Bitcoin – A More Wash Trading Than a Laundry Mat

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Overview:

One of the difficulties in trading the crypto space is the lack of a central exchange.  In trending markets this is not an issue, but in range bound and sideways markets, or when there is a lack of order liquidity,  individual exchanges are prone to filling the order book taking the other side of the trade, or wash trading.  This is quite different from the stock market.  There are many exchanges in the US stock market for which is a centralized exchange and a central clearing house that provides transparency of orders and prevents exchanges from collaborating. Imagine if E-Trade, Ameritrade, Interactive Brokers, Charles Schwabb etc. each had their own exchange and did not have a central clearing house.  Now these are clearly brokers not exchanges, but essentially this  what we have in the crypto space.

Manipulation:

Since the crypto market in general is thinly traded, with the majority of trades happening in the OTC market and likely on a negotiated basis, this leads to exchanges filling the order book.  They will then straddle the current trade price with buy and sell orders giving the impression there is more demand than there actually is.  Now in Forex the broker literally takes the opposite side of the trade, you are not trading on the open market, you are pretty much trading against yourself.   Since the brokers can see the hidden orders and the actual volume this leaves the door open for manipulation.

Now blaming a loss on manipulation is amateur at best.  Manipulation is as old as trading itself.  To think it does not happen in all markets is simply naive to say the least.  From the bucket shops of the 1800’s to the Libor, silver and gold markets in the current decade manipulation happens and it is just something we have to accept if you want to play the game.  This even happens in the futures and stock markets.  However unless you have the bankroll you have to accept we are subject to manipulation.

 

 

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