How Crypto Mining Bots Can Influence Industry & Manipulate Markets
The greatest news of 2017 has been the enormous increase of this cryptocurrency industry. Lately passing $500 billion in total market cap, many of the top digital monies have seen their worth into record heights again and again within the previous 12 months. Along with these profits, but there have also been dramatic drops and swings even for bitcoin, the biggest digital money by market cap.
Investors and analysts have taken this is a characteristic of the new sector, which no one completely understands as of yet. Some of the main reason behind the fast price fluctuations could be bot activity, according to a recent report by Venture Beat.
What Are Crypto Mining Bots?
Bots are preprogrammed to trigger upon specific causes, meaning that they don't include the individual emotional factor when making a trade decision. Because of this, they've been blamed for several market crashes, such as the 1987 Black Friday Wall Street crash, which saw auctions fall by more than 30 percent in a single day. Nonetheless, bots remain incredibly popular in a variety of markets, and especially in the burgeoning cryptocurrency area in short term holdings.
Volatility that's already built into the market is just highlighted by bot activity. Venture Beat points to the crash of Neo, the “Chinese equivalent of ethereum” as an illustration. The token's price fell from $34 to $3.74 in only moments, then climbed back up to $34 just as quickly. Since then, flash crashes of the sort have occurred in other digital currencies as well.
Bots Manipulate Markets
Besides their hand in flash crashes, bots may also manipulate markets by artificially inflating costs. Human traders may be tempted to overpay for coins because of the action of bots. The automatic trading protocols can participate in a “pump-and-dump” scheme in only the exact same manner as human traders; multiple bots buy up a low-cost money so as to generate artificial curiosity about the money, thereby pumping up its cost.
Next, bots will sell off the advantage when it reaches a high point. But without new buyers entering the market, the purchase price of the coin then falls quickly, and individual investors are generally left holding a worthless currency for which they have overpaid.
How to Find a Bot
Regrettably, it is very tough to detect bot action without complex analysis tools. Price momentum and quantity could be indicators, nevertheless. Still, even when you're able to discover bot action before it takes place, the unregulated nature of the electronic money market makes it difficult for human investors to do anything about it at this stage.