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The crypto market declined after the Matrixport report, raising questions about its vulnerability to manipulation and external influences.
On Jan. 3, the crypto market cap plummeted by over 6%, erasing over $100 billion in value, a phenomenon that coincided with a research report from Matrixport, a prominent digital asset investment platform.
Matrixport’s report speculated that the U.S. Securities and Exchange Commission (SEC) would reject all pending applications for spot Bitcoin ETFs, contrary to widespread expectations of approval in January.
The report’s release and subsequent coverage by crypto news outlets notably seemed to exacerbate the market’s volatility.
High-profile figures in the crypto world, like Will Clemente and Lark Davis, pointed fingers at Matrixport for sparking the sell-off, highlighting the crypto market’s sensitivity to rumors and news.
Over $1 billion of Bitcoin futures OI wiped out in one candle
— Will (@WClementeIII) January 3, 2024
Thanks Matrixport pic.twitter.com/6WaiN96ZVK
Bitcoin dumped over a rumor started by Matrixport.
— Lark Davis (@TheCryptoLark) January 3, 2024
Gives you a taste of what would happen if the SEC actually did deny the ETF.
BUT, chances are still overwhelmingly in favor of an approval.
Meanwhile, Jihan Wu, co-founder of Matrixport, clarified that the company does not influence its analysts’ reports, indicating that the widespread reaction to the report was unexpected.
Matrixport's analysts operate independently, expressing their opinions without any influence or interference from management. They are employed for their superior analytical skills compared to mine and other management team. I have only briefly glanced at the title of the report,…
— Jihan Wu (@JihanWu) January 3, 2024
Adding to the complexity, just days before the crash, Matrixport had released an optimistic prediction about the approval of a Bitcoin ETF, showcasing the unpredictable nature of crypto market sentiment.
Let’s delve into past instances when reports or false information significantly influenced the crypto market.
The Cointelegraph saga
In Oct. 2023, Cointelegraph, a cryptocurrency news site, tweeted false information regarding the approval of BlackRock’s iShares Bitcoin spot ETF by the SEC.
The tweet claimed that the SEC had approved the first spot Bitcoin ETF. This misinformation had a significant and immediate impact on the Bitcoin market.
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Following this announcement, the price of Bitcoin surged over 10%, reaching nearly $30,000 – a significant increase from its previous value and a level not seen since early Aug. 2023.
However, BlackRock and the SEC quickly refuted the claim, stating that the approval news was inaccurate. This denial led to a swift reversal in the market. Bitcoin’s value dropped back down to approximately $28,500 by the next day.
The volatility was further evidenced by significant liquidations in the market. CoinGlass, a crypto analytics platform, reported close to $100 million in Bitcoin liquidations in the 24 hours leading up to Oct. 17, signifying the impact that rumors and misinformation can rock the crypto market.
Other notable incidents
Fake death news of Vitalik Buterin
In June 2017, the cryptocurrency community was rocked by a hoax that claimed Vitalik Buterin, the co-founder of Ethereum, had died in a car crash.
This rumor originated on 4Chan, a platform known for its trolls and misinformation. The hoax had a significant impact on Ethereum’s market value, causing a drop of about $4 billion.
Buterin responded to the hoax in a unique way by posting a selfie with a recent block from the Ethereum blockchain, effectively using the Ethereum network to disprove the rumors of his demise.
Litecoin on wild ride
Another notable example involved a hoax surrounding Walmart and Litecoin. In September 2021, a fake press release issued by GlobeNewswire falsely claimed that Walmart had announced a significant partnership with Litecoin.
This caused Litecoin’s price to spike by 25% in less than half an hour, jumping from $174 to a session high of $232. Walmart denied the news, leading to a quick correction in Litecoin’s price.
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Fake raid news
Tron (TRX) was at the center of a fake news scandal when a Twitter user posted a video suggesting that Chinese police were raiding Tron’s offices in Beijing. This led to a misunderstanding that Tron was involved in a scam.
However, Tron’s founder, Justin Sun, clarified that the police presence was to protect Tron’s employees from protesters who were upset about a Ponzi scheme unrelated to Tron.
Despite the clarification, Tron’s price plummeted, wiping over $100 million from its market cap in just a few hours before recovering.
Navigating vulnerability
The crypto market’s vulnerability to fake news and rumors has been a significant concern since its inception.
This susceptibility can be attributed to a combination of factors, including the rapid transfer of information via social media and digital channels.
Analyst Gavin Brown from the University of Liverpool emphasized the crypto market’s vulnerability, particularly due to the lack of regulatory oversight. This lack of regulation means market prices are highly influenced by sentiment, making them more reactive to news, whether true or false.
Moreover, high-profile individuals like Elon Musk and others have also influenced market prices through their statements or endorsements.
Hence, critical evaluation of news sources and perhaps a stronger regulatory framework are the need of the hour.
Read more: How crypto market mirrors early stock market trends