Sniping crypto: what is it and how does it affect the market?

Sniping crypto is a phrase that often comes up in discussions regarding the recent LIBRA collapse as well as meme coins named after CZ’s dog, what is it and how does it affect the crypto market?

Sniping crypto is a rapidly-executed strategy used by crypto traders to take advantage of price volatility and market inefficiencies, especially with newly launched tokens.

This practice usually involves automated bots or specific sniping tools that monitor blockchain activity and quickly place multiple buy or sell orders when specific conditions are met. Sometimes these bots can execute orders within milliseconds once an opportunity to gain big profit opens up.

These snipers bots are designed to analyze the mempool – a waiting area for unconfirmed transactions – to predict emerging opportunities when prices are low and take action before regular traders in the broader market can spot them.

There are a number of sniping strategies used by traders in the crypto sphere, the most common one being the token launch sniping strategy where bots specifically target new tokens and snatch them up immediately before the prices soar.

Another type of sniping crypto is the liquidity snipe, which focuses on waiting for the token to reach significant liquidity for trading.

Arbitrage sniping takes advantage of price differences of a certain crypto asset across different trading platforms by choosing the exchange offering the cheapest price on the market. Cross-chain sniping occurs when bots monitor and execute rapid trades on multiple chains simultaneously.

There is also MEV sniping, a more complex form of sniping crypto where bots reordering transactions within a block to gain an advantage. This strategy is often employed within Ethereum (ETH) or other similar networks.

How does sniping crypto affect the market?

Sniping crypto can cause major price volatility due to the high number of rapid trading that can bring the price down, similar to the effect seen in pump-and-dump schemes.

While sniping can also enhance liquidity because of the heightened trading activity, it can also lead to sudden price fluctuations and abrupt liquidity drops, making it harder for regular traders to place orders at desired prices.

Although traders can quickly profit off a new token by using sniper bots, this can potentially leave retail investors and regular traders at a disadvantage as they might not have access to such technology.

For example, according data from Bubblemaps, an insider address linked to LIBRA sniped the tokens upon launch and gained a profit of $6 million. The blockchain analysis account accused the creator of taking advantage of their insider knowledge to snipe the coins while prices were low.

The LIBRA meme coin collapsed on Feb. 15, losing $4.4 billion in market cap mere hours after its launch.

The same thing happened to the Broccoli-themed tokens on Four.Meme, a series of meme coins named after former Binance CEO Changpeng “CZ” Zhao’s pet dog. A trader gained $10 million by sniping the newly launched meme coin, acquiring around 50% of each Brocolli-themed token supply upon launch.