Nicholas Merten on how markets are manipulated

One of our most watched youtube channels, DataDash started a series on how crypto markets are manipulated. The channel’s owner Nicholas Merten decided to break it down to all those who are interested in, but not necessarily know a lot about crypto-currencies.

If you want to watch the complete video in English, click on the link at the bottom of the article.

Our article below and the upcoming articles in our series are summaries, that is, edited shorter versions, quoting what Nicholas Merten is talking about in his video.

“Let’s go ahead and spend some time today to talk about the varying levels of manipulation you can find in crypto-currency markets. It’s important to know that means of market manipulation under Category 1 tend to be more well known or obvious to average investors and traders. Along with that, as well, even though some of these methods are considered illegal under Securities Law, some of them are essential parts of any given market. /…/

Let’s talk a little bit about what makes up a pump & dump first and foremost. Pump & dumps or P&Ds tend to be the most common method of market manipulation we find in crypto-currencies. And they pry on the weakest and smallest investors, speculating on the price action of crypto-currencies.

There are a few steps that must be conducted in order to successfully execute a pump & dump. The first step has to do with gathering speculators, traders and investors to come in all at once at a specific designated time that has been agreed upon, in order to purchase up the crypto-currency and prop up the price. This leads on to step 2, where new speculators will come in that are outside of the pump & dump group, due to the recent price action that they’ve seen in the market with the related crypto-currency. By bringing in new liquidity, this is giving an exit point for the pumpers to execute and sell their positions at a higher level. And as the old saying goes, what comes up must come down. /…/ We start to see a /…/ decline in price action. /…/ The sad realization comes in for the new speculators when they realize that the volume, or liquidity, has dried up, leaving them at the only opportunity to continue dropping their crypto-currency, as the price picks up momentum to the down side.

It’s important to know that pump & dump is not only an illegal activity in traditional and crypto-currency markets, but along with that as well, in many cases if you participate in the pump & dump you can end up getting burnt. In practically all cases, there is a sense of hierarchy whereas the higher ups are guaranteed to benefit from the activity. Whereas in many cases the bottom feeders can be used and manipulated into buying and selling later than the initial investors.

The next topic we’ll talk about in regards to market manipulation has to do with something known as Market Making”,

says Nick Merten in his video, moving on the second type of market manipulation that he lists in Category I. That’s what we are going to cover next time.



Zsolt Balló