COMP Rally May Have Been Manipulated By Derivatives Traders

Analysts in the latest altcoin news are debating the latest COMP rally and how it may have been manipulated by derivatives traders. The crash afterwards seems to be a result of this manipulation, the analysts are certain.

For those of you who don’t know, the meteoric price performance of the Compound Governance Token (COMP) may have been orchestrated using derivatives. After changing hands for approximately $80 each upon the June 18 listing on Poloniex, the COMP coin quickly rallied 500% to post highs above $380 on June 21 as the Coinbase news showed a potential listing which appeared to entice buyers.

Ever since this high, COMP has shed 34% of its value and is currently trading for $253. An article published on June 25 showed that the independent crypto blogger and Decentraland product lead Tony Sheng also said that many traders over the past week or so believed that the triple-figure priced COMP was absolutely overvalued, which resulted in bears paying from 5% to 10% in daily fees in order to short the asset by using derivatives.

Despite the entire bearish sentiment and the plain fact that COMP tokens can be earned through yield farming, the COMP prices continued to rally aggressively. Sheng even suggested that there was some disproportionate volume on FTX’s derivatives which fuelled the rally.

Spot listings on FTX and Poloniex generated $1.5 million in 24 hours leading up to the Coinbase listing and the COMP rally afterwards, where more than $6 million worth of perpetual swap contracts were traded on FTX over the same period.

Trading $COMP futures right now is a masterclass on market manipulation.

— Raúl Marcos (@raulmarcosl) June 23, 2020

While the COMP is comprising a highly illiquid market upon launch, the article suggests that traders may have been able to drive up the spot prices with relatively small buy orders in order to ensure that profits were taken on much larger long positions using the FTX contracts.

“The long and short of it (haha) is that because of the relatively large size of the COMP Perpetual Swap market, it would be profitable to buy the Perp and then buy spot in significant enough size to move the price, amplifying gains in the Perp and squeezing the shorts.”

Compound has come under scrutiny by many analysts, mostly because of the highly centralized current distribution of its governance tokens.