Bots Are Manipulating Price of Bitcoin in ‘Wild West of Crypto’
Bots that manipulate bitcoin price are not new, and they aren’t going away, according to The Wall Street Journal. The problem continues to draw regulatory scrutiny, as it was cited by the Securities and Exchange Commission (SEC) when it rejected several bitcoin ETF applications in August. Andy Bromberg, president and co-founder of CoinList, which issues tokens, told the WSJ that the bots are rampant marketwide, at least at the present time. Stefan Qin, the managing partner at cryptocurrency hedge fund Virgil Capital, uses its own bots to battle “enemy” bots on dozens of cryptocurrency exchanges worldwide. His company has built error handing functions to identify activities that are potentially illegal, referencing the crypto sector as the “Wild West of Crypto.” Virgil, which specializes in arbitrage, suffered a “harassing bot” earlier this year that targeted certain ether trades, Qin told the publication, causing losses.Virgil was checking prices every minute looking for arbitrage opportunities with cryptocurrency prices. The hostile bot would post and order to sell ether at a price lower than what other sellers were offering, prompting Virgil to try to make a buy. Right before Virgil completed the purchase, the bot would cancel its sell order. As a result, Virgil posted buy orders that never got executed, which increased the price on other exchanges, according to Qin.This practice of faking orders and then canceling them is known as “spoofing,” the purpose of which is to create the impression that supply or demand for an asset is higher than it actually is. U.S. futures and stock markets outlawed the practice in 2010, but there have long been allegations that it is taking place in the cryptocurrency markets.