Market Manipulation

We’ve had plenty of good news these last couple of months but the price keeps trending down. We’ve had Overstock.com have enormous success in their bitcoin implementation, Second Market just announced that they have acquired over 100 thousand bitcoin for their Bitcoin Investment Trust so far , the Winklevoss ETF keeps moving towards approval, Fortress Investment Group has acquired at least $20 million worth of bitcoin, and the IRS has finally given some guidance on how bitcoin should be taxed. That last piece of news is huge: the IRS has said that bitcoin gains/losses should be treated the same way as stocks, with short term and long term capital gains on any profits made from holding bitcoin. This is a taxation scheme that Wall Street is very comfortable with, and paves the way for big money to invest in bitcoin, allowing them to safely account for profits as well as report losses if the bitcoin price tumbles further.

For these reasons, I believe that the downward price movement we have been seeing is mainly due to market manipulation by wealthy investors and hedge funds. During the run up to the all-time high of $1163/btc, institutional investors and other major financial players started to take notice of the enormous potential/upside that crypto currencies represent, but the price was moving up extremely fast and they weren’t ready to jump in so quick. Now that they’ve had some time to get an understanding of the technology, Wall Street is ready to move into the bitcoin space in a big way, but naturally they want to pay the best price possible for the coins they acquire. In order to accomplish this goal, multiple techniques have been used to push the price lower, executed by players throughout the world.

How could they push the price down? Watch this video from 2006, where Jim Cramer explains how hedge fund managers manipulate stock prices to maximize profits. Methods include spreading false rumors, selling short, and manipulating order books to create certain trends in the market. He claims his tactics were successful when used against major stocks on the major exchanges, imagine how effective the same tactics could be when used against bitcoin, which has much less volume and whose investors have been known to panic relatively easy.

Cramer described activities used by hedge fund managers to manipulate stock prices - some of debatable legality and others illegal. He described how he could push stocks higher or lower with as little as $5 million in capital when he was running his hedge fund. Seeking Alpha

Since current exchange volume is so small and so many actors are trying to push the price down, I theorize that the price has dropped lower than any of the individual players had expected, making now a prime buying opportunity for anyone looking to invest a part of their portfolio into bitcoin. They are buying large amounts in private deals with large coin holders, and then using those coins to influence the order books of the major bitcoin exchanges, driving the price down, allowing them to then buy more coins in private deals at cheaper prices. The amateurs, who were the early adopters, are currently selling to the pros who will own the market as a result.

TL;DR: Wall Street and other major investors are moving into bitcoin in a big way and are using their large amount of capital and expertise to artificially push prices down in order to get in as cheaply as possible.

Disclaimer: This post is intended solely to provide information. As I have no knowledge of individual circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing or selling anything mentioned or recommended.