The notion of manipulation is ridiculous. People that have the capability to “manipulate” the markets are generally people we would refer to as market makers. They hold so much of any one stock or asset that when they can crash or soar the price. The result… people get the opportunity to buy cheap or people get stuck holding the bag when the market crashes. One such person in Bitcoin would be Satoshi Nakamoto. If even 1 satoshi of his holdings moved, the markets would react in a really big way. Is this market manipulation? No! It’s new information that the market bakes into the price.

http://www.marketplace.org/topics/business/what-it-means-say-kraft-manipulated-wheat-market

Listen to the audio on this. Kraft is being sued for manipulating the wheat market. The facts of manipulation, hilariously, are argued in court because it is not obvious. The answer to the question, “did Kraft manipulate the market?” is decided by a judge after the fact. And it’s based on nothing but whether the judge decides that something they did moved the price up or down thus causing something like a squeeze. In this story, when an economist was asked about how you prove something is an “artificial price” the economist interviewed laughs and says basically it’s impossible but that it has to do with the intent of the actor.

The absurdity is that if you are the actor, you’re goal is to make money in the market. So if one of the ways you can make money is cleverly buying and selling, you should do it. It is an amoral act. By the way, the cost of externalities such as the possibility of being caught and subsequently sued, are probably also baked into an actor’s decision to “manipulate” the price.

The best way to understand markets, in my opinion, is to break them down into their constituent parts. The simplest market is an auction wherein two participants are bidding on the same item. What is the fair market price of that rare painting? Going in, people were estimating that it would sell for $10 million. One of the participants is willing to spend $12 million because the painting is worth that much to him personally (his/her significant other really wants it on their wall). The other wants to get it for a real steal and is hoping that it will go for abotu $8 million. He’s willing ot pay up to $9.5 million. Neither knows anything about the other buyer. How much will the art go for? Well, it will go for something like $9.6 million to the first buyer, just short of the $10 million estimate. If you add a third party to this, and that party is willing to pay $11 million, the price of the painting will go for $11.1 million or something like that. The point is, the more actors you have in the market, the more likely it is that you will end up nearest the price that the highest bidder will pay. If someone comes into the market who wants to “manipulate” the market and offers $20 million for the painting, he’s going to be left holding the bag unless he can unload it for more. This is the case for these so-called manipulators. They are taking on an inordinate amount of risk by “manipulating.”

A lot of times, they win because of market exuberance or something related to the price elasticity of the product. But a lot of times they lose, and they lose big.

Markets are really about information. If, for example, there were rampant speculation that the painting were a fake, but I knew for a fact that it wasn’t because I was an expert, I might be able to get it for a steal. Or, if I knew that it was a fake, I wouldn’t participate at all. The more information you have, the more I can know about the price’s reflection of that information. When I have more information than the market, i will know the disparity of the price, and I will put my money into the market until the gap is closed and the opportunity cost of making money elsewhere is greater.

In this world, volatility can look a lot like manipulation. Generally, in investments, volatility is equated with risk. So… sure, maybe it is what you think of as manipulation. Chances are, the reason alt coins go way way up and way way down is simply because the risk of holding that alt coin is a bit of a black box… especially when there are almost no participants putting information into the market (information being people purchasing at a price they believe reflects their risk).