Wolong moves a market

Devcoin enjoyed a surge in value on Cryptsy of as high as 139 sat going into the weekend. I was completely taken by surprise and might have missed it if it hadn’t been for the fact that I needed to check the DVC price on Cryptsy for a writing assignment I received Friday morning.

20140214 devcoin pumpWhat? How did Devcoin get all the way up to 122? The chart shows a straight vertical line at around 3 pm on Valentine’s Day. I already had plenty of DVC on Cryptsy because I was planning to sell them on Monday, but instead I sold them yesterday to take advantage of the high prices. I was able to sell from 122 to 130 sat, which will really help with my bill paying efforts as long as the price of Bitcoin can hold steady or get better during the rest of the weekend.

20140215 Devcoin pump come downThe DVC price has since been steadily coming back down and I imagine will probably settle back down to its more recent plateau of 88 to 90 sat over the next week or so. It may also level off at a higher level than that. I’ve noticed that the last couple times that Devcoin enjoyed a surge in value, it actually held on for quite a while after the surge. In fact, since before Christmas Devcoin has never reached its low of 13 to 20 sat again. The new low was around 50 but usually it was closer to 60. Earlier this week Devcoin rose to around 90 sat, and that was what I was expecting to be selling my earnings for this coming Monday.

My first thought was to attribute a recent press release to Devcoin’s run-up in value. I am certain the press release did not hurt one bit, and I hope the Devcoin project keeps the publicity coming. But then I logged onto the new online home for the Devcoin community, CoinZen, and happened to read a message indicating that someone on Twitter deliberately pumped Devcoin.

He or she goes by Wolong on Twitter. His tag line is Faith can move mountains, Wolong can move markets. I did not read back far enough, and apparently he has an inner circle that he charges 0.02 BTC for people to join, but it appears his intention was to pump Devcoin on Cryptsy. If that was his intention, then he most certainly succeeded. It is possible that he was taken by surprise when the price didn’t crash back down very quickly. Devcoin is still a small enough market that one person or group can pump it, but there’s a lot more behind it to carry the momentum so the fall back down tends to be gradual and graceful. I am certain that anything I sell on Monday will still benefit from Friday’s pump.

When I hung out more on the mcxNOW troll box there was always chatter about which alt coin on the exchange to pump and send “to the moon.” Pumps and dumps were par for the course, and I think people did them more for fun (because they could) than anything else. Devcoin got pumped once or twice during my time there, and I had been fortunate enough to have previously placed high sell orders to take advantage of the situation which was quite short lived. Not too long before that, there had been a pump on Vircurex, but I was unable to take advantage of it because it was a very quick up and down and I had not placed high sell orders.

In the time since these experiences I’ve considered how I feel about being involved in markets that are so easy to pump and dealing with such wild price fluctuations. I believe that in the regular financial world pumps and dumps are illegal, falling under the general category of market manipulation. Do I want to see a similar restriction placed on crypto markets?

Generally the purpose of regulation cited is protection of people and their assets. The lawmakers and regulators do not want to see people losing everything on a risky speculation, certainly not to have that everything ripped out from under them because someone deliberately manipulated the market without their knowledge. You can be a very smart investor and do your homework, but if a company’s accounting department was fudging the number to make the company look better, and the CEO of the company tells all his buddies to sell their shares before he makes a big announcement, then you’re going to get burned. It’s that kind of burning that the laws are supposed to prevent.

Insider trading is definitely something that I believe is unethical. By this I mean the situation where people from inside the company warn their friends about private information impacting the share price so that their friends can act ahead of the market. A CEO who tells his buddies to sell before he announces the company is going belly up is fleecing his shareholders, some of whom may very well be the same people who supported the company during its initial IPO.

I also know that speculating on currencies of small countries can be very detrimental to the economies of those small countries. George Soros is known as the man who broke the Bank of England proving that even with central banking and all its supposed safety nets, it is possible for one man to get rich by first crashing a currency, then buying it back cheap and profiting from the recovery.

At this time, speculating on cryptocurrencies isn’t likely to make a difference for an entire country, but it could make a difference to someone who is an innocent participant. In the case of the recent Devcoin pump, I sure benefited greatly. If I didn’t have bills to pay, I’d probably hold onto my Bitcoins and buy back the Devcoins when their price drops down to a stable low, then hold them until the next pump. Since I do have bills to pay in fiat I will simply enjoy having more Bitcoin to trade into fiat and getting ahead.

But last week was a different story when it came to the fiat/Bitcoin exchange rate. I was even more pressed for time–I had to sell this past Monday–but then the Mt. Gox thing happened over the weekend and the price of Bitcoin lost $150 in value within hours. In this case this was not the result of market manipulation but what if it had been? What if someone had deliberately crashed Bitcoin’s price for their own gain, and it had been enough for me to come up short on the money I needed? I would have felt used once I found out about it. “Don’t people understand that they are playing with other people’s lives?” I would have exclaimed in exasperation. But I recognize that is part of the risk with cryptocurrencies and cryptostocks right now. Their prices go up, their prices go down, and I have to expect that.

20140215 VirtualMiningYou don’t even have to intend to pump a particular market in order to pull it off. I believe I am at least partly responsible for the major upswing in the price of VirtualMining shortly after its IPO. I happened to notice this little Devcoin denominated stock on CryptoStocks and I decided I wanted to buy as many shares as I could as quickly as possible. All I wanted to was to buy the amount I wanted and be done with it, and my intent was to hold all the shares I bought. This was during the time that Devcoins were at their all time low of 20 sat and under, so it made no sense to sell them. So I kept sending them over to CryptoStocks and buying up the sell wall as new orders were placed. I bought a few shares at over 100 DVC when I realized I was probably overpaying for them. Shortly after I quit buying, the price crashed, and it’s kept going downhill ever since. Now the price is so low that I’m looking at buying again, but this time I’ll be a bit smarter and not do it so quickly. Even I can move a market. Unlike Wolong (who is also claiming credit for DOGE’s recent run-up), I’d rather not.

I think ultimately the solution to needless volatility due to one person intentionally manipulating the market is wider adoption. When lots of people are actually using a given cryptocoin, and when lots of people are investing in crypto securities, it will be much more difficult for someone like Wolong to impact the price so much. I believe it’s already much more difficult to manipulate the price of Bitcoin that it was even a year ago. Bitcoin’s price will have its ups and downs and it is especially sensitive to certain types of news about it, but overall its price will trend upwards for the simple reason that more and more people are using it as money.

Devcoin is not too far behind Bitcoin. It’s already stood the test of time (two and a half years and going strong is a very long lifespan for an alt coin). It’s going to see its ups and downs in price and for the time being, one person can cause them. But with more and more people getting into it every week, and with more and more coins being created and more widely distributed each month, the Wolongs are going to have to work harder each time to move the market.

For the time being my opinion about alt coin market manipulation is pretty much to let it go for the time being. Let Wolong and his type have their fun. For the most part it benefits me as I too can enjoy selling my DVC at super high prices. I would simply caution people to learn to recognize it for what it is when it’s happening. If something you happen to be invested in suddenly enjoys a major price run-up, then sell some of it, or even most of it, and if you can, wait patiently for the price to come back down and then buy some or most back. As long as people know pumps and dumps do occur and can recognize the signs, they can not only protect themselves against major losses but position themselves to profit from them.

Wolong may have moved my market, and I cleaned up. All I need is for the price of Bitcoin to recover some more. Thankfully BitStamp and Mt. Gox have both reinstated Bitcoin withdrawals. As long as the regulators don’t make too much noise the price can go nowhere but up with all this good news.

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