Volatility In Crypto Market Not Due To Manipulation, But Merely A Result Of Low Liquidity Caused By Whales?
Recently, a debate has sparked in relation to crypto market’s volatility on Reddit. One particular user argued that said volatility is not always caused by price manipulation, but rather the lack of liquidity, which they trust is due to Whales’ trading – who either buy or sell large on an exchange. The Redditor dubbed, “pntbll1313”, said:
“I would like to think that most whales are smart and use OTC for their transactions, but if that’s not the case and one was to sell on Coinbase a couple thousand btc would “crash” the market. We have such little liquidity right now it’s possible a few million dollars can move the entire market 5+%.”
Another Redditor begged to differ, emphasizing that low liquidity can work in our favor in terms of manipulation. Going by the name, Toyake, the user said:
“As liquidity lowers, we see whales try to make money in different ways. Market can’t handle a dump of btc? That’s okay, pump the price, cause fomo, open a short and dump that sh*t.”
It was further argued that this is the primary reason why crypto exchanges are leaning more towards offering margin trading services, as it allows for more price and liquidity manipulation.
AMB Crypto happens to have reported on this matter as well and has further examined Bitcoin’s performance in relation to the conversation that has led to a lot of insight.
The graph provided above is described as the average transaction value and how it affects the currency’s value. The average transaction value’s peak found in this very graph supposedly matches the BTC price when it reached $9,000.
According to the Redditor, whales cannot sell large sums of BTC (say 10,000) on an exchange, arguing that they could instead make a buy on the exchange, which will result in an increase in value and then sell the initial amount and the aforementioned buy on OTC at the “manipulated price”.
AMB Crypto further expounded on the previous example by sharing that manipulation is only possible by “large investment groups,” which means they have the ability to add liquidity to the market. This activity is deemed common in the crypto sphere, leaving Whales with most of the gains.
It seems like most have arrived at the conclusion that,
“If the OTC market has dried up and low liquidity means you can’t sell, it means it’s time to margin hunt.”
What are your thoughts on this claim made? Do you agree or disagree?