Who Is Spoofy?
Spoofy is a mysterious trader who's allegedly involved in manipulating cryptocurrency exchanges. Spoofy is named after spoofing, a strategy considered illegal in equity exchanges and unethical on cryptocurrency exchanges. It is generally prohibited on regulated crypto exchanges.
Key Takeaways
- Spoofy is the name given to an unknown trader who, in 2017, was suspected of manipulating prices on the Bitfinex trading platform.
- The name “Spoofy” was assigned to this unknowntrader based on the strategy used: spoofing.
- Spoofing is a form of market manipulation in which a trader places one or more highly visible orders but has no intention of keeping them.
What Spoofy Does
In 2017, a trader (or group of traders) was suspected of manipulating prices on the Bitfinextrading platform. The name "Spoofy" was assigned to this unknowntrader based on the typical strategy used: spoofing. Spoofing is a form of market manipulation in which a trader places one or more highly visible orders but has no intention of keeping them (the orders are not considered bona fide). While the trader's spoof order is still active (or soon after it is canceled), a second order of the opposite type is placed.
For example, an investor places a large buy order only to cancel it and place a sell order. The buy order drives up the cryptocurrency's price, while the sell order takes advantage of the higher price. The spoof buy order allowed the trader to execute the sell trade at a better price than ifthe spoof buy order had not been placed. For Spoofy, this strategy works because they could place large buy and sell orders (typically worth millions of dollars using Bitcoin).
It has also been suggested that Spoofy has been involved with wash trading. This involves making offsetting trades, which gives other traders the impression that a market is worth getting into. Once traders are drawn into the market, Spoofy may then go back to spoof trading.
Regulators and equity markets consider spoofing and wash trades illegal. Cryptocurrency trading is regulated by organizations when the activity falls under their jurisdiction.
Spoofy specifically focused on the Bitfinexplatform because it was an exchange where they could place larger trades than any other investors. It was, in short, an exchange where Spoofy would be the largest whale. While other traders could try to counter Spoofy’s trades, this would require a large number of bitcoins. Depositing thousands of bitcoins in a single exchange is very risky, as the exchange could fail and leave the trader without access to a digital wallet.
Special Considerations
Buying and selling a cryptocurrency has some of the hallmarks of trading official currencies, such as the U.S. dollar, Japanese yen, and the euro. Trading platforms use a quotation and pricing structure in which the price of a cryptocurrency is listed as a comparison to another currency, such as the U.S. dollar. This is called a currency pair.
Platforms also show market capitalization, the day’s high and low price quotes, and the supply.
The cryptocurrency market is not nearly as liquid as other markets, and trades may not be executed as quickly. This can create volatility and can make the market for cryptocurrencies ripe for manipulation.
Individuals who own a large number of Bitcoin, Ether, or other virtual currencies are referred to as “whales.”This is because they can have an outsized impact on how cryptocurrencies are priced. Whales may often favor particular exchanges because they understand the underlying mechanics better than smaller investors and are in a better position to exploit weaknesses in processing orders.
What Is Spoofing in Crypto?
Spoofing in crypto using buy and sell orders without intending to buy or sell, attempting to manipulate prices.
Is Spoofing Crypto Legal?
This is somewhat of a gray area, as crypto trading activities are less regulated in certain jurisdictions but very regulated in others. However, exchanges may detect spoofing attempts and take action, such as Coinbase's trading rule, which states it will cancel orders from traders suspected of market manipulation.
Who Is Spoofy?
Spoofy is an unknown trader or group of traders that attempt to manipulate market prices by spoofing trades on cryptocurrency exchanges.
The Bottom Line
Spoofy is the nickname given to a trader or group of traders who attempt to manipulate the cryptocurrency market by spoofing trade orders.
