Downside of no regulation explained using World of Warcraft

I started playing World of Warcraft when I was 12, i was in sixth grade. Wow is a MMORPG, or Massively multiplayer online role-playing game. It offers vast freedom of choices on what you can do. The thing in this game I got hooked on, was farming, or rather, earning ingame gold. This is the digital currency of World of Warcraft, it acts as a monetary token, much like Bitcoin.

In World of Warcraft there is a peer-to-peer marketplace operating on the Blizzard Network, so sort of a decentralized marketplace within the sphere of Blizzards server.
On this auction house, players can buy and sell ingame items. Some that hold ingame social status value, and some that improve the utility of specific characters and some of the items sold is used for creating new items. The market is used by millions of users every week, and has been for over 10 years.

This auction house has no governing force, and no oversight. There are no regulation on trading, or market manipulation. This auction house is solely driven by a varying supply of scarce resources or tokens, and a growing demand as the number of players increased. This is exactly where the cryptocurrency exchanges are at today. You have increased freedom to invest and move your assets, but you also have no safety-net protecting you from foul play.

I made it my business operation buying undervalued tokens and selling them overpriced. I initially focused on just one market. It was called Silk Cloth, and it was a material used in several crafting ingame professions. It had by far the greatest trading volume, this was why I started here.

The auction house market climate of the 2004s was ruled by an mutual consensus between players that Silk cloth should be priced at 2 gold for a bundle of 20 Silk Cloth, not a copper less. Because of the high trading volume, everytime a player undercut the rest of the Silk Cloth auctions, it would cause a panic undercutting avalanche. Each time this happened I would purchase all the Silk Cloth I could afford which came at a 10% discount or more. In a matter of hours the market would reset to its original price of 2 gold, once again because of the high demand for Silk Cloth.
You see, this Silk Cloth was farmed daily by people earning gold in that way instead of price speculating on the market. So the orderbook for the market was completely dependent on a constant stream of newly “farmed” Silk Cloth. So when the undercutting began, there where more than one player buying out the available stock like I was, which speeded up the price recovery process. In time, this created compounded gold earnings for me. This isn’t where I made the big money though.

Once I had accumulated more gold than most players had ever seen, I could move in to specialized markets with less trading volume and supply. I would scan the markets for weeks, watching at which price and at what rate the auctions where trading. I established a moving average, and then set my sell and buy prices. I then bought the entire supply below my desired sell price, and put everything back up at my sell price. I was now the bottom price in the market. Each time someone undercut me, I bought their auction.
As I took over more and more markets, I was able to move into markets with high trading volume and implement the same tactic. Each auction had two order options, the Buy-out and the Bid. Each player may choose on or both of these. From this auction house I also learned about trading fees, makers and takers fee.

The nature of markets with a fixed and scarce supply is that holders of large positions, let's call them whales. They have the ability to flood the market with a high spread, likely leading to a drop in price. Because of the tense market climate, which is ever so sensitive to price-data because of self-fulfilling prophecies, caused by technical stock analyst performing short-term speculation in markets with small enough orderbook to manipulate the price, and the lacking consensus on how to classify and value cryptocurrencies.

They can also pump the price by buying up all the available sell orders up until a certain price target. They can simply wait for a time where the order-depth needed to clear the sell orders to a certain price target is low enough for them to clear it all by themselves.

The lack of knowledge in how to value cryptocurrencies gives rise to great uncertainty. When everyone is constantly connected and watching every price movement, surges and free falls are more likely to happen. Whales can simply wait for the FOMO to kick in and then liquidate their entire position at once when they have gained a satisfying profit, thereby clearing all the buying order at a certain price target with a large enough order-depth, and thereby minimizing the spread of the sell price for their position. There is currently no regulation in place to prevent this, and with the largest exchanges being pretty much faceless offshore decentralized entities, it's unlikely to change anytime soon.

Furthermore, there is also no regulation on insider-trading, neither in World of Warcraft or in the cryptocurrency market. Trades being made between stocks and fiat currency is supervised by the respective regulatory institutions of each country. Employees HODL-ing up stocks before a large positive announcement can be backtracked and punished because of supervising governmental authorities which track your money and investments. This is prevented in order to create a fair market, where everyone is able to invest on equal terms. It is also done in order to tax you, no surprise there.
This is not the case in cryptocurrency markets or WOW. There is no authority who keeps track of who owns what, therefore people are able to act on insider information without suffering any repercussions. In this market, they wish they could tax you.
Back to World of Warcraft, performing my large scale market manipulation was time-consuming, and I had homework. Everytime someone undercut my orders I had to buy out their auction. Everytime an auction closed I had to run to the virtual mailbox and collect my gold or tokens. I had the manually input the price. If someone outbid me on a token which was still underpriced I had to counter-bid. I had to manually calculate the trading fees to determine what my profit was, and what my profit margin on each auction was.

I started downloading custom user interface add-ons and attached them to my World of Warcraft ui folders, in this analogy, keep crypto trading-bots in mind. These where open-source programmed ingame addons which enabled me to automate all each one of the issues described above. Here I learned the value of machine computing. I now only had to stay online and run between the auction house and the mailbox every once in a while. I even solved the friction from that by applying a AFK(away-from-keyboard)-bot which automatically moved my character every minute or so, just enough to keep my active and not be subject for automatic log-out by Blizzard (wow developers). I also leveled up a profession to maximum level in a day just so I could produce an ingame portable mailbox which I placed inside the auction to remove the 8 second travel time to and from the auction house.

My ingame operation was now a very profitable, and automatic market manipulator. It came to a point that even though most of my assets where at 99% of all times on the auction house market and therefore, not in my ingame bank. I still ran out of space to store the tokens, or assets. I had to create separate characters which handled separate markets.

This increased my storage space, improved specific market supervision. It also enabled me to overprice my own auctions in “Epic” tokens. Because of the less liquid market, it was not unusual that the supply of each “Epic” token where very small, and had huge price spreads. So in the cases when I had bought more than one example of a “Epic” token, i would place all the spare pairs of “Epic” tokens on a higher price than my first order, using different characters. So other players saw multiple players selling the items at a price which had consensus in valuation, and then a stand-alone order which had been “foolishly” underpriced. It created the illusion of undervaluation, and made me even more gold.

When I started my ingame trading in World of Warcraft I had less than 6 gold, enough to buy 3 stacks of Silk Cloth. When I stopped playing I had more than 80,000 gold and tokens at a value of another 250,000 gold. Enough gold to purchase the most expensive items in the game, multiple times. This was earned over a period of four years, not a very profitable operation in terms of real-word business, but in the game of World of Warcraft. I was the great motherfucking Gatsby. Trading in this market was also trend following, with new patches and upgrades in the game. New tokens was created, and old and common tokens became rare commodities. To know this you had to read all the patch notes every month. You looked at all the changes, and then determined how it was gonna affect the market.

Much like you need to track the cryptocurrencies in your portfolio. It's not enough being a passive investor in the crypto game. With hard-forks, Roger ver crying on youtube every week, China banning everything, all that other shit going on. You need to stay alert, and follow developments.
I think you can determine if this story holds any wisdom or entertainment for you. I mostly wanted to tell you about my glory days as THE WOLF OF WARCRAFT.