Spoof orders, illegal on financially regulated markets, are on the rise and being exploited on largely unregulated Bitcoin and cryptocurrency markets. Demonstrable instances, perpetrated by a group or individual known as Spoofy, have occurred on Bitfinex and GDAX.
Spoof orders, or placed market trade orders that are not actually intended to be executed, are part of the rampant manipulation of traders on cryptocurrency exchanges. Trading into your own buy or sells is also illegal in the regulated financial markets, and it is suspected that this behavior has become more rampant in order to help Bitcoin price manipulators cut potential loses from their dubious activities. They also serve to sway trader behavior with massive sell and buy walls which are suggested to be the work of an individual or group, perhaps even the exchanges themselves going under the pseudonym of Spoofy.
Spoof Trading Ruled Illegal On Traditional Exchanges
With trading bots and API access to exchanges providing all the data needed for a coordinated manipulator, it isn’t a question of “is someone doing it?” so much as “who is doing it?”. Cases have been brought to light and prosecuted in the traditional stock markets, such as when Navinder Sarao pleaded guilty to spoofing offenses.
Using an automated trading program, or bot, Navinder’s actions contributed to the 2010 stock market flash crash. Then there is Michael Coscia who used a flood of small orders before canceling them to manipulate other traders. During Coscia’s trial, assistant US attorney Sunil Harjani said:
Traders contemplating sophisticated scams will think twice if they know that there are more significant consequences than a civil lawsuit or a regulatory action. […] Hedge funds and proprietary trading firms will closely review their trades, and strike down get-rich-quick manipulation trading schemes because the cost is not worth the benefit.
Is Spoofy Real? Evidence Seems to Point to ‘Yes’
BitCrypto’ed provides plenty of evidence on the Hackernoon website on market manipulation (including the video above), alleging that the trade spoofing activity is primarily carried out on the Bitfinex exchange. According to the investigation, Spoofy is either an individual or group, but certainly a coordinated entity with an unrivaled amount of money to influence the market.
Laying out all of the evidence, BitCrypto’ed writes:
Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down…And he’s got the coin… both USD, and bitcoin, of course, to pull it off, and with impunity on Bitfinex.
Marketwatch’s Shawn Langolois, who appears to agree with BitCrypto’ed, further clarifies:
If Spoofy places a large buy order that entices smaller traders to hop aboard, he can turn around and instead use the uptick to execute a sell order.
Not Everyone Believes
No matter the evidence, however, there are still plenty of people who have yet to be convinced that a single person or entity could possibly be the sole driving force behind Bitcoin’s price.
So far I don't buy conspiracy theory of huge whale "spoofy" manipulating Bitcoin prices.
— Tuur Demeester (@TuurDemeester) August 6, 2017
1 whale controlling pretty much the entirety of Bitcoin prices is ridiculous, and an awful fud attempt.
— 🔹Fanatik_ (@Hand_Eye_) August 6, 2017
From now on any big order on any exchange ever for anything ever will be known as "spoofy"
— loomdart (@loomdart) August 8, 2017
Whether or not Spoofy is real, the practice of spoofing is very real and is already common enough to warrant rulings against it in the traditional stock market. Largely unregulated, cryptocurrency markets are still very much the “wild west” frontier of finance, a reputation hard to dismiss as exchanges and owners disappear or get arrested with alarming frequency. The same lack of regulation that makes cryptocurrency so attractive to many is also what allows modern day Butch Cassidys and James Gangs to get away with their misbegotten deeds.
Do you believe in Spoofy? Is he just a ghost story whispered of by grizzled traders? Let us know in the comments below.
Images and video courtesy of AdobeStock, Hackernoon