Cryptocurrency Market Manipulation
It’s a well-known fact that cryptocurrency market manipulation is caused by many factors. But so is every other market in the world. So why are cryptocurrencies so much more volatile in the times of manipulation?
Why Does Manipulation Affect Cryptos So Much?
Cryptocurrencies, and mainly Bitcoin are extremely susceptible to manipulation. The reason for that is the big growth crypto movement had in the past years. If you think about it more, market cap certainly does not reflect the total money that went into the crypto markets. Another reason would be the youth of the market and the general mentality of an average crypto investor.
Overleveraged Dollar Value
Early investors could buy Bitcoin for as low as $400 not so long ago. And as the value of a cryptocurrency is just as much about what the next person is willing to pay, with more adoption and speculation, the price rose. With the price, market cap rose too. That made every dollar put in become overleveraged and worth a lot more, for both up and down moves. In trading, this means that less actual money is needed to bring a market up or down. People brought markets down, and rose it up for several billion market cap wise, with only several million dollar orders.
Average Investor Mindset
If we look at an average crypto market investor, it does not match the profile of a traditional markets investor. A traditional investor is in his mid-40s or 50s, middle class and calm. On the other hand, an average crypto investor is young, without much knowledge of the markets, financially dependent and very susceptible to fear of missing out and fear of losing. That’s why the reactions of crypto investors are much more linear, both to the up and down side.
This creates a problem as an already overleveraged market cap of cryptocurrencies gets shook by multi-million dollar manipulative order, and that creates unreasonable fear with the investors. And since our average investor is young and does not handle stress well, he buys or sells in excess, which further accentuates the move. This happens in both a downturn and an upswing.
Cryptocurrencies will remain volatile for a couple more years until the profile of an average investor changes. When investors become more mature, the market will follow. This, however, will not happen in a month or two. Market maturity is a process that every tradable asset needs to go through.