Okay, we don’t really have a coin suggestion – it was merely a title to get you to read this article!
A lot of people, particularly cryptocurrency investors, have long suspected that many tokens out there have a “fake” trading volume on exchanges. They are NOT WRONG. For far too long, trading volume of even the most popular cryptocurrencies far surpassed present day demand (or even use cases). This is TRUE.
While there’s presently no hard and fast rule on managing token liquidity, it is actually standard practice for ICO promoters to allocate part of their funding to trade and manage token liquidity; that is, until they can’t afford it any longer.
Exchanges, the king makers?
These days, exchanges are increasingly playing a growing role in maintaining the “going concern” and “continuity” of any project. Let’s face it – they are rich. Richer than any ICO project out there. If they were to count on these ICOs to maintain their token liquidity, these exchanges would have run out of business! Numerous exchanges, while not openly admitting to such practices, often employ tactics to drive up volume of tokens as it not only attracts traders to come to their exchange to trade – but also if intelligently employed, is a clever scheme to make money. So, there’s a mutually assured benefit for both token promoters and exchanges to work together? YES.
A relatively unknown token, can surge to all-time highs by merely announcing that they are listed on a reputable exchange, even without a real use case! As a result, IEOs or Initial Exchange Offerings, which we have covered in the past, have become extremely popular in recent times.
So, to say that it’s up to the exchanges to do what they want – it is absolutely TRUE, but only because their customers let them. Think of this: if you’re a trader, the lack of volume will hurt your profits. You may enter on one price, but because there’s no demand (or liquidity), you simply can’t sell it – setting you on the path to be a HODLER for life (pun intended!). While liquidity might be artificial, traders welcome them openly, at least for now. The casino needs players, and the players need the casino.
Doing what it takes to profit
Is it true to assume the possibility that some (if not, many) coins are manipulated? YES. Does it stop traders from not wanting to trade? NO. Whether they are traders, exchanges or token promoters, they all just want to make money. Put it this way, the industry is still at its infancy, and while many things can be improved –trading is a zero-sum game.
Cover photo by: Coindesk
Experienced in the technology and blockchain startups ecosystem, Benjamin honed his skills in the growth and operational development of many organizations. An huge fan of blockchain technology and its applications, he spends his time both investing and advising into blockchain projects and scalable development.