A Response to Frances Coppola: Everything Is Manipulated
In her recent Forbes post titled “Cryptocurrency Trader Says The Market Is Manipulated”, former banker and economics commentator Frances Coppola expressed outrage at the seeming scandalous acceptance of alleged market manipulation tactics in the crypto world by popular trader @thisisnuse.
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Crypto Markets Are Free, Not Necessarily Fair
Coppola led her article with the statement: “If you think cryptocurrencies are fairly priced by a free market, you are in for a shock.”
Ironically, for most of its short history, crypto has been an unregulated, free market; there is no barrier to entry, little oversight, and there have often been no requirements for identification other than registration of an email address. In terms of markets that deal with an asset which mimics the qualities of money (or at least currency), that is as free as it’s going to get. But it does not mean that all the free participants in the marketplace are concerned for the well being of others.
Free market or not, the common thread in the maligned crypto market that Coppola so despises, is human participation — the same as every other market in the world. And if crypto is not an anomaly, then it stands to reason that every market that involves money, power, emotion and humans is susceptible to similar behaviors.
Ergo, everything is manipulated.
Crypto Prices Are Manipulated, and Politicians Lie
Pointing out that illegal practices exist within crypto is rather pointless, like pointing out that politicians lie. Most people are aware that it happens to some degree, and the ones that aren’t often end up feeling betrayed when a lie is exposed.
Within markets, this same dynamic plays out with the least aware participant being at risk of losing their money, of being influenced by greed and fear, or of buying into a scam. It doesn’t matter whether they are led into this by con artists (such as the Onecoin or BitConnect marketers) or by reading the story of price and volume, because, in a sense, manipulation is simply uneven access to information. (h/t Kazonomics)
Politics, sport, business, finance, society, media. All are subject to manipulation of some kind; it’s human behavior and it comes because of an informational advantage one has over another.
In crypto, historical manipulations are of legend in much they same way as they are in the stock market. ZetaCoin, WorldCoin, traders like Fontas and many so-called “crypto OGs” have their equivalents in the Wolf of Wall St, Mike Milken and Jon Corzine. Those without the information or knowledge of how this process was playing out, unfortunately lost their shirts.
Information Is Key, Not Reasons
It is undoubtedly true though, as Coppola mentions, that Karpeles ran bots on Mt. Gox and that many exchanges have faked their volumes to attract traders. But this is not the reason why people lost money. Instead, it is because many participants lack knowledge and information, or wrongly interpret the information they have. This includes professional traders. The price and volume may be manipulated but the emotional reaction to them is not.
But Coppola seems intent on trying to whack crypto using some kind of high horse, moral, regulatory stick. This is exemplified by those that @thisisnuse referred to as ‘sheep’. Coppola writes that these are:
“… ordinary people. People who aren’t professional traders. People who have no basis on which to decide whether a cryptocurrency is a good buy other than its price and its volume. People who trust that the market is honest and prices are fair.”
The delicious irony here is that irrespective of whether an exchange is faking volume or manipulating the price, those two indicators are by far the most important that can be used in markets. From them, a range of technical and emotional data points can be garnered. All that alleged wash trading and spoofing does is activate the emotional side of a trader (enhancing feelings of greed and fear) and expose those with a lack of information or awareness. Again, that is basically what manipulation is, using an imbalance in the distribution of information to an advantage.
Analyze all Available Info – Including Knowledge of Manipulation
Still, it pays here to logically examine what Frances is saying, even though it borders on the ridiculous — apparently she thinks markets should all be fair and participants should all be able to make good decisions without having to rely solely on what she believes are manipulated technical indicators.
Obviously, participants can already conduct research to make informed decisions; varied technical analysis or fundamental analysis that includes research on the development team, their roadmap, community and GitHub activity (including recent and historical commits). In other words, all the things that many traders currently do to give themselves an edge.
Coppola’s agitating for an “honest and fair” market [edit: information symmetry reference removed to accurately reflect Ms Coppola’s view] is naive and improbable. Not only will this not happen in a binary market where human behaviors are magnified, but put simply, some will always be inclined to find an edge by any means necessary.
But Coppola either does not have an understanding of this or is being deliberately disingenuous to continue her ongoing tirade against crypto. In markets, it’s not about the asset, it’s about the humans that trade the asset.
Because what really happens in markets is that “sheep” are drawn to “investing” via their emotions, operating with a lack of information they are unaware of. This is why “sheep” buy on the recommendations screened by such programs as CNBC’s Fast Money.
Media Picks Its Own Winners
One of the recent glaring examples of this was a segment showing viewers how to buy Ripple (XRP). Without getting into the technical aspects of Ripple, you only have to examine how this segment affected participants in that specific market.
CNBC’s viewership is of a particular economic category and by the time Brian Kelly was explaining how to purchase Ripple, the price had risen from just a few cents (actually free for many people) to over $2.50. The context here was that the price of bitcoin had exploded in a year long rally to almost $20,000 and those who ‘missed the boat’ and were lacking in information, were sucked in to the hype, galvanized by a trusted TV program.
— CNBC's Fast Money (@CNBCFastMoney) January 5, 2018
For the large holders, the shorters or the market makers, this influx of participants after bitcoin had already began to tumble was likely a chance to offload their holdings, and so they sold into the final push to a high.
Does this make CNBC a market manipulator or ethically complicit somehow in pushing late entrants into an asset that is likely extended? Is this part of a fair and honest market? Perhaps the dissemination of information is part of the manipulation.
@coindextrous All markets are manipulated from my experience….all. News is a tool in this manipulation nothing more
— Kazonomics (@kazonomics) July 6, 2014
Coppola then doubles down on the moral outrage by quoting a David Gerard article regarding illegal practices. Gerard is a former journalist and systems administrator who details “a number of unsavory practices that … are banned on traditional securities exchanges … [but] are rife in crypto”. These include wash trading, spoofing and painting the tape.
As Coppola doesn’t understand markets, she sarcastically takes on the crypto community, displaying her ignorance at the same time.
“But how very dare [Gerard] expect cryptomarkets to behave like traditional markets. Crypto is different, didn’t you know? In crypto, manipulating the market is a good thing, apparently, because traders want profit:”
However, in the tweet Coppola is referring to, what @thisisnuse is actually saying, is that understanding markets is profitable even though understanding the manipulation of markets does not mean condoning something that is notoriously difficult to prove. It does mean, however, that you can take advantage by having a better understanding than your counterparty.
If you like profit and understand markets it is nothing but a good thing
— ant (@ThisIsNuse) May 31, 2018
The same goes with traditional markets. Manipulation occurs: gaining early access to FOMC minutes, LIBOR rigging, repackaging mortgage backed securities as AAA+ rated, are all examples of manipulation, and while it is difficult to stop or enforce, understanding how markets work allows you to profit.
But in trying to paint crypto and @thisisnuse as some kind of villain, Coppola failed to understand @thisisnuse’s point, displaying her ignorance on the topic.
You just admitted to being an idiot. Where did I say that I was performing any of these actions?
Did you infer that as well? You're not doing very well with assumptions thus far.
— ant (@ThisIsNuse) June 1, 2018
This is one of the main issues the uninformed masses have with markets. Like the bulk of the population, the media does not understand markets and due to this ignorance (and the emotional triggering induced by explosion of asset classes broadly deemed unworthy of price increases), the common practice is to scream ‘manipulation’ from the rooftops.
Ironically, this very action allows market makers to take in even more profit as eventually those who were talked out of the market — the CNBC viewers — to finally enter positions as the market maker readies to dump.
Is “market manipulation” merely additional information you should factor into your analysis? Let’s hear your thoughts in the comments.
Images via Pixabay