If the market is only operating within technical rules,
without authoritative central supervision, what is "illegal"?
Bitcoin, Ethereum and Altcoin prices are easily manipulated. There, I said it. In fact, I said it a while back when the volumes were low and prices low. Pundits and newbies may cry foul at me for saying this but experienced aficionados would understand this. In fact, anybody who trades on the stock markets, commodity futures markets, forex markets, derivatives and other speculative financial markets would understand this. There is a reason why there are laws and rules and regulations for those government-approved markets: people have been doing all sorts of tricks to make themselves richer at the expense of the others.
Now that some of these same speculators have moved into the unregulated cryptocurrency markets, how do you expect them to behave? Especially the killer whales who got so big by scaring off newbies and swallowing their funds through market manipulation? Now, these guys in the cryptomarkets and about to be joined by their "friends" from the financial hedge funds in a big way.
Yes, whenever there is market movement and liquidity it will attract the great white sharks and tiger sharks. And no one is bigger than the mega hedge fund managers and their voracious appetite for profit. Today, with Bitcoin, Ethereum and other cryptocurrencies having an estimated total market cap value of about USD120 billion, the pool has become big enough for these financial predators to swim in.
While most of us think that having a market capital of one hundred million is huge, we need to put this into proper perspective against the existing financial markets. Just looking at credit and charge cards alone can help put things into perspective. The big four card issuers -- VISA, MasterCard, American Express and Discover -- have an estimated monthly transaction volume of USD255,500,000,000!
Wikipedia states the following:
According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.09 trillion per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Measured by value, foreign exchange swaps were traded more than any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion.
Clearly one should realise now that cryptocurrencies is just a tiny pond compared to vast oceans and seas these financial behemoths swim in. However, now that this market has emerged and is beginning to draw fiat money away from these oceans, you can expect that these guys responsible for the average 10-year economic cycle of boom and bust, will do what ever they can to stop the leaks.
The obvious approach is to create fear, uncertainty and doubt over cryptocurrencies. Letting altcoin issuers trip over themselves and/or get hacked to death and publicise this is one way. There are of course several other ways. The biggest Damocles sword hanging over the cryptocoin market is government control. For all the ballyhoo by proponents that Bitcoin is untouchable by governments, as it is money for the people and by the people, people live in dominions where there are national laws. Laws that are created by politicians and bankers who move through revolving doors. Laws that are usually enforced with force, sometimes draconian force.
Also, people do not simply get Bitcoin, Ether or DASH out of thin air. It has to be mined, an euphemism for electronic accounting services. And it has to have value in -- wait for it -- fiat money! Yes, for all the 'Huzzahs' and 'Hurrahs' as an anarchistic weapon it still has to be converted into fiat money to be useful for daily services. Of course, things are changing slightly with some services accepting Bitcoin as payment, but ultimately it has to be converted into their accounting books to be reported to their shareholders.
The fact that its exists mostly because of conversion from fiat money is also conveniently overlooked. If people do not trade in their currency of choice for Bitcoin, Ethereum or any other altcoin the market would not be in the state of exuberance seen today.
That said, how would these whales and sharks threaten the average Bitcoin investor? By breaking any and all of the laws set up in the existing financial markets to curb manipulation! The first is "quote stuffing". Check out the Wikipedia link: https://en.wikipedia.org/wiki/Quote_stuffing
Then there is spoofing, something very common on some of the big Bitcoin exchanges. Wiki describes this as:
Spoofing is a disruptive algorithmic trading entity employed by traders to outpace other market participants and to manipulate commodity markets. Spoofers feign interest in trading futures, stocks and other products in financial markets creating an illusion of exchange pessimism in the futures market when many offers are being cancelled or withdrawn, or false optimism or demand when many offers are being placed in bad faith. Spoofers bid or offer with intent to cancel before the orders are filled. The flurry of activity around the buy or sell orders is intended to attract other high-frequency traders (HFT) to induce a particular market reaction such as manipulating the market price of a security. Spoofing can be a factor in the rise and fall of the price of shares and can be very profitable to the spoofer who can time buying and selling based on this manipulation.
Of course, there are bucket shops that appeared and disappeared on the Internet. These websites promise to help you trade in Bitcoin but take your money and disappear, sometimes overnight. Perhaps some stay longer and pretend to be a proper exchange, but all the while they are taking your orders and keeping it within their organisation and not really giving anyone Bitcoin but "images" of Bitcoin. Investors think that these exchanges are holding the private keys on their behalf, not realising that the credit given to them in the form of Bitcoin in their public key exchange accounts is merely a dummy and can only be used on the exchange while it exists. Once the exchange closes, all credit disappears. I have not checked this out but perhaps some small start-up exchanges have been conveniently "hacked" out of existence leaving scores of very broken investors and a very bad media rap for the cryptocurrency world.
There are several other trading methods but this article is not meant to be the definitive resource for checking out scams and market tricks, but merely to point out that in this unregulated market, who deems what is illegal? The exchanges are the only ones and the weak link in the whole chain of cryptocurrency trading. If they are regulated or closed by law, where is the anarchistic value inferred upon the phenomenon?
Also, as it is just a figment of the imagination based upon expensive use of technology and energy, what happens if there is a severe blackout worldwide caused by, say, a solar flare? Or an EMP burst over a few major cities in the event of war? We all know that every weapon developed was eventually used, so let us not kid ourselves that it will not happen. With all the fiery rhetoric and threats spanning the globe today, this threat is very real.
So how do attribute a real, tangible intrinsic value to cryptocurrency? I do not know the answer but personally I would like to see the blockchain integrate gold, platinum and silver into the equation. Don't ask me how it can or will be done but if one BTC is worth X amount of gold or platinum, or one Ethereum is worth Y amount of silver, then fiat currency has nowhere to hide. Meanwhile, this is a frontier market and there aren't very many rules so how it can be illegal is a bit puzzling.