There are 3 ways traders can avoid trading manipulated tokens. Volume manipulation is rampant on some cryptocurrency exchanges. Here are three ways to use data to avoid getting ripped off. Identifying Bitcoin’s Fake Liquidity Bitcoin $63,423 and the cryptocurrency is crucial for traders to avoid being surprised by a sudden and significant drop in trading volume.
These factors make stop loss almost impossible to execute and often lead to unexpected results. By analyzing how market makers are organized, their order book mechanics, and some practical indicators that can detect artificial trading volumes, traders can spot potential red flags and avoid unnecessary consequences.
Today, the editor of this site will share with you 3 ways that traders can avoid trading manipulated tokens. Friends in need should take a look!
Market makers play a key role in the cryptocurrency market by providing liquidity through multiple buy and sell orders. However, their activities are not always benign. These entities may manipulate the market by placing large orders near current prices to create a misleading appearance of demand or supply, which is known as spoofing, or engage in sham trading – buying and selling the same assets simultaneously to inflate trading volumes.
Additionally, these entities often enjoy benefits such as reduced transaction fees or access to tokens not available to the public, allowing them to manipulate market conditions to their own benefit. But no matter how cunning and savvy these entities are, there are three reliable indicators that essentially provide some warning signs, allowing experienced traders to spot anomalies and avoid getting into coin troubles as soon as a sizable sell order enters the market. The currency will collapse.
When examining a cryptocurrency pair, compare the order book depth to the reported daily trading volume. A disproportionate relationship between shallower order book depth and higher volumes suggests possible manipulation. For example, if the depth of a cryptocurrency pair is shown as $50,000, but the reported daily trading volume is $2 million, this may indicate that the trading volume is not supported by actual trading interest, but is artificially inflated.
Akash (AKT) order book depth vs. 24-hour trading volume. Source: CoinMarketCap
Note that even on exchanges generally considered immune to market manipulation, Akash (AKT) trading volume far exceeds the 2% order depth. In comparison, the DYDX token with a similar market cap is being bid at $457,900 on Binance, 2% below the market price, $209,000 on OKX, and $64,700 on Crypto.com, almost pre-AKT 3.5 times the average of the three major exchanges.
It is also important to evaluate the relationship between trading volume and free market cap, which represents the total amount of tokens available for trading. When daily trading volume consistently exceeds 30% of a token’s free market value, it indicates unusual activity. This alert should be ignored during the first two trading days after a new coin is listed, as it often reflects both hype and genuine interest, especially when it is first listed on a major exchange.
Watch for sudden and unexplained gaps in trading volume. These gaps are when a large portion of cryptocurrency trading volume intermittently disappears and reappears, and can be caused by a variety of factors, such as server outages, market makers withdrawing liquidity, or exchanges conducting fake trades to create the illusion of trading activity. This pattern is unnatural and usually indicates an attempt to manipulate market perception.
APENFT (NFT) total spot trading volume, unit: USD. Source: TokenInsight
The above example shows a clear gap in APENT (NFT) trading volume, according to data from TokenInsigh. During the 2-week period analyzed, the token was listed on KuCoin, Bitget, Bybit, and Gate.io, with 24-hour trading volume typically ranging from $1.7 million to $2.9 million. However, over a 6-hour period on June 22, this rolling average volume dropped to just $250,000, indicating possible fake volume.
To effectively detect false liquidity, traders should use analytical tools to carefully check order book depth. Sites like CoinMarketCap, CryptoCompare, and Coingecko can provide comprehensive data on trading volumes and token availability, including details on locked tokens. Likewise, in-depth analysis of the order book can be found on sites such as Okotoki, TensorCharts, and TRDR.
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