Gyft Co-founder and Civic CEO Vinny Lingham recently appeared at the San Francisco Bitcoin Meetup to discuss everything from the possibility of a Bitcoin hard fork to Civic’s use of the Bitcoin blockchain for solving online identity. During the Q&A portion of his appearance, Lingham shared his general view on altcoins and ended up comparing them to penny stocks, which were immortalized for their use in pump and dump schemes in the film The Wolf of Wall Street.
Altcoin Prices are Easy to Manipulate
When Lingham was asked for his thoughts on altcoins from a member of the audience, he was quick to bring up penny stocks and asked everyone if they knew how pump and dump schemes work. “With altcoins, it’s super easy,” Lingham said of these types of schemes.
A pump and dump scheme is the process of purchasing an asset (usually one with a low market cap) and promoting it to new, unsuspecting investors in an effort to dump the asset at a higher valuation. The promoter of the asset is left with a profit, while those who were tricked into buying the asset by the promoter are left holding the bag.
Although Lingham admitted that he trades altcoins, he noted that he does not do it in a public fashion in an attempt to avoid pumping.
According to Lingham, attempting to manipulate the price of bitcoin with up to $1 million will not work because the liquidity pool is just too high; however, Lingham pointed out that altcoins generally have much lower levels of liquidity.
“People do not understand the nuances between these coins,” said Lingham.
Lingham claimed it was possible to crash the price of bitcoin by around 30 percent with a leveraged $50,000 trade back in 2013, but increases in liquidity have since made this a much more difficult task.
“When the amount of money that’s required to manipulate the price increases to the point where it’s millions and not 50 grand, people are a lot more sensible about it,” said Lingham.
Lingham claimed that he’s tested the ease at which many altcoins can be manipulated with relatively small amounts of money.
“That’s not really fair,” added Lingham. “There’s no regulation around it, so you won’t get arrested per se for that. But it doesn’t make it right.”
Ether and litecoin were the only other cryptocurrencies outside of bitcoin that Lingham referred to as “stable”. However, Lingham clarified that there are still plenty of high net worth individuals in the crypto world who could manipulate these two particular altcoins.
Bitcoin is Not Safe Either
Lingham went on to note that even bitcoin is not necessarily safe from price manipulation either. He pointed to this issue as one of the reasons he was happy to see the Bitcoin ETF proposed by the Winklevoss Twins get rejected by the SEC.
“Even bitcoin itself is not ready for prime time,” said Lingham. “It can be manipulated by – governments could manipulate bitcoin very easily. It’s very easy for a treasury department to say, ‘Let’s buy some bitcoin quietly. Let’s pump the price up and dump it just so we can destroy it or whatever it is.”
In Lingham’s view, bitcoin needs to grow three to five times larger to avoid these potential financial attacks from institutions.
Image from Pixabay.