These tactics are common in poorly regulated cryptocurrency markets. Wash trading inflates volumes, market makers control price movements, and stop-loss hunting turns market data against traders. Suspicious patterns, such as sudden spikes in volume followed by sharp price drops and rapid recoveries, often indicate such schemes, although exchanges rarely acknowledge them officially.
Cryptocurrency exchanges hire market makers to manipulate prices, use stop-loss hunting, and provoke liquidations. Here’s how it works:
• Exchanges artificially increase trading volume by simultaneously buying and selling the same asset. For example, a bot can place opposing orders to buy and sell cryptocurrency at the same price and volume. These trades cancel each other out, creating no real value, but creating the illusion of high activity.
This can easily mislead investors regarding liquidity or demand, stabilizing prices and preventing them from falling too quickly.
• To suppress prices, market makers can place large sell orders slightly above the current price, creating resistance to growth, and smaller buy orders below to 'catch' declines, keeping the price in a narrow range. This is beneficial for exchanges, as it maintains stability or serves the interests of those who want to accumulate assets at undervalued prices.
• Stop-Loss Hunting.
Exchanges have access to information about stop-loss orders (preset orders that are activated when a certain price is reached to limit losses), and market makers can exploit this: they can intentionally lower the price to a level where stop-losses are concentrated— for example, below a key support level, triggering an automatic chain reaction of sales.
This 'hunting' liquidates traders, allowing the exchange or manipulators to buy the asset at a lower price. After the stops are triggered, the price often quickly recovers, leaving retail traders out of the game. This temporarily suppresses prices but benefits those who know exactly where the stop orders are located.