Are Crypto Exchanges Manipulating the Market?

Are Crypto Exchanges Manipulating the Market?

Daniel Harrison, Co-Founder of cryptocurrency Zurcoin (ZUR), claims it is. In his Medium post entitled The Problem with Exchanges, Harrison writes that exchanges are fabricating trading volumes to take money from its users once they decided to sell their holdings due to a falling price trend

According to Harrison, a boost of volume when there is a reduction in capitalization is antithetical to the market’s logic. Results like this can only stem from manipulation done to acquire custody of user funds.

These exchanges incentivize themselves by artificially driving prices down to a point where users will forsake withdrawing their discounted funds. As a consequence, exchanges have the freedom to gain custody of their assets while offering a lower fiat equivalent. By taking advantage of investor mentality, exchanges make significant profits and gain better liquidity for the assets when the market recuperates.

The Bitcoin Example

The Zurcoin co-founder analyzes Bitcoin’s movement from December 2017 until 2018. Around December of 2017, BTC’s market capitalization was valued at $284 billion with a volume of $14 billion. On 2018 its capitalization was $59.9 billion with a volume of $4.3 billion. He says that in spite of an 82% price reduction from 2017 the market capitalization increased by an impossible 9%. Harrison implies that this is only possible through price manipulation.

Cryptocurrencies and Virtual Currencies

To explain how exchanges are able to exploit its users, Harrison distinguishes the difference between the means of exchange between cryptocurrencies and virtual currencies. Cryptocurrencies are exchanged in a decentralized fashion while virtual currencies are extremely centralized. When cryptocurrencies are exchanged it, most often than not, translates into the ‘units of virtual centralized exchange’. This will then fall under the control of those who are commanding the exchange.

Once a holder deposits his cryptocurrency to a platform’s wallet, the funds are converted, often times are manually done, to a unit of virtual currency to the designated account holder’s virtual currency wallet. The cryptocurrency wallet and its equivalent virtual currency wallet are independent of each other but the account holder relinquishes control of the cryptocurrency wallet (which is decentralized) in exchange for a ‘centralized unit of virtual currency’.

Harrison writes that through this method exchanges are able to gain profits by acquiring, or ‘stealing’, user funds.

There is a clear incentive to direct prices sharply downwards after they hit a peak, so that the customer perceives a lack of point in removing the digital currency from the exchange. This, in turn, gives the exchange the affordable luxury of simply taking the remaining cryptocurrency that the majority of its customers have removed from exchange, cashing it to fiat, and then putting it in its owners’ bank accounts.

Daniel Harrison, The Problem with Exchanges

Zurcoin

ZUR
Price
0.001184 USD 0.00%
0.00000015 BTC 0.00%
Volume, 24h
0 USD
-100.00%
Marketcap
104,268 USD
< 0.01%
Emission

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Most Crypto Exchanges Manipulate Prices, Only Hold Fractions Of Investors’ Coins: Zurcoin Co-Founder

Most Exchanges Are Manipulating Crypto Prices, Says Zurcoin Co-Founder One of the issues that arises every so often in the cryptocurrency world is the concept of price manipulation. Though it has been attached to specific platforms and companies in the past, is it possible that most of the exchanges active right now are participating in this illegal activity? According to co-founder of Zurcoin Daniel Mark Harrison, the answer is a resounding “yes.” Harrison published an article on Medium yesterday titled “The Problem With Exchanges,” featuring the sub-header “Virtual Currency Reality Manipulation.” In it, he starts off by defining the two types of medium exchange – cryptocurrency and virtual currency. He defines crypto as the derivatives of the blockchain, while virtual currencies are “visually represented on a piece of software and derived from the imagination of the issuer.” Elaborating, Harrison explains how exchanges are accepting crypto deposits, but issuing virtual currency instead, saying that users can see that their account holds a BTC, while there’s no “real” bitcoin. This difference is fairly similar to what the fractional reserve banking system does, according to a post on Finance Magnates on Harrison’s article. Banks maintain a portion of their deposits in cash, though the rest is lent out in efforts to maintain revenue. This is done under the assumption that all of their customers would not withdraw funds simultaneously. Paraphrasing, Harrison sees crypto exchanges as doing the same, which causes Harrison to bring up a paradox that presently exists that could damage the market. He explains, “That paradox is this: whereas nearly all digital currencies are cryptographic decentralised mediums of exchange, when they are traded on“cryptocurrency exchanges” they most often immediately become units of virtual centralised exchange, subject to the absolute control and power of the governors of the exchange.” Harrison suggest there is no absolute connection between what the user believes that they hold and what they actually possess. As such, the depleting value of these exchanges could easily be credited to the withdrawals that the issuers could be taking out. To Harrison, this is the only possible reason for the market can go down. Without any type of consistent regulation happening with these cryptocurrencies, it is unlikely that the current infrastructure will be altered in any way. Inadvertently, this points to the exact reason that regulatory decisions need to be made globally, protecting investors from even the possibility of these actions. If Harrison’s claims are ever proven to be true, there is a major threat in the potential for market stability. Furthermore, it would completely contradict the decentralization that the entire market is built upon. Still, even with all of the statistics and details that Harrison brings up, there’s no way to verify that the crypto exchanges are participating in these activities without a subpoena or a similar order. The co-founder points to the fact that, even without proof, there’s still an incentive. Concluding, Harrison notes, “To do this, there is a clear incentive to direct prices sharply downwards after they hit a peak, so that the customer perceives a lack of point in removing the digital currency from the exchange. This, in turn, gives the exchange the affordable luxury of simply taking the remaining cryptocurrency that the majority of its customers have removed from exchange, cashing it into fiat, and putting it in its owners’ bank accounts.”
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