How Cryptocurrency Markets Are Manipulated Using Fear
A significant flaw in many people is the inherent fear of losing out on a beneficial opportunity, whether in finance, relationships, career, or anything else. Such a behavior blinds a person to the potential risks involved in an opportunity and instead drives them to focus only on the good side. Such a behavior is also present in the cryptocurrency market.
For example, suppose that the price of Bitcoin surges from $3,000 to $8,000 in a week. The interest it generates will be huge. In fact, all investors will be thinking nearly the same thing – can they afford to sit out on this upward surge? And unless an investor has nerves of steel, the idea that you might lose out on doubling or tripling your investment in a short period of time will drive him or her to put down their bet.
Now, this behavior in itself is not an issue since this is how all markets operate. The problem arises when people start using this psychological behavior of human beings to manipulate them to invest in a specific way. And there are two ways it can be done – by spreading fake news through reputed websites, and through market monopolization.
The Mainstream 'Fake' News
An interesting way in which the mainstream media is used to create fear and manipulate the cryptocurrency market is through the use of ‘fake’ news. One has to understand that the news itself need not be completely untrue. Instead, certain facts of the story will be presented is a specific way that ends up emotionally manipulating the readers. A good example is a story involving the digital currency IOTA.
In early December 2017, CNBC published an article titled, “A little-known digital currency surges 90% after teaming up with firms like Microsoft.” The article gave off an impression that IOTA and Microsoft had entered into some kind of an agreement that will change the cryptocurrency market in a big way. But this was not completely true.
Microsoft had just begun discussions with IOTA about a partnership that would only focus on few specific things, and not impact the cryptocurrency market in any way. However, the CNBC article went viral and investors were quick to bet their money on IOTA, with prices seeing a rapid surge.
This was however followed by a dramatic fall as soon as the truth of the matter came into public knowledge. And though this CNBC article was not intentionally ‘fake’, the example goes on to show how such misconceptions can be used to manipulate the market.
Another way to manipulate the cryptocurrency market is by owning a large chunk of the currency, essentially monopolizing the market. This is something that is very evident in the case of Bitcoin. It is estimated that about 40% of Bitcoin is held in the hands of just about 1000 people. And market experts have always been worried whether these individuals would ‘conspire’ and come to a consensus that decides the fate of the Bitcoin market.
However, many believe that this is something no one needs to be afraid of since wilful manipulation of the market will only bring confusion among investors that will end up damaging the trust of the cryptocurrency in the long term. And that is something people who own 40% of Bitcoin will never want.