Unprecedented Record of the Largest Cryptocurrency Market Manipulations

Unveiling Cryptocurrency’s Most Notorious Market Manipulations

The world of cryptocurrency and decentralized finance (defi) is a hub of innovation and opportunity, but it also comes with its fair share of risks and challenges. One of the most pressing issues plaguing the industry is market manipulation, where individuals deliberately distort prices and volumes to their advantage.

Market manipulation can manifest in various forms, including wash trading, pump and dump schemes, flash loan attacks, and rug pulls. In this article, we will delve into some of the most significant instances of market manipulation in the history of cryptocurrency and defi, involving prominent tokens like Bitcoin, FTT, Hydro, and DGTX.

Wash trading Runs Rampant on DEXs

Solidus Labs, a company specializing in crypto trade surveillance and risk monitoring, conducted an analysis of approximately 30,000 liquidity pools on Ethereum-based decentralized exchanges (DEXs). Their findings revealed that 67% of these pools had fallen victim to wash trading, a manipulative practice.

Wash trading accounted for a staggering 16% of the total trading volume in these pools, amounting to a minimum of $2 billion since September 2020. Solidus Labs provided concrete examples of how wash traders exploited DEXs to manipulate the prices and volumes of various tokens. Notably, SHIBAFARM, a meme token, was utilized as a tool to scam speculators out of over $2 million.

Solidus Labs has been diligently working on solutions to identify and prevent market manipulation on DEXs. Their efforts have led to the development of tools such as Token Sniffer, DEX-Based Insider Trading Detection, and DEX-Based A-A Wash Trading Detection.

The PlusToken Ponzi Scheme

Operating from 2018 to 2019, PlusToken was a Ponzi scheme that lured investors with promises of high returns on their cryptocurrency deposits through a wallet app. Tragically, the scam managed to ensnare over 3 million victims and steal more than $2 billion worth of crypto, predominantly Bitcoin (BTC) and Ethereum (ETH).

Chainalysis, a blockchain analysis firm, uncovered evidence that the scammers behind PlusToken also engaged in market manipulation. They accomplished this by selling substantial amounts of the stolen crypto on exchanges, thereby exerting downward pressure on Bitcoin’s price.

Between September and December 2019, Chainalysis estimated that PlusToken scammers liquidated at least $185 million worth of Bitcoin, coinciding with significant price drops. The report further revealed that the scammers employed various techniques to cover their tracks, including mixing services, decentralized exchanges, and over-the-counter brokers.

BitConnect’s Deceptive Practices

BitConnect masqueraded as a crypto trading platform that claimed to generate profits from market fluctuations using a proprietary trading bot and volatility software. However, it turned out to be nothing more than a Ponzi scheme that duped over 3 million victims and siphoned off more than $2.4 billion worth of crypto.

Satish Kumbhani, the founder of BitConnect, a 36-year-old from India, now faces charges brought forth by a federal grand jury in San Diego. He stands accused of multiple counts of fraud, price manipulation, money laundering, and operating an unlicensed money-transmitting business.

Kumbhani allegedly manipulated the price and volume of BitConnect’s native token, BCC, to create a false sense of market demand and attract more investors. His whereabouts are currently unknown, and the U.S. Securities and Exchange Commission (SEC) is actively searching for him. If convicted, Kumbhani could face up to 20 years in prison.

The Downfall of FTX

In November 2022, FTX faced a catastrophic collapse following a series of events that exposed its insolvency and fraudulent activities. These activities included using customer funds to cover losses, inflating trading volume and liquidity, and disseminating false information about partnerships and regulatory compliance.

The SEC took legal action against Caroline Ellison, the former CEO of Alameda, and Gary Wang, the co-founder and former CTO of FTX, for their roles in the FTX debacle. The regulatory body alleged that Ellison and Wang manipulated the price and volume of FTT, FTX’s native token, by utilizing Alameda’s trading bots and accounts to conduct trades on FTX and other exchanges. This manipulation created a false sense of market demand and profitability.

Additionally, the SEC accused Ellison and Wang of defrauding FTX’s customers and investors by making misleading statements about the company’s financial health, security, liquidity, and regulatory compliance. Their actions resulted in significant financial losses for FTX customers and investors, ultimately leading to the collapse of FTX and a drastic 90% decrease in the value of FTT within days.

Ellison and Wang face civil charges of securities fraud, market manipulation, and aiding and abetting FTX’s violations of the Securities Exchange Act of 1934.

The Hydrogen Technology Lawsuit

Hydrogen Technology, a fintech company, operated a crypto token called Hydro, which played a central role in its various financial services and products. However, the SEC filed a lawsuit against the company in September 2022, alleging that Hydrogen Technology and its founder, Michael Ross Kane, violated securities laws.

The SEC claimed that Hydrogen Technology and Kane unlawfully offered and sold Hydro without proper registration. Additionally, they hired a market maker to artificially inflate the price and volume of Hydro on crypto exchanges. Through this manipulated market, Hydrogen Technology and Kane allegedly made over $2 million, deceiving investors about the true nature and value of Hydro.

Tyler Ostern, the CEO of the market maker firm, also faced charges for his involvement in the scheme. Hydrogen Technology and Kane consented to permanent injunctions that prohibit them from violating securities laws. They were also ordered to pay disgorgement, interest, and penalties. Furthermore, Kane is barred from serving as a director or officer of a public company. Ostern consented to a judgment that enjoins him from violating securities laws and participating in future securities offerings. He was also ordered to pay disgorgement and interest.

Adam Todd’s Legal Troubles

In September 2022, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint against Adam Todd, a Miami resident and entrepreneur. Todd, the founder of Digitex, a crypto exchange offering futures and spot trading on various cryptocurrencies, and the four companies under his control, were accused of violating the Commodity Exchange Act (CEA).

The CFTC alleged that Todd and his companies operated an unregistered futures exchange, facilitated unlawful futures transactions, and attempted to manipulate the price and volume of DGTX, Digitex’s native token. The regulator claimed that Todd and his companies solicited U.S. customers to trade on Digitex without complying with the registration and regulatory requirements of the CEA. They also failed to implement proper anti-money laundering and customer protection measures.

The CFTC further accused Todd of artificially inflating the price and volume of DGTX on third-party exchanges using a trading bot and other methods. This manipulation aimed to attract more investors and increase the value of the Digitex treasury, which held a significant amount of DGTX.

Examining Bitcoin Price Manipulation

Bitcoin experienced an unprecedented surge in December 2017, reaching nearly $20,000 after a year of remarkable growth. However, researchers at the University of Texas at Austin conducted a study suggesting that this surge was partially fueled by market manipulation involving Tether (USDT), a stablecoin pegged to the U.S. dollar and issued by Bitfinex, a crypto exchange.

The study analyzed blockchain data of Bitcoin and Tether transactions and found evidence of Tether being used to purchase Bitcoin during periods of low demand. This practice created artificial price support and inflated the value of Bitcoin.

Additionally, the study discovered that Tether was predominantly issued in large amounts, often surpassing the cash reserves claimed by Bitfinex. This raised concerns about the legitimacy and backing of Tether.

The research concluded that Tether accounted for at least 50% of the increase in Bitcoin’s price in 2017. It suggested that a single entity or a coordinated group of traders likely conducted the manipulation.

The study faced backlash from Bitfinex and Tether, who vehemently denied any wrongdoing. They accused the researchers of bias and flawed methodology.

In Conclusion

Market manipulation remains a significant challenge within the cryptocurrency and defi space. From wash trading on DEXs to Ponzi schemes like PlusToken and BitConnect, these manipulative practices have resulted in substantial financial losses for countless individuals. The cases involving FTX, Hydrogen Technology, and Digitex highlight the need for regulatory oversight to protect investors and maintain market integrity. Additionally, the study on Bitcoin price manipulation raises questions about the role of stablecoins and their impact on the cryptocurrency market. As the industry continues to evolve, it is crucial to remain vigilant against market manipulation and promote transparency and accountability within the ecosystem.