Bots are quietly working in the background of the cryptocurrency market in a bid to manipulate digital coin prices, a newspaper investigation alleges.
An investigation by The Wall Street Journal says bots are behind the huge swings in cryptocurrency values and swindling innocent investors out of their cash.
A bot is a purpose-built software program that trawls the cryptocurrency market.
The bot has algorithms that spot trends in the market and then automatically places trades.
Illicit traders use bots to post an order to sell at a lower price than other investors then cancel the order almost immediately. The sale order tempts other investors to buy at the low price, but the order is not executed because the sale is cancelled, but the transaction briefly boost the value of the cryptocurrency.
Bot spoofing banned on stock markets
The trader running the bot then sells at the higher price.
The strategy is like a technique called ‘spoofing’ on stock and futures markets and was banned in America in 2010.
“This sort of activity is rampant in the market right now,” said Andy Bromberg, co-founder and president of CoinList, a cryptocurrency start up issuing new digital tokens.
Trader Kjetil Eilertsen wrote a program called Quatloo Trader promoted as “the best market-manipulation tool in the world of crypto.”
He says banning market manipulation will not work, instead, he says, give everyone the same tools.
“If everybody can manipulate, then nobody is manipulating,” he said. “You can’t ban anything from people who are dedicated to doing something.”
Passive income generators are scams
Regulators are especially concerned about cryptocurrency market manipulation.
The US Securities & Exchange Commission, a financial markets watchdog, has turned down attempts to start several Bitcoin-based exchange traded funds (ETFs).
New York Attorney General Barbara Underwood highlighted the problem in a report.
“When any venue tolerates manipulative or abusive conduct, the integrity of the entire market is at risk,” the report said.
Digital currency traders can develop their own bots or buy them online with impunity.
Many are marketed as passive income generators, but turn out as scams. The prevalence of bots in the market have led social media sites like Facebook and Twitter to ban their advertising.