Periodically, the rate of a particular cryptocurrency decreases against market trends or going beyond them. For example, it begins to fall amid market growth or amid a recession, but at a rate that exceeds the rate of decline of other cryptocurrencies. Many of these strange landslides are the result of the deliberate actions of certain people. Who do provoke the collapse of cryptocurrency? Why is this needed and which cryptocurrencies are more vulnerable than others? We will discuss in this article!
Cryptocurrency collapses are in the fact that the manipulators make it unsuitable for most market participants and force the last to leave, selling their assets.
These groups are not always uniform, often one of them prevails (most often it is investors). It is possible to provoke a collapse of the market if one correctly assesses the influence of each of these groups on the market and purposefully influences them.
For investors, the unsuitability of cryptocurrency is in its disadvantage and unreliability in such an asset is inappropriate to invest. If the market is kept mainly at the expense of them and there are few ordinary users, it is enough to convince investors that the cryptocurrency will not bring them income, but it will bring losses.
For ordinary users, the unsuitability of cryptocurrency is in the inconvenience of its use and also in insecurity. Therefore, with an equal number of investors and ordinary users, manipulators try to make it as difficult as possible to use cryptocurrency as a means of payment.
The success of a market crash depends on how well the methods were chosen that provoked the withdrawal of market participants, and how well they were implemented.
The method can be aimed at achieving one goal or several at once. Different methods are differently effective, require different resources and take a different amount of time.
The direct method of market collapse, as a result of creating supply that exceeds demand, the market will invariably begin to fall. For several months (sometimes up to a couple of years), a player unnoticed by the market buys a large amount of cryptocurrency. He tries to use not only the exchanges, but also closed channels, so as not to increase the course by his actions. Instead of buying or parallel with it mining can be used.
When a significant amount is collected, the player abruptly throws coins into the market in small portions and, if possible, under the guise of different users. It creates the impression that investors are selling a large number of assets, the rate falls, the other market participants start to panic and also sell assets. The longer the player maintains the appearance of panic and asset dumping in the market, the more it will be able to derail.
The method requires significant financial investment, sufficient to support panic for some time. The exact amount depends on the size of the market can be 5-30% of the capitalization. With large investments, tactics are very effective and can collapse any market with small ones – only if the player can create a plausible appearance of panic. Apart from the need to create such an appearance, the method is simple to implement. It is usually implemented by funds and other major players.
Vulnerability, found long before the collapse strategy is compiled, is hidden from users for some time. During this time, it is eliminated. When everything is ready, the vulnerability is announced through various channels, panic is sown and at the same time hard forks (or a fundamentally new currency is offered) with the vulnerability eliminated.
Thanks to the implementation of the strategy, the creator of the new currency simultaneously entices users, creates additional advertising for its own product and eliminates the competitor. The method requires knowledge of the blockchain technology at a professional level or attracting developers with such knowledge. It works with proper use of the media and a good PR campaign. It is rather complicated, but it is effective if these conditions are met.
It is effective if there are many ordinary users in the network who use currency as a means of payment. With the help of bots, an attack of the network is organized, which consists in the fact that bots with a high frequency send each other certain amounts in the selected cryptocurrency. These transactions fill the blockchain, without missing transactions of ordinary users. As a result, transfers go on for a long time, the commission rises significantly, and users, if they see an alternative, leave the market. The method is often used, as in the previous case, when an alternative already exists, to entice users and collapse a competitor.
It does not work on all cryptocurrencies (for example, currencies with SegWit are insured). It requires a relatively large investment of funds in the commission required to enable the transaction bot in the blockchain. It is simple to implement if there is a network of bots, it is complicated – in the absence of such a network and the need to create it, and the need, as a rule, arises. It is effective with alternatives. If there is no alternative, a weak effective part of the users will leave, and the currency exchange rate may drop significantly, but in the absence of other options, some users will remain and there will be no collapse.
One negative news that has no obvious evidence rarely can collapse the market, so a single “duck” is rarely used and mainly when a precedent unpleasant for market participants does occur. For example, after detecting a vulnerability, manipulators may launch a “duck”, announcing thefts due to this vulnerability. Then screenshots, statements on behalf of supposedly different users and other “material evidence” are prepared. The excitement raised around a little-known currency can provoke the panic of its few users, their withdrawal and, as a result, the collapse.
However, a more effective way to implement is the sequential launch of several “ducks”, where each subsequent confirms the previous one. Aerobatics – the launch of such news from different parts of the world. The news may concern the internal functioning of cryptocurrency (use cases on a crypto market or on the technical side) and external (issues of legalization and regulation, prohibitions in the financial sphere, and so on).
The method is very difficult to implement, requires several months of preparation, in-depth knowledge of marketing, drawing up a competent “anti-marketing” campaign, connections with a large number of media and financial investments when publishing articles in the largest media. At the same time, at least some well-known cryptocurrencies with an average number of users do not always work if some user decides to investigate. The more users, the higher the chance of exposure.
For example, the cryptocurrency market, which has a capitalization of $ 1 million, will react very sharply to the sale of coins worth $ 500 thousand, since this is half of all existing coins. A person who has at his disposal coins for such an amount will surely collapse the market if he wants to.
However, the same amount will not produce much excitement in the cryptocurrency market with a capitalization of $ 1 billion, because several market participants may have coins of $ 250 thousand or even $ 500 thousand and the actions of one of them will be adjusted by opposition from others – consciously or even accidentally.
Similarly, user support works. If there are few users of cryptocurrency, it is not difficult to attract them to a more attractive market. If there is a lot (and they were, obviously, because of some advantages of the coin), not all will go away. Some will conservatively prefer to remain on the old currency, others will not want to understand, others do not follow the news at all, and so on.
The last one also include mostly top users with the most users due to fame, prescription appearance and profitability. They may also include new currencies that have user advantages – the same SegWit, multi-level address hiding systems, and so on.
Undoubtedly, they can be influenced by large players who can noticeably lower their rate and provoke the departure of the most suspicious investors. However, it will not be possible to derail them, because too many investors, trading systems and ordinary users trust them, and the trust of users and investors in the network ensures its reliability and makes methods of its collapse ineffective.