Who is Spoofy?

Spoofy is a mysterious trader allegedly involved in manipulating cryptocurrency exchanges. Spoofy is named after identity thefta strategy considered illegal in stock exchanges.

Key points to remember

  • 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 given to this unknown trader based on one of his favorite strategies: spoofing.
  • Spoofing is a form of market manipulation in which a trader places one or more highly visible orders but has no intention of holding them.

Understanding identity theft

In 2017, a trader (or a group of traders) was suspected of manipulating prices on the Bitfinex trading platform. The name “Spoofy” was given to this unknown trader based on one of his favorite strategies: 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 dummy order is still active (or shortly after it is cancelled), a second order of the opposite type is placed.

For example, an investor places a large buy order, then cancels it and places a sell order. The buy order drives up the price of the cryptocurrency, while the sell order takes advantage of the higher price. The fake buy order allowed the trader to execute the sell trade at a better price than if the fake buy order had not been placed. For Spoofy, this strategy works because the trader can place large buy and sell orders (usually for bitcoins worth millions of dollars).

It has also been suggested that Spoofy was involved in wash the trade. It involves making offsetting trades, which gives other traders the impression that a market is worth entering. Once traders are drawn into the market, Spoofy can then revert to fake trading.

Stock markets consider identity theft and sham trading to be illegal. Cryptocurrency trading, however, is not regulated by organizations such as the Securities and Exchange Commission (SEC)it is therefore more sensitive to this type of trading strategy and offers fewer recourse options.

Spoofy specifically focused on the Bitfinex platform because it was an exchange where they could make larger trades than any other investor. It was, in short, an exchange where Spoofy would be the bigger whale. While other traders might try to counter Spoofy’s transactions, this would require a large number of bitcoins. Depositing thousands of bitcoins into a single exchange is very risky, as the exchange could fail and leave the trader without access to a digital wallet.

Special Considerations

Buy and sell a cryptocurrency has some of the characteristics of trading official currencies, such as the US dollar, Japanese yen, and euro. Trading platforms use a quote and pricing structure where the price of a cryptocurrency is listed as a comparison to another currency, such as the US dollar. It’s called a currency pair.

The platforms also display market capitalization, daily high and low price quotes, and supply. Unlike trading non-digital currency, however, the cryptocurrency market is not as liquid and trades may not be executed as quickly. This can create volatility and make the cryptocurrency market ripe for manipulation.

People who have a large number of Bitcoin, Etheror other virtual currencies are called “whales.” Indeed, they can have an outsized impact on the pricing of cryptocurrencies. Whales can favor particular trades, often because they understand the underlying mechanics better than retail investors, and are in a better position to exploit weaknesses in order processing.

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