One of the core features of PARSIQ is its market intelligence capabilities, which gives unprecedented insights into crypto trading at the transaction level, and helps secure against manipulation in the crypto markets. But what is market manipulation, and what capabilities can the PARSIQ platform offer to help counter these threats?
Market Manipulation – crypto’s Achille’s heel
Right now, cryptocurrency trading is an mostly unregulated market. Unlike traditional securities exchanges, there are few standards that need to be met beyond whatever measures the crypto exchanges themselves put into place. Some jurisdictions have regulation that local exchanges commit to – such as E-Money licenses – but few of the measures are set in stone.
Many larger or more forward-thinking crypto exchanges such CoinMetro – a PARSIQ client – are anticipating future regulation, and setting themselves up as such. But there are plenty of exchanges which use a light touch in terms of what occurs on their platforms. There are some which even allegedly actively promote some forms of market manipulation – perhaps to pump up their trading volumes to give the impression they are bigger than they are.
Some of the more common practises of market manipulations are:
Spoofing — this is where a large order is placed to create the illusion of market optimism or pessimism, but it gets cancelled before the trade is filled.
Front-running — this is the act of getting advance knowledge of a trade that will influence the price, and taking advantage of that knowledge – a type of insider trader.
Wash trading —this is where a market participant trades with themselves in order to drive the price up or down, or just create the illusion of trading volume. Some exchanges allegedly do this to manipulate their daily trading volumes. Painting the tape is a similar practise but with two or more participants trading amongst themselves.
These issues are made worse by the fact that crypto market volumes are small in comparison with traditional markets — therefore small manipulations can have a tremendous impact, especially outside of the top few cryptocurrencies.
Our defence – PARSIQ Market Intelligence
PARSIQ’s Market Intelligence platform (PARSIQ MI) provides “behind the curtains” analytics for crypto asset investments which help mitigate against market manipulation.
We noticed that there is a short but noticeable lag before blockchain transactions are confirmed and reflected in an asset’s price. For example, it may take at least 20 minutes for large incoming transfers that may cause a sell-down trade to be confirmed.
PARSIQ MI can detect such movements in real-time before movements affect a user’s trading account. This is functionality not available in traditional trading — it’s functionality made possible by the open and transparent nature of the blockchains.
The following are examples of PARSIQ MI’s capabilities:
- Track specific movements and transactions before they reach cryptocurrency exchanges
- Track trends based on actual transactions instead of unreliable or misleading information “outside” of blockchains
- Provide deeper statistical data on crypto asset markets
- Cross-correlate news and prices with blockchain transactions
- Set-up monitoring and alerts to know when certain events happen and take action beforehand
Conclusion – market intelligence will make trading fairer for everyone
Until there is clear government regulation for crypto markets, and until the exchanges sign up to this regulation, there will always be problems with market manipulation. However, blockchain’s defence is its transparency. With PARSIQ’s market intelligence features, trading activities can be monitored and reacted to in real-time.
These features will not only help to counter market manipulation, but over time it will lessen the impact of these types of trading activities. Ultimately, this will level the playing field and make cryptocurrency trading fairer for all.