Zurcoin Co-Founder: Most Crypto Exchanges Are Manipulators
Daniel Mark Harrison has claimed that the greater part of exchanges is manipulating prices on cryptocurrency markets.
Daniel Mark Harrison, a co-founder of Zurcoin, a currency claimed to be a hybrid of Quark and Bitcoin, has accused the majority of cryptocurrency exchanges of manipulating prices on digital assets markets. In his post published on Medium and titled “The Problem With Exchanges”, Harrison claimed that the greater part of crypto exchanges fiddle with assets’ prices, and such manipulations pose long-term risks to the market stability.
Harrison explains that there is an important difference between blockchain-based and decentralized cryptocurrencies, and centrally-issued virtual currencies, which are highly-centralized and thus subject to manipulations. According to Harrison, the key point here is their supply that can be tampered with, which might greatly affect the price.
He goes on, adding that as soon as decentralized cryptocurrencies are deposited into an exchange account, they become virtual currencies that are subject to the exchange’s total control. Harrison warns this disturbing paradox might represent the existential threat to the digital currency market because it opens the door to manipulations.
First, he believes that users can’t know for sure the amount of crypto coins the exchange actually holds. In fact, this is usually only a part of the customers’ deposits.
“They have considerably less (it would seem, about 95% less) cryptocurrency in their storage wallets than virtual currency that is represented on their platform interfaces,” Harrison argues.
He further claims that most exchanges deliberately push prices dramatically downwards and thus force their clients just to keep holding their digital currency since it would be unprofitable for them to withdraw their depreciated assets. As a result, exchanges gain custody of such crypto funds by offering users fiat assets instead. This trick helps them to increase the volume of their crypto asset holdings by taking the customers’ cryptocurrency. Later on, with the prices going higher, exchanges would only benefit from this.
To prove his point, Harrison shows that normally, volumes should not go up when prices go down – and yet, this is what can often be witnessed with crypto exchanges in situations that would otherwise be unfavorable for business because of low margins and high costs and competition.
“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,” he explains.