Crypto Price Analysis

Bots and Whales – Anatomy of a Pump and Dump

The cryptocurrency market is a turbulent place, with accusations of widespread market manipulation coming from mainstream media, government regulators, and crypto traders themselves.

Interesting fact about those accusations –  they’re true. The market is manipulated, and using methods that are totally illegal when applied to the regulated stock market.

Trading Bots and Whales

One of the main manipulating influences in the market is trading bots.

The crypto market is still largely unregulated, even in areas with otherwise strict financial regulation such as the US, South Korea, and Japan, although multiple regulators are implementing legislation to deal with the unwanted activity in crypto trading.

Speaking to The Wall Street Journal, CoinList co-founder and president Andy Bromberg stated that the cryptocurrency market is rife with illicit bot trading and market manipulation.

“This sort of activity is rampant in the market right now.”


Spoofing is the word used to describe one of the methods by which bots manipulate the market on a large scale. By placing large amounts of buy orders in quick succession, botnets can create artificial demand – other traders (and even bots) will see that there are more buy orders racking up, and conclude that demand has increased, making the currency being traded more valuable.

Bots can be instructed to suddenly cancel orders before they go through, meaning they don’t even have to spend money to manipulate the price. As it rises, the botmasters can sell their accumulated funds at an inflated price – the method can also be used to the opposite effect, with sell orders pushing the price down to facilitate cheap accumulation.

Of course, the bots do need a large amount of money to place so many orders in the first place, meaning that they are often controlled by funds or whales who also have a number of other tricks up their sleeves.

Anatomy of a Pump and Dump

Pump and dumps are similar in the sense that artificial demand is being created – this time, the method is a little more public. Influencers are hired to spread the word that a certain currency is doing well, or has promising partnerships being announced – market-moving news and social media posts are released in quick succession, creating hype.

The hype leads people to invest, inflating the price of the currency which the pump and dump orchestrators will have already accumulated. Then they sell a huge amount off, creating a trend reversal which causes the currency to lose value and typically revert back to the original price or even lower, burning all the investors who bought the hype.

Here are the different stages of a typical pump and dump according to Crypto Frenzy:

1) Position Building: accumulating vast amounts of a currency, often one with a low market cap that is easier to manipulate. Position building is contingent on part two:

2) Suppressing prices: After accumulating enough to spoof the market, spoofing and then canceling sell orders drives the price even lower. At this stage, the market is already being manipulated in such a way that could be capitalized on, but pump and dumps take things much further than traditional spoofing.

3) Test Pump: A test pump is implemented through spoofing and sometimes social media hype to slightly increase the price, driving out weak hands looking to sell early and leaving only people who want to ride the currency to the moon and won’t sell easily, giving the whales more complete control.

4) Actual Pump: This is where the price inflation tactics begin in earnest, taking prices to the top.

5) Shakeouts: A sudden forced price reaction tanks prices and shakes out more sellers.

6) Re-allocation and distribution: A carefully coordinated series of buys and sells on the part of the whale facilitates rich market activity and creates the impression of a healthy price increase.

7) Exiting – The Dump: This is where the whales leave the other traders holding the bill for their very expensive exercise in market manipulation. This is usually done in bits and pieces – it’s difficult to make a major exit without deflating the price, but this will begin during the reallocation phase and gradually continue until the whale has exited at the top or the price has crashed.

These tactics are illegal under SEC regulations when used to trade FOREX currencies or stock – but in the crypto market we have yet to see regulations that protect investors from such activity, and indeed, there are those in the space who would prefer manipulation over government regulation in any case.

How Market Manipulation Works

Whales and market manipulation

In November 2017, the meteoric rise of Bitcoin past $8,000 was a miracle. No-one had ever seen anything like it. The market shot so high that only a year later, as we return full circle and see Bitcoin trading at around $7,500, people are scared.

They were scared it would drop below $8,000, they’re scared now that it will drop below $6,000, and they’re terrified that it will plummet into the abyss altogether. People don’t understand the mysterious forces that contribute to the market value of Bitcoin, and it’s invariably attributed to FUD/Bullish news, or market manipulation.

Economics has often been described as a “social science” because of how closely tied to human emotions it is, and it seems likely that Bitcoin is impacted by international news stories and market manipulation as well. But what does that mean? What can we do about it?

Market Manipulation 101: Spoofing

Despite the complex nature of cryptocurrencies and the financial markets, the most common and effective form of market manipulation is actually remarkably easy. Are you ready to hear how it’s done?

All you need to manipulate the price of Bitcoin and other cryptocurrencies is a LOT of money.

The method below is called “spoofing”, and people have been reporting instances of this on the crypto exchanges since the early days. The less volume a market has, the easier it is to manipulate, so even highly traded currencies like Bitcoin can be manipulated with relative ease compared to blue-chip stocks on the stock market.

Wall Street and crypto trader Ronnie Moas is one of the people who has been calling out market manipulation for a long time in the crypto space, and he explains a typical instance of price spoofing below:

“If you have $2 bln, you want a diversified portfolio, and for me diversified is a $200,000 position, but there can be a position that is $200 mln, because you want 10 percent of your money in Bitcoin. But you don’t want to pay $20,000 for a Bitcoin, so what you do — and you can call it a Whale, a cartel, a shark, a consortium, a trading group — you dump $20, $30, $40 million dollars on the market, and create selling pressure. People see those orders on the books, and they jump in front of them, because they are afraid you are going to move and shake the market down, and this feeds off itself.”

Of course, this isn’t the only way to manipulate the market price, but it’s the most direct. Unlike other methods, there’s no need to communicate with the community – you simply accumulate large amounts of currency, place massive sell orders that can be seen on the order book, and wait for the market to “capitulate”, as in panic and behave exactly as you want them to. People will try and sell out before the massive order drives the price down, making it them who drive the price down. Meanwhile the big player cancels the sell order, places it a few more times until the price is low enough, and then begins to accumulate far more than they bought at a higher value.

In the relatively unregulated cryptocurrency market, it’s by far the easiest method – it’s also illegal. The US government has launched an investigation into crypto market manipulation and it is spoofing that they are specifically focusing on the most.


This is a similar act to spoofing, though with slightly different intentions. Traders committing layering place many orders at key price points throughout the order book with the hopes of reserving key positions in advance. What’s wrong with that?

Just like with spoofing, the traders have no intention of actually making all those trades – just one or two. While they’re not necessarily trying to tank or inflate the price by distorting the public perception of market demand, that’s exactly what they’re doing by placing (potentially massive) orders throughout the book that will never be fulfilled. This leads people to get a warped, falsified view of market demand and causes price manipulation just as much as spoofing does, and both layering and spoofing are illegal.

Pumping and Dumping

This method is a little more elaborate and difficult to pull off. Because of that it’s far more effective with low-volume altcoins than high-cap coins – not that it doesn’t happen with both.

Pump and dumps are orchestrated through shilling, fake news, and false promotions. The idea is simple: the orchestrators accumulate large amounts of a currency and contract celebrities and influencers to start talking up that currency on social media. They’ll pay unscrupulous media outlets to release fake press releases, often in the form of supposedly unbiased “news” articles that are essentially covert advertising.

The media storm will drive up the price – in a small altcoin community, this can be highly, highly effective as the community shares the fake news and bullish influencer tweets amongst themselves, start buying more tokens and driving up the price which escalates as everyone “gets on the moon rocket”, etc.

With the pumping phase complete, the next phase is the dump. This only works if it’s done at the same time – obviously there’s bound to be price slippage either way, but the manipulators can’t sell their bags off slowly without significantly altering the market to the price reversal. The only thing to do is to sell all at once, completely tanking the price and of course screwing over everyone who bought in high in the process, leaving them holding the bag.

The opposite of this is called a Bear Raid, in which manipulators spread FUD news stories to create market fear and drive the price down. “India banning cryptocurrencies”, etc. Sound familiar? Once the price has hit the floor, the whales accumulate at a lower price. Both pump and dumps and bear raids are considered to be a form of securities fraud in the traditional finance markets.

Here’s a tweet from our friend Ronnie Moas pointing out a classic pump and dump:

Is the Bitcoin market being manipulated?

Well… what do you think? Have you ever come across fake news or press releases? Do you remember major media outlets reporting on scary upcoming events that never came to pass, or promising bullish news that turned out to be untrue? Do you ever see large orders placed on the books only to be canceled when they get close to fulfillment?

The US investigation will probably reveal some details, but you don’t need to be a detective to know that the market has been manipulated from the beginning. The question is… how much?

Let us know your experiences below!

Interested in other cool crypto posts….check out Mining Wars: Bitmain vs Dragonmint and The Price of Bitcoin vs Cost of Mining.

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