The purists in the traditional financial market realm have always believed that Bitcoin [BTC] can be controlled via a powerful computer network. A recent Bitwise report has, however, calmed allegations that the Bitcoin market is prone to market manipulation.
The report filed by Bitwise Asset Management was presented before the US Securities and Exchange Commission [SEC], in line with their recent application for a Bitcoin Exchange Traded Fund [ETF].
Market manipulation within the crypto-market has always been of concern to the SEC. The regulatory body in subsection 5 of Section 6(b) of the Exchange Act states that exchanges “are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade.” The SEC often cited this subsection while referring to the volatile industry as being prone to frauds and scams.
Bitwise gave two arguments to satisfy the SEC Exchange Act of 1934, namely, unique resistance against manipulation/fraud, and a surveillance sharing agreement with a regulated market of a certain size. The investment firm, based on historical cases, added that the regulated surveillance-sharing reason was of “primary consideration”.
The report claimed,
“That the bitcoin market is protective against manipulation, and critically, that there is a significant, regulated and surveilled market for bitcoin futures.”
Bitcoin: The Commodity
In their defense of the top cryptocurrency’s lack of susceptibility to market manipulation, Bitwise claimed that “Bitcoin is the first digital commodity in the history of the world.” Here, it should be noted that the report hails Bitcoin as a “commodity,” and not as an “asset”.
Bitwise drew three core divergences in the character of Bitcoin to other commodities. Firstly, Bitcoin is fungible, meaning that the cryptocurrency was constant, irrespective of location, unlike natural commodities like gold.
Secondly, Bitcoin can be easily transported via a computer network. Lastly, Bitcoin can be traded on an exchange, allowing users to directly view the price and employ trading strategies for the same. Furthermore, there is an absence of representatives, advisers, and consultants in the decentralized currency realm as anyone is free to trade.
It must be noted that all the exchange volume analysis is based on the figures of 10 exchanges as they record “actual volume,” according to Bitwise. The exchanges on the list are Binance, Bitfinex, Kraken, Bitstamp, Coinbase, BitFlyer, Gemini, itBit, Bittrex, and Poloniex.
The report added,
“These unique features allow the bitcoin market to be uniquely resistant to manipulation in critical ways.”
Bitcoin: Anywhere, Anytime
Bitwise juxtaposed the ability of the top cryptocurrency to resist market manipulation to scandals that have plagued other markets over the past few years. The report highlighted four key incidents, including the LIBOR scandal of 2012, the Global Forex Scandal of 2013, the Gold Fix Scandal of 2014, and the ASIC Scandal of 2016.
In all the aforementioned scandals, the common elements were a deliberate attempt at manipulating the market by large financial institutions, resulting in heavy fines levied on the culprits.
The traits of fungibility and transportability in the virtual currency market allowed the creation of arbitrage in the market. The opportunities for investors to make a quick buck due to price disparity between exchanges was reported by Bitwise as being negligible.
Given this dominance of market participants, global liquidity can stand in the way of market manipulation, increasing the inability of the market to fall prey to any sort of voluntary change.
Bitcoin: The Distributed Market
Bitcoin’s spread of volume and “distributed market” will prevent one exchange from holding the coin’s price hostage. Of the ten exchanges considered, no one exchange had pure dominance in terms of BTC volume. Binance accounted for the highest volume, chalking up 40.47 percent, and was followed by Bitfinex and Kraken with 13.94 percent and 11.67 percent respectively.
The report concluded by saying,
“The spot bitcoin market is highly fractured amongst ten exchanges, and no exchange has a majority share. This contributes to bitcoin’s unique resistance to market manipulation, as any attempt to manipulate the market must either be coordinated synchronously across multiple exchanges or must involve a significant spike of volume on a single exchange.”
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