Exploring Bitcoin’s “Dark Underbelly” Behind Manipulated Crypto Markets

Cryptocurrency is a growing industry. Like many growing industries, crypto is facing some growing pains – including problems with price manipulation, inefficient price discovery, and liquidity.

The SEC has frequently referenced these issues when denying bitcoin ETFs. Nic Carter, the co-founder of Coinmetrics.io, recently published a blog post exploring these issues.

In his article, “A glimpse into the dark underbelly of cryptocurrency markets,” Carter investigates the key drivers behind crypto markets, including the mechanics behind exchanges, coin ranking websites, statistics sites, and more.

Carter’s argument rests on the idea that crypto markets are manipulated to benefit those in power at the expense of ordinary investors like you and me:

“The major stakeholders in this market are exchanges (naturally), altcoin/cryptocurrency/fork issuers, and coin ranking sites, who mutualistically work together to extract value from one group: retail investors.”

Unwitting investors infuse the industry with capital hoping to make a profit, while exchanges and other influential organizations capitalize.

Carter explains the role of each group in turn, including how exchanges, altcoin makers, and coin ranking websites work together to take money from retail investors.

How Exchanges Take Money from Retail Investors

Carter explains that there are two types of crypto exchanges, including:

  • Fiat onramps
  • Altcoin casinos

Fiat onramps are your ordinary exchanges. These exchanges cooperate with AML/KYC regulations. Some even monitor trading activity to reduce manipulation. These exchanges, generally speaking, behave like full-reserve banks.

Carter is careful to explain that not all exchanges are malevolent. Coinbase and Gemini, for example, “generally play by the rules and are in the midst of a pivot towards regulator friendliness.” Carter insists that his article isn’t about those exchanges.

Carter has a specific problem with “altcoin casinos”, which are exchanges that don’t play by conventional financial rules. These exchanges are often registered in lax jurisdictions like the British Virgin Islands, the Seychelles, or Malta. They might hop around.

Binance is one such exchange.

“Binance is the archetype. They tend to have a devil-may-care attitude to compliance, KYC/AML, wash trading, and reporting. They may not even deal in fiat at all — traders typically have to use BTC and ETH to get access to the rest of the casino.”

The main users of these exchanges are retail investors looking to make enormous gains. They’re day traders and gamblers who want to access a global, 24/7 altcoin casino.

How Altcoin Developers and Team Members Take Money from Retail Investors

Retail investors are also being taken advantage of by altcoin developers and team members, according to Carter.

“Exchanges have a mutualistic relationship with altcoin developers and marketers (“issuers”). Generally speaking, creating an altcoin is not technically challenging. Many, many altcoins over the years were created with forkgen or any of the numerous ERC20 generators (1 2 3). The main challenge for the folks on the altcoin team is not technical, but rather social.”

Anyone can create an ERC20 token in 20 minutes with minimal coding knowledge. In fact, you can find pre-built smart contract scripts online that will allow you to launch an altcoin with no coding knowledge.

The real challenge to building an altcoin is to market your coin effectively. Coins that succeed typically do so by convincing investors that they’re going to make a lot of money. They might hint that their coin is “the next bitcoin” for example, and that you can buy a coin for $0.20 today that will be worth $20,000 in the future.

This is where exchanges can help. Altcoin developers and marketers will pay exchanges to list their coin. Binance has made an entire business model out of charging high listing fees – reportedly as much as $6 million.

This is where things get particularly manipulated in the underbelly of crypto markets: exchanges will typically take tokens from the altcoin developer that wants to list on the exchange. They might accept $1 million of tokens today, for example. After the exchange announces the token is listed on their exchange, the value of the token skyrockets. The $1 million of tokens collected by the exchange is now worth $10 million.

As the value of the coin pumps, exchanges and altcoin developers profit at the expense of retail investors who are afraid of missing out.

How Coin Ranking Websites Take Money from Retail Investors

Coin ranking websites also play a role in this manipulated industry, according to Carter:

“[Coin ranking websites] occupy a fêted position in the industry. Ostensibly, they perform a useful service to investors and receive little in return aside from ad revenue. But the under-reported reality is more sinister. Rankings sites are squarely at the center of the extractive game that siphons money from retail investors and deposits it into the pockets of altcoin creators and exchange operators.”

Sites like CoinMarketCap and CoinGecko sell advertisements and insert affiliate links to crypto exchanges. Some sites will also sell blended pricing APIs to traders who want a more sophisticated price feed.

These sites aren’t interested in presenting unbiased, accurate information to users. They’re interested in presenting whatever information makes them the most money.

The best example of this is the infamous Bitconnect (BCC) banner on CoinMarketCap. It was clear that Bitconnect was a complete scam. However, those who promoted the scam were making a ton of money. CoinMarketCap gave unnecessary legitimacy to that scam by posting their banner prominently over their website.

CoinMarketCap didn’t stop at Bitconnect. They eventually promoted HYIPs and other scams, including one that promised monthly profits of 24.8% to investors.

As Carter pointed out last year on Twitter, CoinMarketCap once simultaneously advertised three separate Ponzi schemes.

It’s unclear how much money CoinMarketCap made from its Ponzi scheme referrals, but it seems likely they made millions, according to Carter:

“Those are six-figure monthly revenues for directing traffic to a now-defunct ponzi. Yes, this is the same CoinMarketCap that millions of users and dozens of funds trust with their exchange data.”

How the Three Groups Combine to Take Money from Users

Exchanges, altcoin makers, and coin ranking websites are all participating in a con of retail investors. These three groups all work together to enrich themselves at the expense of ordinary retail users. Here’s how it works:

  • Issuers want to list on liquid markets and exit or pump their positions
  • Exchanges want to advertise themselves as liquid, so issuers will be more amenable to paying listing fees
  • Altcoin casino-style exchanges are unregulated and unmonitored, which means they can get away with pretty much anything
  • Many exchanges engage in wash trading to make volume look greater than it actually is, boosting their perceived liquidity
  • Ranking websites monetize themselves through referral links, affiliate commissions, and ads, and they also lack the resources to monitor each exchange
  • Exchanges profit, ranking sites profit, and issuers profit at the expense of investors


The end result is that a small number of investors may win in the short-term, but the three groups above – exchanges, altcoin makers, and coin ranking websites – win in the long-term.

Nevertheless, there is hope for the future. Crypto markets are becoming more regulated and more institutionalized. Coinbase and Gemini have shown a commitment to abiding by regulatory frameworks. Up-and-coming institutions like Bakkt will help markets boost transparency, price discovery, and legitimacy.

You can read Nic Carter’s full post on the dark underbelly of the crypto world here.

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