Cryptocurrency

WSJ: “Automated Trading Programs” Influence Digital Currency Prices

WSJ

In a recent news story published by Wall Street Journal (WSJ) on 2nd October, it said that automated trading programs, or bots, are influencing digital currency prices on various cryptocurrency exchanges.

Technically speaking the automated trading software is a program that allows traders to set specific rules for executing both trade entries and exits and then submit orders to a market center or exchange, and then automatically executes them by means of a computer at higher speeds than any human is able to do.

With this Trading programs are available for traditional and crypto markets and can be organized executing for both legitimate and manipulative strategies.

Amid this, WSJ elaborates more on the subject matter saying that there is a lack of proper regulation in a place where the main condition that lets bots to execute abusive strategies on an industrial level. Besides this, Andy Bromberg, co-founder, and president of startup CoinList said that “this sort of activity is rampant in the market right now. It hurts the market’s reputation, and it hurts individual investors.”

Further elaborating the subject matter, the $80-million digital currency hedge fund Virgil Capital uses its own bots on a number of crypto exchanges across the world as reported by WSJ. With this, the managing partner of Virgil Capital, Stefan Qun told WSJ that “he is in a constant cat-and-mouse game with enemy bots.”

Based on the comments given by WSJ, Virgil lost funds on certain trades in Ethereum (ETH) at the beginning of this year after a “harassing bot” targeted the fund. While focusing the matter, the WSJ further explains the strategy used by the bot: “The bot’s strategy was similar to ‘spoofing,’ a practice in which traders enter fake orders only to cancel them. The tactic, aimed at tricking other investors to buy or sell an asset by falsely signaling there is more supply or demand, was outlawed in U.S. stock and futures markets in 2010.”

Additionally, a price manipulation in digital currencies stated by WSJ is trader Kjetil Eilertsen, who started trading Bitcoin (BTC) in 2011. Eilertsen supposedly created a program called Quatloo Trader, that was designed as “the best market-manipulation tool in the world of crypto.” The idea of the entire concept is to create market manipulation easier through the use of built-in tools like a special tab namely “whale tools,” which performed several “abusive strategies.”

Amid this, Eilertsen further explained to WSJ that it is useless to restrict manipulation in digital currencies and that it would make more sense to offer manipulation tools to small traders. He further said “If everybody can manipulate, then nobody is manipulating. You can’t ban anything from people who are dedicated to doing something.”

Let us not forget that the similar programs are not allowed on traditional securities exchanges. The New York Stock Exchange daily keeps closed monitoring over various operations for illegal trade activities, punishes violators, and abusive trading.

Recently, the WSJ is believed to have said that nearly $90 million in illicit funds had been transferred through various crypto exchanges that also included ShapeShift. Amid this, ShapeShift founder and CEO Erik Vorhees denied WSJ’s claims. He further stated that the publication had erroneously presented the facts and created mistakes in their reporting due to not having proper knowledge of the exchange’s operations and blockchain technology in place!!

About the author

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Shalin Soni

Shalin joined CryptoNewsZ as Associate Finance (Cryptocurrency Research & Analysis) in 2018 and has 10 years of collective experience to work on financial modeling and financial planning & analysis activities (fp&a) domains. He has worked with various organizations in India and added values by leveraging his skills and expertise. He has strong domain expertise in research & analysis, valuation, and fp&a. He has worked with various organizations in India and added values by leveraging his skills and expertise. He has strong domain expertise in research & analysis, valuation, and fp&a.
You can also mail him at [email protected] to discuss anything related to his reports.

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