SEC Aware Trading Bots Scourge Market

WSJ correspondents claim that the main obstacle to the resolution of the Bitcoin ETF (exchange trading fund) for the SEC is that traders use special trading bots that apply illegal algorithms. Cryptocurrency exchanges are subjects to such techniques as “ping-pong”, “spoofing”, anti-arbitrage “harassing bots”, and “pumps&dumps”.

The traditional securities and derivatives markets have strict trading rules established by the SEC and CFTC Commissions. All bots are subject to mandatory certification, and some trading algorithms are prohibited by law. Violations are punishable by a large fine for legal entities and an actual term of imprisonment for traders.

In particular, you can not create a pending “spoofing” order in the order book for a large amount of cryptocurrency that does not exist on the account and deletes it within milliseconds when the bot would see that a large order is being brought to the market at this price.

Such tricks can provoke bidders to unreasonable purchases or sales by confusing a phantom with the big money entering the game. This can also be a reason for digging a big price hole for a large fund ’s application that wanted to close a position after seeing high demand in the order book.

The use of “ping-pong” tactics – occupying a position in purchases and sales at the same time, allows robots to pour their own funds spinning the trading volume.

“Harassing bots” are aimed against traders leveling the rates on different exchanges (arbitrage trading) – bots ruin such positions by playing against them and increasing the gap between platforms which forces the arbitrator to obtain a large position. This leads to margin trading and forcible closing of large amounts of cryptocurrency on the market which causes a strong decline or growth.

“*Pump&dump*” schemes are realized through secret invite-only groups where people are waiting for a signal to quickly start buying as much as they can. The chosen coin is not a coincidence; usually, a coin with a relatively small market cap is picked so it can be manipulated by brute force. The pump&dump scheme is one of the oldest manipulations on the financial market: a group of people artificially inflate the price of an asset before "dropping" it at a profit. This year such groups managed to collectively acquire $825 million.

Behind each ban on such strategies, there is a real market crash, from which the SEC and CFTC have learned the lesson. These manipulations are tracked, investigated and punished. By allowing Bitcoin ETF, Regulators will surrender investors’ money to the “the Wild West”, where traders with robots operating accounts with millions deposited on them can lead to billions of dollars in losses on the cryptocurrency market.

Crypto traders themselves see that such trading manipulation tactics slow cryptocurrency adoption, hurting not only individual investors but the market reputation in total.