Cryptocurrency Spoofing: Why Should Investors Care About It?
Investors don’t just care about making more money. They care about their safety and security, too. This is observable in cryptocurrency, where consumers always protect their financial interests. People have developed this habit of fear of falling victim to possible scams and frauds.
There have been big-time cases of such criminal activities in the past, and many developers and users have learned the hard lesson. It’s a concern that seems to have no end in sight as the cryptocurrency continues to grow and attract more people across the globe. Perhaps the best natural way to deal with it is by remaining vigilant.
There are more such crimes to mention, but what you may not have heard of is one that can be subtle to notice. It’s the scheme by which criminals attempt to artificially influence the price of a cryptocurrency by creating fake orders. This is called cryptocurrency spoofing; if you’re not fully aware of it, you might find yourself a victim one day.
As you know, pricing is a crucial element in crypto trading, which means you cannot decide wisely if the prices of cryptocurrencies do not reflect their actual value. To avoid mishaps, learn more about how this fraud is committed and how you can better protect yourself.
A tried-and-tested method of protecting yourself in the crypto market is sticking to well-established platforms highly recommended by reputable crypto experts, such as Binance, Kucoin, and Immediate Edge.
Crypto Spoofing in a Nutshell
As mentioned earlier, cryptocurrency spoofing is the process by which criminals attempt to influence the price of virtual currency by creating fake orders. To materialise this end, they would exhaust means to reflect an illusion of pessimism or optimism among crypto traders. For instance, perpetrators can place large buy or sell orders without filing them.
Once this is done, other investors may be tricked into buying or selling assets, and the cryptocurrency’s price can be adjusted accordingly. The trader may cancel the orders when the cryptocurrency price moves in their desired direction.
In a Bigger Picture, This is How it Works!
Cryptocurrency is known to be a volatile asset. This means that frequent and significant price fluctuations can be experienced, which was very common in the early days of the market. Sometimes this phenomenon can stretch for weeks or months, affecting various trading transactions.
While it may sound absurd, such outcomes provide a way for criminals to benefit from flash crashes of popular digital currencies. They would generally buy the hottest tokens at low prices and then sell them once the prices are corrected.
One factor that could drive up or down the prices of digital tokens is the overall sense of optimism and pessimism in the broader market. Although this can be difficult to quantify under usual circumstances, it is something savvy investors are used to.
However, such sentiments may allow criminals to commit spoofing. They may be able to manipulate the market for a given cryptocurrency by creating the illusion of optimism and pessimism through fraudulent buy or sell orders.
When cryptocurrency spoofing is committed, it is usually accompanied by wash trading. This activity is similar to spoofing because it aims to manipulate the price of virtual currency through artificial means. However, there’s a difference between the two criminal acts. In wash trading, the perpetrator trades with themselves to create the illusion of market demand; hence innocent investors may be lured to join the trade.
How to Protect Yourself Against Spoofing
For most cryptocurrency investors, a good business environment should be safe from possible scams and frauds. But since this is not always guaranteed, the recourse should be observing cautions at all times. One strategy against spoofing is to be aware of opportunities that seem too good to be true and always analyse the platforms used.
Many exchanges today are exhausting all efforts to ramp up their security and monitoring systems to ensure customers’ security against cryptocurrency spoofing. But it’s a two-way process; investors should also do their part.
Investors need to be vigilant about price manipulation in the digital trading market. It’s also crucial to recognise that this space remains highly speculative, and digital currencies may not always prove to be a favourable investment, although it promises good returns.
Cryptocurrency is a highly unpredictable market. This characteristic would sometimes make it hard to spot such crimes as spoofing because prices may be hard to predict. However, there may be patterns that you can follow to determine whether price changes are reasonable at a given point in time.