So, spoofing is illegal and generally has a detrimental effect on the markets, but why? Well, spoofing may cause price changes that otherwise aren’t reflected in supply and demand. Meanwhile, as spoofers are in control of these price movements, they can profit off of them.
Regulators in the U.S. have also expressed concerns about market manipulation in the past. As of December 2020, the U.S. Securities and Exchange Commission (SEC) has rejected all Bitcoin exchange traded fund (ETF) proposals. When approved, an ETF allows more traditional investors in the U.S. to get exposure to an asset, such as Bitcoin. There are usually several factors mentioned for rejecting the proposals – one of these is that they don’t consider the Bitcoin market immune to market manipulation.
This, however, may be changing as the Bitcoin markets enter into a new phase of maturity with increased liquidity and institutional adoption.