Crypto Whales Manipulating Markets - Why Regulation May Not Be the Answer
Crypto whales can move prices up or down at very short notice. In this article we discuss how regulation may not be enough to curb this practice.
In the space of just two days in late August, Bitcoin dropped from $10,260 to $9,430. This was an 8% drop, which may not sound like much but for such a short space of time, this is actually quite steep. Since it is still early days, it is not possible to fully understand why this happened, however, some traders and enthusiasts are suggesting that it could be the result of foul play. It is possible that whales could have tanked the market by selling a large quantity of crypto funds all at once.
What is a whale?
For those who are new to the world of trading, a whale is a person (or organization) who has extremely large buying and selling power. They either buy substantial quantities of a cryptocurrency all at once or sell large quantities all at once; oftentimes doing both over a short span of time.
Whales are a problem for all financial markets, however, the (still) somewhat unregulated nature of cryptocurrency means that they pose an especially serious risk to market stability and transparency. When a whale buys or sells their coins and tokens all in an instant, it can cause artificial rises or falls. These punish the small trader, and by extension, the industry.
Why regulation might not be the answer
So far, the crypto markets have been struggling to curb activity from whales. As mentioned earlier, this is partially due to a lack of regulation. However, regulation might not exactly be the answer. Cryptocurrency has developed such a vibrant and lively community in part because of its seemingly unregulated nature. It’s not that people want crypto to be a wild and unsafe market, but rather that people support an ideology of being economically free from government and corporate bodies. Many consider regulation to be a misstep in this regard, fearing that large conglomerates would be the ones imposing the rules.
If further regulation was to happen, then fans would want it to be led by those who are prominent in the industry itself, namely programmers and developers. So how can this happen?
AI and cryptocurrency
Thankfully, cryptocurrency is in the unique position of being primary a tech field, rather than an economic field. It might make more sense to regulate the market at the blockchain level, than at the market level. If programmers could create algorithms which would determine behavior from whales, then they could stop it in its tracks, before they are able to affect prices. Therefore, placing regulation in the hands of the developers.
This is definitely complex to do, but not impossible. Determining the transactions of whales is more about data analysis than anything else, and nothing is better at reading data than Artificial Intelligence. With the field of AI currently thriving, it is not a stretch to propose that developers of future cryptocurrencies incorporate it into their blockchains for regulatory purposes. The conjoining of crypto and AI is not unheard of, with blockchains such as Velas and Matrix utilizing machine learning to maintain their respective networks. In fact, AI and crypto meld together surprisingly well as cryptography and algorithmic data manipulation goes hand-in-hand.
An example of how this would work would involve a blockchain that uses AI to verify each block and flag any blocks which seem to be corresponding with certain malicious wallets. These blocks and wallets would be determined by AI through observing patterns of behavior that fit that of a whale.
It sounds complex, but so does everything in the world of crypto. This industry thrives on complexity and has proven time and time again that intricate ideas can be masterfully executed and sustained. In the meantime, the issue of whales manipulating the market will not go away anytime soon, but hopefully, the right methods and protocols are developed to appropriately curb their behavior.