Losers and gainers of the pyramid
Cryptocurrency market of this year is a victim of its success of the previous year. BTC rose from US $ 952. 23 on December 31, 2016 to its all- time high of US $ 20,089 on December 17th 2017. Ethereum grew by over 100x within a year, rising from US $ 8 in January 2017 to $ 820 by the end of the year, before hitting its all- time high of US $ 1390, a fortnight later. NEO recorded the most astonishing display, rising from US $ 0.14 in January 2017 to US $ 160 in January in 2018, an 1000x increase. However, such a price inflation is neither grounded in the tangible value of token ( which indeed as no such value) nor sustainable. Subsequent crash is the predictable outcome. At present, Bitcoin has lost two third, Ethereum 80 per cent, NEO 90 per cent of its peak time value. Some of the much hyped ICO tokens (DADI, BEE, WEPOWER, STK, GEMS) are now being traded less than one twentieth of their ICO valuation.
Crypto believers tend to argue that each new bottom of crypto value has been higher than the previous bottom- which is empirically true. Yet, that does not denote that a majority of investors are better off than before. Crypto cycles are propelled by new money. Most new investors join in the middle of the cycle. Those people whose money propelled the crypto boom are the ones who are bound to lose a significant portion of their investment. These funds that are fleeced from the gullible are being redistributed according to the hierarchical order in the crypto pyramid. In other words, at the end of the cycle, the majority of the crypto investors, baring the early adopters are worse off.
Exchanges are part of the problem
Speculative binge alone cannot explain the magnitude of the cryptocurrency market boom and bust. Centralized exchanges that own vast digital assets, especially bitcoin, played an insidious role in artificially inflating the bitcoin price through wash trading. (Wash trading is a process whereby a trader sells and buys a financial instrument for the purpose of creating misleading and artificial activity in the marketplace. In this case, the “financial instrument” is a crypto coin or token.)
In crypto, the most recurrent type of wash trading happens when exchanges continuously sell and buy the same token, usually bitcoin, above the market price, there by artificially pushing the token price. The idea is to give impression that the transaction is an actually trading activity- even though actual value does not exchange hands, but rather stays in the same hand through the transaction. This is considered illegal because it falsifies the trade volume. According to research by Blockchain Transparency Institute (BTI), about $6 billion in daily volume is being faked through wash trading. This amounts to 67 per cent of total daily volume of crypto currency.
While these revelations are disturbing enough, that does not come as a surprise. Entire crypto market success in 2017 and to a great extent, even before that, is built on illegal market manipulation. Traders and bots operating in bitfinex , Gdax and most other exchanges systematically manipulated the bitcoin price, especially since March 2017 through wash trading. Practice known as spoofying, i.e. placing orders that actually do not contribute to exchange of value, was used both to raise the price by several hundred dollars, every day, and to rescue when the price is crashing.
Wash trading hit a new high in January 2018; during which, in order to maintain the plummeting bitcoin price, which reached its all- time high in December, exchanges created a fake volume of US $ 70 billion. As such, the inevitable outcome was as the market ran out new funds , the whole scheme came crashing down in post January.
 David Olarinoye, Wash Trading Affects 67% Of Cryptocurrency Trade Volume, Says Blockchain Transparency Institute, Invest in Blockchain. September , 2018, https://www.investinblockchain.com/cryptocurrency-wash-trading/
 Bitfinex’ed, Meet ‘Spoofy’. How a Single entity dominates the price of Bitcoin, Hackernoon, August 4, 2017. https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4