Most Crypto Exchanges Manipulate Prices, Only Hold Fractions Of Investors’ Coins: Zurcoin Co-Founder
Most Exchanges Are Manipulating Crypto Prices, Says Zurcoin Co-Founder
One of the issues that arises every so often in the cryptocurrency world is the concept of price manipulation.
Though it has been attached to specific platforms and companies in the past, is it possible that most of the exchanges active right now are participating in this illegal activity? According to co-founder of Zurcoin Daniel Mark Harrison, the answer is a resounding “yes.”
Harrison published an article on Medium yesterday titled “The Problem With Exchanges,” featuring the sub-header “Virtual Currency Reality Manipulation.” In it, he starts off by defining the two types of medium exchange – cryptocurrency and virtual currency. He defines crypto as the derivatives of the blockchain, while virtual currencies are “visually represented on a piece of software and derived from the imagination of the issuer.”
Elaborating, Harrison explains how exchanges are accepting crypto deposits, but issuing virtual currency instead, saying that users can see that their account holds a BTC, while there’s no “real” bitcoin.
This difference is fairly similar to what the fractional reserve banking system does, according to a post on Finance Magnates on Harrison’s article. Banks maintain a portion of their deposits in cash, though the rest is lent out in efforts to maintain revenue. This is done under the assumption that all of their customers would not withdraw funds simultaneously.
Paraphrasing, Harrison sees crypto exchanges as doing the same, which causes Harrison to bring up a paradox that presently exists that could damage the market. He explains,
“That paradox is this: whereas nearly all digital currencies are cryptographic decentralised mediums of exchange, when they are traded on“cryptocurrency exchanges” they most often immediately become units of virtual centralised exchange, subject to the absolute control and power of the governors of the exchange.”
Harrison suggest there is no absolute connection between what the user believes that they hold and what they actually possess. As such, the depleting value of these exchanges could easily be credited to the withdrawals that the issuers could be taking out. To Harrison, this is the only possible reason for the market can go down.
Without any type of consistent regulation happening with these cryptocurrencies, it is unlikely that the current infrastructure will be altered in any way. Inadvertently, this points to the exact reason that regulatory decisions need to be made globally, protecting investors from even the possibility of these actions.
If Harrison’s claims are ever proven to be true, there is a major threat in the potential for market stability. Furthermore, it would completely contradict the decentralization that the entire market is built upon. Still, even with all of the statistics and details that Harrison brings up, there’s no way to verify that the crypto exchanges are participating in these activities without a subpoena or a similar order.
The co-founder points to the fact that, even without proof, there’s still an incentive. Concluding, Harrison notes,
“To do this, there is a clear incentive to direct prices sharply downwards after they hit a peak, so that the customer perceives a lack of point in removing the digital currency from the exchange. This, in turn, gives the exchange the affordable luxury of simply taking the remaining cryptocurrency that the majority of its customers have removed from exchange, cashing it into fiat, and putting it in its owners’ bank accounts.”