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Cryptocurrency trading bots are manipulating prices, says US paper

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Pieces of automated trading software are responsible for the manipulation of prices on some cryptocurrency exchanges, an investigation by a US newspaper has found.

In an article published Tuesday, the Wall Street Journal said that the relatively unregulated nature of the crypto landscape means that bots can largely get away with all sorts of behaviours.

The absence of “surveillance efforts” has led to a situation in which “crypto bots can be used to execute abusive strategies on an industrial scale”, it claims.

The Journal interviewed a host of figures for its article, and the perspectives of those from both the regulatory world and the private sector were taken into account.

Andy Bromberg, the co-founder of CoinList, said: “This sort of activity is rampant in the market right now.”

Other interviewees were highly open about their own use of bots.

According to Stefan Qin, Managing Partner at cryptocurrency trading company Virgil Capital, his firm operates: “its own bots on dozens of crypto exchanges worldwide”.

He said that his firm faces threats from rival bots, too – and that one even managed to trick the Virgil bot into buying Ethereum in order to push up prices.

“We’ve had to build in error-handling functions to check for hostile and potentially illegal activities. Such is the Wild West of crypto”, he added.

Price fixing has long since been a problem in the currency, cryptocurrency and forex markets.

The ongoing cases of the “Forex Mafia”, for example, focus on alleged foreign exchange rate fixing by employees of banks affiliated to HSBC and others.

However, as the article notes, a range of regulatory bodies have begun to take specific notice of the role that bots can play.

Last month, for example, the office of New York’s Attorney General said in a report that there were large-scale inconsistencies across the industry in how the issue had been tackled – especially when compared to traditional trading marketplaces.

“Though some virtual currency platforms have taken steps to police the fairness of their platforms and safeguard the integrity of their exchange, others have not”, the report said.

“Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns. There is no mechanism for analyzing suspicious trading strategies across multiple platforms.

“Few platforms seriously restrict or even monitor the operation of “bots” or automated algorithmic trading on their venues. Indeed, certain trading platforms deny any responsibility for stopping traders from artificially affecting prices”, it added.

As some of the interviews in the Journal piece reveal, however, there is arguably a case for making automated trading functions more widely available.

The concept behind some of the cryptocurrency trading bots available on the market is that they are currently only used by those with explicitly nefarious aims.

One trader, Norway-based Kjetil Eilertsen, has developed a mass market tool which contains versions of these supposedly “abusive” practices.

“If everybody can manipulate, then nobody is manipulating. You can’t ban anything from people who are dedicated to doing something”, Eilertsen said.

Some of these tools can “level the playing field by giving sophisticated manipulation tools to small traders”, he added.