Crypto glossary
Spoofing (layering)
Spoofing is placing large orders with no intention of letting them fill, to mislead other traders about supply or demand, then cancelling them.
A spoofer posts a big bid or ask, or a ladder of them across several prices in the variant called layering, to make the order book look heavier on one side. Other traders and algorithms react to the apparent pressure. Before the fake orders can be hit, the spoofer cancels them and trades in the opposite direction at the better price the illusion created.
Spoofing is illegal in regulated markets. In the US it is banned by the Commodity Exchange Act, and the CFTC has pursued cases involving bitcoin futures. In the European Union, MiCA's market abuse rules apply to crypto-assets admitted to trading, and placing orders that give false signals about supply, demand or price falls under its prohibition of market manipulation.
On loosely supervised exchanges the practice is harder to stop, which is one reason displayed depth deserves scepticism. Telltale signs include very large orders that move away as the price approaches them and appear and vanish repeatedly at round numbers.
Example
A 500 BTC sell wall appears just above the price, scaring buyers. As the price drifts down, the wall is pulled within seconds and the same account buys the dip it helped cause.