Some time ago my friend, who is a hobbyist economist, said that Bitcoin is easy to manipulate and that he would advise against investing in cryptocurrencies. How can you manipulate Bitcoin? Is what he said true?
To answer this question, we must first ask – what decides asset’s worth? What makes Bitcoin worth as much, as its exchange course indicates?
When it comes to classic assets, you can pinpoint factors that influence them. It’s usually not one, concrete thing, but a few correlations which decide the asset’s price. And so, the shares’ worth mirror the worth of a company that sold them, and predicting the company’s rise and fall is more complicated than that. Currency prices are influenced by broadly understood economy. Silver prices – mainly by the supply of this metal in the industry. And so on.
There is a very specific group of assets that have their worth decided mainly or solely by basing it on the supply and demand on the investment market. Cryptocurrencies are an example of such assets. In addition, Bitcoin is prone to such fluctuations due to the imbalance of supply and demand, which is why it tends to create financial bubbles.
In theory it means that Bitcoin as an asset is much more prone to manipulation than other assets. Such attempts at manipulating it already took place, and were made by subjects interested in profiting from cryptocurrency no matter its course, so most of all cryptomarkets.
For example, in 2017 – so in the middle in the Bitcoin fever – the Bitfinex market forged interest in this cryptocurrency by artificially rising its prices. That’s the conclusion reached by the Texas University experts, but at this time we have no proof and no charges were pressed. Despite that, their almost 70 pages long report is a trustworthy source, and even if it doesn’t point directly to such actions in the past, it still leaves the question of using this method in the future open.
But is Bitcoin manipulation always negative for a trader? Not necessarily. Creating a speculation bubble, in a broader context, is an undesirable phenomenon for the economy and investment dynamics, but it allows the happy traders to realise lucrative transactions. We do have to remember, though, that both manipulations and bubbles are very unpredictable, and investing in Bitcoin belongs to the “high-risk investment” group.
In anyway, the experts agree that right now is not the best moment to invest in Bitcoin. It’s also “thanks to” the speculation bubble – after one already burst in 2017, it’s not very plausible that the course would rise enough to make up for such a risk. After two years, Bitcoin is still deeply in corrections – even now there are people trying to manipulate it and forge demand, but the market has become somewhat resistant to them, and manipulations yield little – if any – effects.