Many #altcoins have seen x2 to +10,000% price spike pumps such as this one in the recent weeks ๐
this is how you profit ๐๐ฝ๐งต
this is how you profit ๐๐ฝ๐งต
Firstly before I go over all reasons these pumps happen more common recently it's important you learn and understand a few concepts.
1) Market-makers: All altcoins listed on top tier exchanges have some sort of market-maker.
A market-maker or MM for short is a bot/algorithm that makes the market - meaning fills the buy and sell side of the orderbook with bids/asks.
A market-maker or MM for short is a bot/algorithm that makes the market - meaning fills the buy and sell side of the orderbook with bids/asks.
2) Liquidity: Top tier exchanges have liquidity requirements for listed assets. A liquidity requirement might for example read something such as: "$50,000 worth of bids/asks within -+5% of market price"
Projects hire market-makers to provide sufficient liquidity on the exchanges.
There are several different forms of market-making agreements but the most common is in form of a token loan/options
There are several different forms of market-making agreements but the most common is in form of a token loan/options
TLDR the project borrows tokens to the MM with a set strike price for end of the contract.
If the token trades under the strike price at the end of the term then the MM has to pay back the token strike price USD worth
and the exact amount of tokens borrowed if it's trading over
If the token trades under the strike price at the end of the term then the MM has to pay back the token strike price USD worth
and the exact amount of tokens borrowed if it's trading over
Sounds great right? Often projects do not even have to provide any USD to the market-maker. Seems like a great deal
Well let me tell you, it's not.
Here is why:
Well let me tell you, it's not.
Here is why:
Market-makers aim to be delta neutral.
It means that for example at the end of each day/week/month they aim to have executed the same value of bids/asks.
In practice it's nothing like that.
It means that for example at the end of each day/week/month they aim to have executed the same value of bids/asks.
In practice it's nothing like that.
The idea of "evil" market-makers.
I have over the years seen and heard feedback from project founders on how many market-makers do their business and it's shady.
โข They do not give a fuck about the tokens, the main goal is to stack as much USDT from the token loan as possible
I have over the years seen and heard feedback from project founders on how many market-makers do their business and it's shady.
โข They do not give a fuck about the tokens, the main goal is to stack as much USDT from the token loan as possible
โข Your losses = their profits. Algorithms are designed to pull bids/asks once bigger orders are being execute to temporarily increase slippage
โข Often times is no transparency over what the MM is doing with the borrowed tokens before end of the term
โข Often times is no transparency over what the MM is doing with the borrowed tokens before end of the term
โข ^ this is why we often see price being suppressed from pumping - it's simply a MM distributing tokens above certain price
All these points above have been confirmed by the fall of Alameda which used these tactics on a daily basis.
In addition the projects often use MM's to sell team/treasury tokens. The typical play is to ramp up marketing, release major news and then sell on retail
In addition the projects often use MM's to sell team/treasury tokens. The typical play is to ramp up marketing, release major news and then sell on retail
Okay now let's get back to why these pumps happen:
- It's costly to provide tight spreads on #altcoins therefore once the market takes a hit market-makers simply reduce exposure.
Often they reduce exposure below the liquidity requirements set in the token loan contracts
- It's costly to provide tight spreads on #altcoins therefore once the market takes a hit market-makers simply reduce exposure.
Often they reduce exposure below the liquidity requirements set in the token loan contracts
This leads to empty order books where a few thousand dollars is able to pump the price by a few %.
For altcoins that have perpetual swap pairs this means shorters can be hunted and liquidated cheaply for extra liquidity...
For altcoins that have perpetual swap pairs this means shorters can be hunted and liquidated cheaply for extra liquidity...
which is also attractive for pump and dump groups. Empty orderbook = cheap to pump price + additional liquidity from liquidated shorters
This is how to profit from this knowledge:
- Set alerts and keep track of high % pump numbers on altcoins with perpetual swap pairs.
- Enter shorts
9/10 times these pumps dump straight down over.
- Set alerts and keep track of high % pump numbers on altcoins with perpetual swap pairs.
- Enter shorts
9/10 times these pumps dump straight down over.
Hopefully this short rant thread was useful. This knowledge is useful to every trader and investor.
I'm crossing fingers for more transparency around the market-making firms in the future.
At the moment it's wild west and this space deserves better.
I'm crossing fingers for more transparency around the market-making firms in the future.
At the moment it's wild west and this space deserves better.
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