Zurcoin co-founder Daniel Mark Harrison has alleged that the majority of crypto exchanges are actively engaged in manipulating digital asset markets, which threatens the long term stability of the market and also fundamentally contradicts cryptocurrency’s principle of decentralisation.
In a post published on his Medium page, Harrison stated that exchanges are effectively stealing from their customers by acting in ways that move crypto prices downward until customers simply abandon their holdings, enabling exchanges to increase their crypto asset holdings through the back door in an operating climate that is otherwise unattractive due to high operating costs and low margins.
Deliberate Depression of Crypto Prices
In Harrison’s opinion, the market situation that shows increased volumes amidst reduced capitalisation is fundamentally impossible according to rational market behaviour, and can only be the result of manipulation by exchanges with the aim of gaining custody of user crypto funds be exploiting the psychology of retail investors.
Citing Bitcoin as an example, he explained that in December 2017, Bitcoin’s volume was around $14 billion on market capitalization of $284 billion. By 2018, the volumes were held at $4.3 billion on a market capitalization of $59.9 billion, showing that while volumes stood at 4% of market capitalization in 2017, despite an 82 percent price drop over the next 12 months, the volumes as a percentage of market cap increased to 9%.
According to Harrison, it is impossible to explain such a scenario within the context of anything other than deliberate downward price manipulation by exchanges.
Explaining why exchanges would do this he said:
The cause of this behaviour is clearly that running an exchange is by and large, an extremely cost-intensive, highly competitive, low-margin business, which holds next to appeal for entrepreneurs wishing to cash in on the new digital gold rush. Instead then, such entrepreneurs manufacture cryptocurrency volumes in the form of virtual currency trades represented uncolateralised on their exchanges, in the hope of obtaining (stealing) the majority of their customers’ cryptocurrency over time.
In his view, exchanges have an incentive to artificially massage prices downward from a peak because in so doing, customers eventually lose interest in withdrawing their massively discounted holdings from the exchanges, which gives them these platforms the opportunity to take custody of the crypto assets and offer knockdown fia equivalents to their owners. When the market recovers at any significant level, the exchanges make a huge profit in addition to being in a better position liquidity wise. They also have the benefit of a stash of effectively stolen cryptocurrency which can then be used to repeat the scam at a bigger scale and return greater profits.
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