The University of Sussex Business School recently published an analysis indicating that widespread market manipulation is a serious problem that regulators should deal with so that to confront false prices and avoid distorting the minds of investors.
According to the report, the COVID-19 pandemic has created huge volatility in global financial markets. But as one might expect, prices of safe-haven assets like Bitcoin and gold are not surging, a problem that is caused by large-scale and intense manipulation.
Insider dealing and market abuse
In recent months, the CryptoMarketRisk team at the University of Sussex Business School has been tracking trades on these markets and have identified massive dump and pump on copper futures, huge sell orders on gold futures, and large spoofing orders on key cryptocurrency exchanges.
The team identified that some single trade on COMEX has been so huge as to move prices, which is a clear contravention of US laws on market abuse. The COMEX, commonly known as The Commodity Exchange, is a division of the New York Mercantile Exchange, which trades futures in metals like aluminum, silver, gold, and copper.
The rampant market turmoil implies that regulators like the Commodity Futures Trading Commission (CFTC) have a lot of work to do as large-scale manipulation of such markets remain below the surveillance of regulators.
Carol Alexander, a professor at the Business school said, “As funds flow out of equities, one would expect demand for gold and Bitcoin to increase. But this time around, safe havens have behaved completely differently. Gold and Bitcoin have fallen at the same time as US equities. As the S&P 500 crashed in March 2020, gold had its worst week in eight years when it should have been the best, because of massive shorts on COMEX gold futures. Bitcoin has also been driven down by some pretty obvious manipulation bots on the unregistered crypto derivatives exchanges, especially BitMEX.”
Alexander added that the world is experiencing financial market manipulations on a frequency and scale that have rarely been witnessed before. The professor mentioned that a few powerful market players lack integrity, a phenomenon causing a major financial market meltdown of the current global economy.
Beyond those placing the trades, the biggest beneficiaries of such market attacks are holders of US assets and US dollars. These become the key sources of positive returns for global investors attempting to curtail the recent trend of some central banks to diversify their reserve holdings away from the US dollar.
Bitfinex and tether face market manipulation class-action lawsuit
With the expansion of crypto markets and also the existence of several sellers and buyers who are looking to gain from their trades, manipulation has taken a new display. Forgers are able to manipulate the trading activities of the crypto market and provide a false display and mislead investors and encourage them to buy their digital assets. Manipulation is an obstacle to market depth and a serious concern to investors.
Last year, New York-based legal firm Roche Freedman filed a lawsuit against Tether and Bitfinex for crypto manipulation and creating bubbles to profit from boom and bust cycles they created. The lawsuit stated that Tether and Bitfinex were involved in money laundering, pumping, and dumping cryptocurrencies, and engaged in a sophisticated scheme to defraud investors. It is, therefore, upon regulators’ responsibility to protect crypto consumers and investors and promote an environment of innovation to maximize the potential of blockchain technological advances.
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