WSJ: Automated Trading Programs Manipulate Digital Currency Prices

Automated trading programs, or bots, are manipulating digital currency prices on cryptocurrency exchanges, according to a Wall Street Journal report October 2.Automated trading software is a program that allows traders to set specific rules for both trade entries and exits, submit orders to a market center or exchange, and then automatically executes them by means of a computer at speeds greater than any human is able.

Trading programs are available for traditional and crypto markets, and can be deployed for both legitimate and manipulative strategies.

Y Bromberg, co-founder and president of startup CoinList, told WSJ that "This sort of activity is rampant in the market right now. It hurts the market's reputation, and it hurts individual investors."

According to WSJ, $80-million digital currency hedge fund Virgil Capital uses its own bots on a number of crypto exchanges around the world.

Per WSJ, Virgil lost funds on certain trades in Ethereum earlier this year after a "Harassing bot" targeted the fund.

"The bot's strategy was similar to 'spoofing,' a practice in which traders enter fake orders only to cancel them. The tactic, aimed at tricking other investors to buy or sell an asset by falsely signaling there is more supply or demand, was outlawed in U.S. stock and futures markets in 2010.".

Another example of price manipulation in digital currencies cited by WSJ is trader Kjetil Eilertsen, who began trading Bitcoin in 2011.

Eilertsen reportedly developed a program called Quatloo Trader, that was promoted as "The best market-manipulation tool in the world of crypto." The idea of the program is to make market manipulation easier by using built-in tools like a special tab called "Whale tools," which executes several "Abusive strategies."

Eilertsen told WSJ that it is pointless to ban manipulation in digital currencies, and that it would more effective to provide manipulation tools to small traders.

The New York Stock Exchange regularly monitors operations for illegal trade activities and abusive trading, and punishes violators.