cap, it suggests abnormal trading activity, which could be a red flag for potential investors. However, traders should be aware that high volumes in the first two days after a token’s listing might simply reflect initial excitement and interest.
Gaps and Inconsistencies in Trading Volume
Traders should also be wary of sudden gaps in trading volumes, where a significant portion of a cryptocurrency’s volume disappears and then reappears irregularly. These gaps can result from server issues, liquidity withdrawals by market makers, or deliberate wash trading by exchanges to feign activity. Such inconsistencies are unnatural and indicative of manipulated volumes.
For instance, according to TokenInsight data, the APENT (NFT) token exhibited a notable drop in trading volume over a six-hour period. This sudden decrease suggests potential volume manipulation, from an average of £1.7 million to just £250,000.
Manipulated Crypto Volumes: Tools for Enhanced Analysis
To navigate these complexities, traders are encouraged to use analytical tools available on platforms like CoinMarketCap, CryptoCompare, and Coingecko. These sites provide detailed data on trading volumes and token availability, which can help them make informed decisions.
Additionally, tools for analyzing order book depth, such as Okotoki, TensorCharts, and TRDR, offer deeper insights into the real-time market supply and demand dynamics.
In conclusion, while the crypto market offers substantial profit opportunities, it also comes with its share of risks, primarily due to volume manipulation. By employing the three strategies mentioned above, traders can safeguard themselves and ensure they are making investment decisions based on accurate and legitimate market data. Remember, staying informed and vigilant is the best defence against falling victim to the murky underbelly of crypto trading.
For further insights and updates on market dynamics, keep an eye on the latest crypto news on The BIT Journal, your go-to source for all the latest crypto news and crypto updates.
Disclaimer
The price predictions and financial analysis presented on this website are for informational purposes only and do not constitute financial, investment, or trading advice. While we strive to provide accurate and up-to-date information, the volatile nature of cryptocurrency markets means that prices can fluctuate significantly and unpredictably.
You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The Bit Journal does not guarantee the accuracy, completeness, or reliability of any information provided in the price predictions, and we will not be held liable for any losses incurred as a result of relying on this information.
Investing in cryptocurrencies carries risks, including the risk of significant losses. Always invest responsibly and within your means.
