Every lucrative market is characterized by some form of market manipulation, regardless of whether it is traditional finance markets or the highly disruptive cryptocurrency market.
Market manipulation is particularly evident in the Bitcoin price action. Take for example the recent news that caused the Bitcoin price to go down. Former U.S President Donald Trump recently stated that Bitcoin is a scam, but the report that had the most impact on the cryptocurrency’s price is the FBI’s latest breakthrough in the Colonial pipeline investigation.
It was reported that the FBI managed to recover roughly $2.3 billion used as ransom to pay the Colonial Pipeline hackers. The reports suggested that the money was recovered by hacking Bitcoin or at least breaking into the digital wallets of the hackers. Such news shed a negative light on Bitcoin and the cryptocurrency market in general because it called into question the security levels of digital currencies. At least this is what anyone who does not understand the mechanisms of blockchain technology would think.
Unsurprisingly, the Bitcoin fear and greed index highlights the prevailing extreme fear in the market. The recent news reports seem to be coordinated towards spreading FUD in the market, causing weak hands to sell, thus sending the asset price onto a bearish spiral. The Bitcoin price dropped sharply in the last two days from a high of $36,840 to a low of $31,021 during Wednesday’s trading session courtesy of the unfavorable reports.
The latest 24 hours have particularly been interesting because Bitcoin bounced back and recovered above $36,000. This means that within the last 8 hours, some major accounts saw an opportunity to dump Bitcoin and repurchase it at a lower price, thus potentially making millions when the price recovers. The price tends to go up when there is a major purchase, and in a way, the weak hands got played.
In the above scenario, the market manipulators saw an opportunity to take advantage of the FUD that would arise if people believed that the FBI managed to hack the Bitcoin network. The truth is that Bitcoin cannot be hacked because it is decentralized and one would have to control more than 51 percent of all the computers through a 51% attack. However, it is impossible to simultaneously execute such an attack considering the network’s decentralization.
How did the FBI manage to recover the ransom Bitcoin?
The FBI used on-chain data analysis to recover the hackers’ public key which led them to a specific custodian who then shared the private key for the particular wallet where the ransom Bitcoin was stored. The only reason that the FBI succeeded in recovering the Bitcoin was that the hackers delegated custody to a third party.
The fact that the market did not crash harder is a good thing because it is a sign that most of the people that own Bitcoin are aware of the intricate workings of blockchain and its resistance to hacking. The market is currently in a stage where fear rather than greed is more dominant, which is why cryptocurrencies seem to be so sensitive to negative headlines. Most of this sensitivity is because market manipulators who have large accounts are waiting for such opportunities to sell, pushing down the price so that they can eventually buy at a discounted level to make juicy profits.
In summary, having the right knowledge will help crypto traders to make decisions that put them on the safe side of the fence. Also, the FBI’s Bitcoin recovery calls into question the security of using a custody service compared to storing crypto in more secure solutions such as cold wallets where the user is the only one with access to their keys.
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