Crypto market shows signs of ‘spoofing’

Forgive Christopher Grey if he’s seen this before.

Mr. Grey is the co-founder and COO of CapLinked, an enterprise software company offering an information control and risk mitigation platform for the sharing of confidential or sensitive documents outside of the enterprise. Based on blockchain technology, the smart contracts produced offer premium document transfer security.

Before founding CapLinked Mr. Grey was a trader. He spent 15 years he spent in private equity and corporate finance, where he was directly involved in the deployment and management of billions of dollars of debt and equity investments. He founded two companies. Crestridge Investments was a private equity firm that made debt and equity investments in micro-cap and middle market companies, while Third Wave Partners made debt and equity investments in distressed situations. Mr. Grey was also a managing director of an Emigrant Bank subsidiary.

When he looks at Bitcoin’s recent performance Mr. Grey gets a sense of déja vu.

“Bitcoin, in particular, has been on an incredible run over the last few weeks,” he began. “I have no inside knowledge of Bitcoin but I do have two decades of in financial markets, corporate finance and private equity. I’ve seen several bubbles and the most recent run-up last week does not fit the normal type of bubble scenario.”

Comparing Bitcoin to the dotcom and energy bubbles, Mr. Grey said Bitcoin’s recent behaviour does not fit the pattern as it has increased with an extreme parabolic function, especially in early to mid-December, when this interview took place.

Christopher Grey

“A straight upward line is not indicative of normal human behaviour,” Mr. Grey said.

Such a line could hint at spoofing, a practice where traders manipulate market conditions by entering and cancelling large buy or sell orders on an exchange.

Spoofing is forbidden in most markets, but with Bitcoin living in the Wild West, and much activity happening off-shore, don’t be surprised if you’re not dealing with a convent full of nuns ethically speaking. It happened with Mt. Gox and the conditions are ripe for it again, given the majority of Bitcoin is held by a few.

In its current state, regulating Bitcoin is hard as so much activity happens in other jurisdictions. But if futures and derivatives are trading in the United States the activity is easier to regulate. Create more uses, find ways for more investors to get involved where they don’t even have to know how crypto works, they just know there are ways to trade and make money off of it.

Such maturity is welcome because, in its current state, Bitcoin is serving a precious few, a far cry from its early egalitarian vision.

“What is sad is that these parabolic moves make it harder (for wide Bitcoin acceptance),” Mr. Grey said. “You can’t have a currency that doubles in a week.

“Why spend it?”