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Well, there is undeniably spoofing and wash trading in these markets, I see both happen all the time- I'm not sure though why they are considered a bad thing: They obfuscate the order books, making it easier for other buyers/sellers to make trades without broadcasting their overall position to other traders.

I'd love to hear a good argument why these things are a "bad thing" besides just the argument that "it's wrong to lie". I don't really have a strong opinion either way and could probably be swayed- Any takers?




Disclaimer - this is using equities markets as the example.

Spoofing is bad for a lot of reasons. It's bad for retail investors who buy(sell) into a position when it's been spoofed high(low) believing the order book is real. It's bad for market makers who must widen their spread and/or add less liquidity since information in the order book isn't real. It's bad when a spoofed price wrongly activates a bunch of stop orders. It's bad when somebody exits a position wrongly believing that a different party has an informational advantage over them. It's just blatant market manipulation that benefits only the spoofers.

If a company released false earnings reports or somebody released fake information about a company to change the price, people would be up in arms, you would never hear anybody making your argument. I don't see how manipulating an order book is that different. The book is a fundamental part of how companies are valued since it's how people speculate on future value, act on informational advantages, hedge, and it's how that information itself is disseminated).

Maybe the bitcoin markets are different enough from equities that the effects of spoofing aren't that bad (already super volatile, no outside information other than price speculation, no latency arbitrage). But I would need to see some really strong arguments to that effect to convince me of that.




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