
Bitcoin Value Loses Its Mind as Trading Lags on the Mt.Gox Exchange - pccampbell
http://techcrunch.com/2013/12/06/bitcoin-value-loses-its-mind-as-trading-lags-on-the-mt-gox-exchange/
======
Anderkent
MtGox is known for abusing the market and cancelling trades when the price
falls significantly. It happened before [1].

One way to look at it is that they prevent a bank run. The other perspective
is that they trick people into thinking the market price is higher than it
really is, making unaware people lose even more money as they buy at the high
price and the crash happens anyway, just over a longer time.

[1] [http://www.malwaretech.com/2013/11/mtgox-nearly-breaks-
bitco...](http://www.malwaretech.com/2013/11/mtgox-nearly-breaks-
bitcoinagain.html)

~~~
TwoBit
I also can't help but wonder if insiders of sites like MtGox are taking
advantage of their market knowledge.

~~~
n00b101
This issue goes well beyond "market knowledge." MtGox _is_ the market; they
control the order book, trade matching engine, data feeds and even the
custodian accounting system. If you own your very own completely unregulated
trading exchange and deposit syatem then you have a big incentive to cheat the
market. One way to do so would be to allow your own trades to jump the queue
in the order book. By ensuring that your order are always filled ahead of
everyone else's (even when you place them later in time) you would have a
massive advantage if you start doing market making trades. Another dimension
is that MtGox plays not only the role of an exchange but also the role of a
custodian for US dollar accounts. MtGox's systems decide how many USD a
particular trading account has for buying Bitcoin. This incentivises them to
create US dollars "out of thin air" for their own trading account and then use
those fictional US dollars to buy Bitcoin from MtGox customers. Combining
these two advantages (money "creation" power and total market book control),
they could extract huge sums of money from customers through trading without
even having to invest a single dollar from the "real world." And if this
market making strategy were to go wrong and MtGox loses too much fictional USD
currency they could simply reverse the trades! Worst case scenario, if they
lost too much money, they could just disappear without paying out customer USD
balances. This is why real financial exchanges are heavily regulated and the
different roles are played by different legal entities (eg exchange role vs
custodian role).

~~~
Anderkent
> Worst case scenario, if they lost too much money, they could just disappear
> without paying out customer USD balances.

So you risk your (incredibly profitable) business just to skim a little on the
spread? Doesn't seem worth it.

~~~
nullc
And misconduct like that results in clear evidence which none of the people
who claim to "know" can produce.

A lot of people who just do not understand how thing kind of market works make
these allegations— due to things like issuing a market order and then having
the trade execute at prices which are dissimilar to the last price but
completely explained by the published orderbook.

------
AceJohnny2
Reminds me of the beginning of Arthur C. Clarke's "Childhood's End" (or was it
"Fountains of Paradise"? It's been decades since I've read them), where he
explains how, even in a networked, high-speed trading world, the stock trading
system can get overloaded by orders and lag will cause the system to spiral
out of control and collapse, repeating, in essence, the Crash of Black
Tuesday.

I found that interesting because it showed how, despite advances in technology
which we'd expect to solve failures of previous systems, the same fundamental
vulnerabilities remained, just at a different scale.

~~~
this_user
The overloading of exchanges with orders has actually become an intentional
strategy in the real world. High frequency firms send large quantities of junk
orders to create arbitrage possibilites or even as an offensive measure for
the purpose of slowing down the competition by making them waste ressources
processing useless orders.

~~~
yummyfajitas
Um, no. This is a wild conspiracy "theory" [1] pushed by Nanex for publicity,
but it's almost certainly false.

If it were true, it would be trivially easy for any of the broker, exchange or
SEC to trace and shut down. These parties already have countermeasures in
place to prevent you from doing this accidentally - you need to make sure the
rolling average of your fill rate is above 0.5% (approximate cutoff, it varies
but it's in that neighborhood).

Further, the risk of getting filled makes such a strategy insane. It's
analogous to placing a bunch of bids on EBay in the hopes of slowing down
their servers. Great plan, but it carries the risk that you win an auction and
need to buy 1,500 copies of Dianetics @ $10.00 each.

[1] I use the term "theory" loosely. Nanex's allegations more or less amount
to the idea that HFT firms are DDOSing the markets by pushing an order volume
that a 2008-era laptop could handle without hitting 100% cpu, and expect to
profit via unexplained mechanisms.

------
tokenadult
Whoa! It's plummeting just as I come here to read this thread.

[http://bitcointicker.co/](http://bitcointicker.co/)

I saw the first news of the Chinese restrictions last evening (United States
time zones) and a person who kindly replied to my post here yesterday
recommended the link I've just put here for tracking the price of Bitcoin. I
saw this thread just after seeing

[http://www.latimes.com/business/money/la-fi-mo-china-
bitcoin...](http://www.latimes.com/business/money/la-fi-mo-china-
bitcoin-20131205,0,2766336.story)

on Google News.

~~~
jychang
I watched it live as it hit $600. A bunch of buy orders held it there for a
few minutes, and then after burning thru all of them, it dropped like a rock
to ~580.

I wonder where I can learn about day trading this stuff...

~~~
waps
Answer yourself 2 questions :

1) why does trading lag on MtGox ... who benefits ?

2) does this happen every time the value drops ?

And you'll be back to day trading something else very quickly.

------
ktsmith
This also happened on the 19th. There was an article posted explaining that
their crash prevention code was processing a big sell order, reversing, and
then infinite looping. This looks like the same thing.

------
ISL
To expect that something volatile is anything other than volatile is, in
general, folly. BTC may stabilize with time, but people throwing large
quantities of money at it quickly doesn't help.

If BTC gains worldwide acceptance, it will be at the begrudging reluctance of
governments.

------
scotty79
I made similar screenshot as the one from this article. I noticed strange
periodic behavior of bitcoinwisdom.com, asked myself WTF, uploaded image to
imgur, then made a post on HN. Within 5 minutes, I guessed that this behavior
is caused by the javascript replaying stale package of transactions and not
getting new ones. I reloaded the page, artifact disappeared, I took down HN
post to avoid misleading people (it got two upvotes already and one comment).
Now I see this what I thought was local glitch prominently featured as a part
of front page article. I guess it wasn't so local and accidental after all.

Since the image in article comes from
[http://bitcoin.clarkmoody.com/](http://bitcoin.clarkmoody.com/) not
bitcoinwisdom I guess it was some glitch in MtGox API or case of clients
wasn't able to tell that what they get from API is stale data not expected
fresh one.

My screenshot from bitcoinwisdom:
[http://imgur.com/Q6gKIok](http://imgur.com/Q6gKIok)

------
nly
Todays (6/12) somewhat sluggish decline[1] is perhaps largely US driven,
beginning at around 8AM EST (1PM UTC). Yesterdays crash was sharp, surrounding
the Chinese announcement, and was at around 4 PM China time[2] but the price
soon bounced back.

Overall not very interesting.

[1]
[http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-06ze...](http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-06zeg2013-12-06ztgMzm1g10zm2g25zv)

[2]
[http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-05ze...](http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-05zeg2013-12-05ztgMzm1g10zm2g25zv)

~~~
kolev
Yes and then later on it fell even further. This is a cautious sell off. Big
guys cannot sell tens and hundreds thousand of Bitcoins at once - they will
crash the market. Super optimistic guys buy expensive and hope for better
times. I witnessed today one guy buying nearly 2,000 BTC at $950 on Gox and
then the price dropped by more than $100 in few minutes. I believe it will
drop even further. I believe in Bitcoin, but it's doomed until its in the
hands of speculators and they should get hurt and move to altcoins hopefully
although they usually profit from drops as this is how they multiply their
coins.

------
bvttf
is that unsourced chart just a screenshot biscoinwisdom, and why isn't it
sourced?

~~~
jlgaddis
The first link in the article (hyperlink text "gone crackerdog") takes you to
the source: [http://bitcoin.clarkmoody.com/](http://bitcoin.clarkmoody.com/)

------
SilkRoadie
A couple of days ago commenter on HN said they had pulled their savings from
the bank and dumped it into bitcoins. It will probably recover but betting on
bitcoins is akin to taking one hell of a ride by the looks of things.

------
timothyjcoulter
You can see the last 24 hours here. Note data collection for MtGox was stalled
due to their extreme server load.
[http://live.bitcoinindex.es/](http://live.bitcoinindex.es/)

------
dfrey
How can anyone make seriously make statements like this:

> Following a steep decline that saw the currency trade at prices not seen
> since late November

That was 2 or 3 weeks ago and they speak of it like it was a generation ago.

------
kclay
Was hoping for a panic sell like April, O well give it a day or two and it
will bounce back.

------
Helianthus
This topic is full of bitcoin advocates doing terrible jobs of reconciling
themselves to a new .800~.900 standard USD.

However you criticize MtGox, this has spread to other exchanges. That's the
price now.

Personally, I think this is the effect of the Chinese market reversing its
positivity on Bitcoin.

(which is an outgrowth of bitcoin's lack of delivery on any significant
front.)

------
knowitall
Always the volatility remarks - because in contrast the world economy is so
very stable, as recent years have shown?

------
na85
Hooray for high-freq algorithmic trading, I guess.

~~~
IanChiles
The fun thing about Bitcoin is the immense latency in moving money (USD)
between exchanges, which has at minimum 4 days of transit. This makes just
about anything involving multiple exchanges or high frequency (especially
arbitrage trading) absolutely impossible to do without a service such as
bitinstant, which is currently MIA

~~~
throwaway344
Assuming that you're willing to maintain inventory at multiple exchanges, you
could still absolutely do arbitrage inter-exchange.

~~~
aianus
Unfortunately there's no way to hedge your BTC inventory so you have to take
on a lot of currency risk.

