
Bitcoin: Evidence of spoofing, wash trading, and a scheme known as ‘Tether’ - Artemis2
https://medium.com/@bitfinexed/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4
======
TekMol
The title and the sensationalist wording of the article is complete nonsense.

Yes, placing a large order might be interpreted as a signal by some traders
and it might be possible to take advantage of that.

But that does not mean somebody dominates the price of Bitcoin. By the same
logic you could say that HN posts dominate the price of Bitcoin because some
traders might use them as a signal.

~~~
imaginenore
Not only that, he has zero evidence that it's one entity. He has zero evidence
that he doesn't let these orders execute.

Bitfinex is the second largest bitcoin exchange, their daily volume is $130
million [1]. $2-4M trades are not anything out of the ordinary.

[1]
[https://coinmarketcap.com/exchanges/volume/24-hour/](https://coinmarketcap.com/exchanges/volume/24-hour/)

------
jerguismi
Why exactly is spoofing illegal? How do you differentiate legitimate order
canceling from spoofing? Trading is very emotional process. You place order, 5
minutes later you decide to cancel it, 10 minutes later you decide to place
another order.

I think it doesn't make any sense for this kind of activity to be illegal, and
I don't see much wrong with it. It would be impossible for exchanges to
differentiate between spoofing or legitimate trading anyway.

~~~
vbo
I would assume 5 minutes is ok; do it within seconds or fractions of seconds
and it becomes an issue. Bots (and a few eagle eyed traders) see the signal
and start buying, you withdraw the order with very little of it having been
filled, and have potentially jump-started a price spike. You then sell, wait a
bit, repeat. You're conning people into thinking you're about to buy and when
they get excited, you turn around and start selling.

~~~
TomMarius
Perhaps people should stop speculating if they can't even think of this.

------
vbo
TLDR: Whale trader traps trading bots, bootstraps 'spoofed' market dynamics
which fool average Joes into predictable behaviour.

~~~
Snackchez
Missed the part about Bitfinex not being able to bank anymore and then
creating Tether, a non redeemable cryptocurrency.

~~~
JVerstry
Yup, that's the big deal here... not the spoofing...

------
danmaz74
Flagged because the title is sensationalist and doesn't reflect the content of
the article (even if you believe the article itself). Seems much more like FUD
against Bitfinex.

Even if "Spoofy" was able to dominate Bitfinex (which they couldn't with the
described tactics) that would be a far cry from dominating the price of
Bitcoin. There are so many more exchanges.

I started doing doing some trading for fun and profit a few months ago, and
"fake walls" were very well known to all users of Poloniex (there used to be a
public chat there, so I learned about those almost immediately). It's a sure
thing that there are whales manipulating the market, but that's for sure not a
single entity, it's not limited to bitfinex, and if you want to gamble on this
bubble you have to deal with it.

* edited for clarity

~~~
JohnJamesRambo
If you control one large exchange you can exert control over all the
exchanges. Arbitrage bots quickly buy and sell any differences between the
exchanges.

~~~
danmaz74
It goes the other way around mostly, IMHO. Those arbitraging bots will dampen
any attempt to control just one exchange.

------
eveningcoffee
This entry explains how spoofing caused the 2010 flash crash in the stock
market.

[https://en.wikipedia.org/wiki/2010_Flash_Crash](https://en.wikipedia.org/wiki/2010_Flash_Crash)

~~~
MichaelGG
Surely the real cause was systems actually selling shares at a penny. Seems
dishonest for people to write buggy platforms then blame someone else for
their own incompetence.

------
Steeeve
With the constant stream of negativity surrounding blockchain coins it's a
wonder that anybody chooses to use them as an investment vehicle. There are so
many parallels to penny stock trading in the 80's that it's uncanny.

~~~
calafrax
the hype machine on the other side is massive though. you have tens of
thousands of "investors" flooding every communication channel with bitcoin
talking points and saying how much money they have made.

------
the_d00d
The article is a bit dramatic, but the funny part is that he spent so much
time trying to prove that whales install buy and sell walls to manipulate the
price. This is not news and happens with every cryptocurrency on every
exchange. It is especially common and easy to spot with altcoins. The typical
life cycle of an altcoin is similar to this:

1) Bitcoin code forked and slightly modified.

2) New coin announced on Bitcoin talk and the creators premine enough to
control the price

3) attempt to hype the coin and gain interest

4) coin is added to exchanges and people begin buying it

5) buy walls are installed by the coin creator to prevent the price from
crashing and they continue to hype the coin in trading chatrooms

6) price raises high enough and enough demand exists for the coin creator to
remove the buy walls and sell off premined coins

7) the price crashes and the coin is abandoned

This is called pump and dump and it happens all the time. With more successful
coins...the effect isn't as dramatic bc there are investors that believe in
the value of the project, but the mechanics of the price manipulation is the
same.

~~~
grey-area
1\. It's illegal

2\. It undermines the credibility of one of the largest bitcoin exchanges and
thus the currency itself.

3\. It undermines claims of Bitcoin value which are based on prices set on
this exchange.

4\. He's claiming that Bitfinex are engaging in legally dubious schemes to
appear solvent, which is important.

If you use any cryptocurrency like this you should be very worried about
reports that it can so easily be gamed and the market manipulated with no
consequences, and that larger players in the 'market' are dishonest and
failing to regulate manipulation. For every obvious and crass attempt like
this there will be a lot more insidious market manipulation by big players
like exchanges or large exchange customers who operate with no oversight and
can set the price and profit from it.

~~~
craigsmansion
1\. It's not regulated, so it's not illegal. This is not your mom's exchange.

2\. So be it. This is what traders in this particular field chose. If you want
boxing, go box, if you want no holds barred, go do that.

3\. To the detriment of that particular exchange. So be it.

4\. Dubious, but still, if you want centrally regulated assets, there are
plenty of opportunities. Cryptocoin exchanges are what they are. The response
to shenanigans is not "This is unfair. The government should step in!" but "We
need a bigger bot."

------
captainmuon
I wonder if it would be possible to "piggyback" on that, and when you see a
spoofing attempt, issue a certain order. Your advantage would be to know that
their order is fake and will likely be canceled.

Furthermore, would that be legal? You are just using publicly available
information.

~~~
tunetine
The transaction fees will eat the little guy up if you don't buy or sell in
large amounts.

~~~
LittlePeter
transaction fees are almost always a percentage of traded amount, hence it
does not matter if you trade $10 or $100000

------
sebleon
What's the big deal? Now that we know these price manipulation tactics, it
should be straightforward for traders to ignore these false signals.

------
thisisit
If it was on a single exchange sure one might then the evidence holds a lot of
weight. Across exchanges, it could simply be a whale trader or a market making
type algo to move the prices along.

That said, I wish bitcoin related articles get to the point quickly and tell
the story succinctly. This comes off a long 13-minute rant. I gave up in
between to read the TL;DR version here and then scan through the article.

~~~
raisedbyninjas
This happens on all of the big exchanges. It seems to be able to generate
small oscillations more than sustained price movements. Traders recognize the
manipulation before it moves too far if it moves at all.

------
londons_explore
I know in the USA, placing bid/ask offers you have no intention of completing
is illegal, but IMO this rule makes no sense.

It's like advertising a $1,000 plastic keyring. Sure, I as the store keeper
think it's very unlikely I'll sell it, but it is still for sale, and if
someone tries to buy it, I really will sell for that amount.

The fact that other keyring buyers see my $1000 advertisement and that affects
their buying habits (for example buying more $3 keyrings now they look like a
bargain) is their problem.

~~~
brianwawok
Placing 1 million offers to sell at 1000 is akin to shouting fire in a movie
theatre. It is going to start a panic and a big price swing. Which then means
you can buy in the dip, pull your fake orders, and make some easy cash.

Trust me you don't want a market like this. Bullies with deep pockets will
destroy you. Your comment looks like you have never traded outside of
Scottrade.

~~~
dantillberg
But why do the other market participants panic? It seems like it's their own
fault for panicking -- they should stop using the order book to make value
judgments.

~~~
rtpg
Does it matter why?

The fact of the matter is that they do panic, and it's not actually useful for
market stability. Some might say "too bad so sad, don't be tools". But a
market where people can actually trust the intent behind buy/sell orders is
going to be better for everyone involved.

The objective isn't to have the least regulation possible, but to try to have
the "best" market possible

~~~
Jabanga
This is a self-correcting problem. Traders who fall for fake walls lose their
capital, and thus influence on the price, to those who do not. The feedback
loops and incentives of the market cause it to evolve toward a more price-
stable configuration.

------
mcnamaratw
This article is a boldface warning about Bitcoin, but not necessarily in the
sense intended. If we're scandalized by the very mild trading behavior
described, we are in way over our heads in any kind of market at all.

~~~
wuliwong
I don't really strong sense as to the fate of bitcoin but I think about the
fact that it survived the Mt. Gox disaster. This is something far less
scandalous.

~~~
mcnamaratw
I agree that the Mt Gox failure was much worse than what's described here. But
as a possible sign of things to come it gave me the same feeling this does.
(The feeling that a lot of people are in way over their heads.)

To anyone who's been involved in normal financial markets, Mt Gox had pretty
clearly gone belly up months before the Bitcoin community seemed to accept
that seriously as a possibility.

I'm not saying Bitcoin dies. I'm saying possibly there are a lot of Bitcoin
enthusiasts who have no idea how tough the 'safe' real world of regulated
markets is. Let alone this kind of thing.

------
Havoc
Somewhat dismayed by all the "I don't see the problem" posts.

Anyway. I wouldn't be surprised if this is linked to the BTC ETF. Seems like a
very clean way to get shady money out of the BTC economy into the real world.

~~~
wuliwong
This person(or people) could also just sell the bitcoin and get their money
out of BTC. How would that be any less effective. I guess I'm really not even
sure what you mean by "clean" or "shady."

~~~
Havoc
>I guess I'm really not even sure what you mean by "clean" or "shady."

Shades of grey I suppose - clean in the money laundering sense. Whoever is
doing this is obviously up to no good. Maybe they can get their money out of
the BTC system maybe they can't.

The point I was trying to get across is that there is a BTC linked ETF on the
Swedish stock market. Meaning if you can push BTC up & down like this entity
you can cause/predict movements in a "real" stock market. That can easily be
leveraged into profit that is 100% clean regardless of how sketchy this
entity, their actions and their BTC are (or not are).

------
whipoodle
It's the Wild West, which admittedly does look pretty fun at times.
Interesting at the least. But I can't believe anyone really thinks that any
day now, normal people are going to start using this currency.

~~~
ty_a
At what point would people start using Bitcoin as currency? When it hits 5k,
10k, 100k, 1m?

~~~
kbaker
I mean, you already can. I have purchased things from Newegg and Steam, used
it with Expedia to book hotels and flights...

You can treat Bitcoin the same way you treat USD, there are a lot of places
that accept BTC directly. Phone apps make transactions easy.

------
Frogolocalypse
You mean people use their financial positions in order to trigger sells and
buys in order to capitalize on sentiment changes? Tell me it ain't so!

------
blunte
I have observed very similar behavior on Kraken. I cannot say if it's as
significant as "Spoofy", but there's definitely some algo placing and
canceling orders in direct response to legitimate limit orders.

------
donjigweed
98% of orders are canceled limit orders. The average duration an order is open
ranges from 1.5 to 20 or 30 seconds, depending on the time frame you look at.
The entire market is "spoofing." It's crypto not NYSE.

------
smnplk
Can someone tell me how is current price of bitcoin or any other crypto
currency calculated, or point me in direction where I can learn more about
market mechanics. Say I want to develop a toy stock market, what do I need to
know ? Any good book resources ? I found this while writing my comment
[http://www.dummies.com/education/economics/how-to-
determine-...](http://www.dummies.com/education/economics/how-to-determine-
price-find-economic-equilibrium-between-supply-and-demand/)

~~~
erikb
You have a database where people can say "I want to buy x amount item of type
y for at most price z" and "I want to sell x' amount item of type y' for at
least price z'". And if the database finds a match then a contract is made
(doesn't necessarily mean that immediately money or product will change
locations, just legal ownership changes).

For instance I say I want to buy 100 bananas for at most $500. You say you
want to sell 50 bananas for at least $450. Then both our demands match and I
buy 50 bananas from you for $450.

Since often there are different kind of offers from both sides not all can
match and you have two lists of open buy and sell offers.

A practical detail is that if you either want to buy or sell right now you
will of course create a counter offer to the corresponding top of the list of
the other type and a trade happens immediately. I'm no expert but I think this
is the most common kind of trade. It's a little like in a shop. You just take
whatever the price tag says.

Smart people will also try to make offers close to the top of their list even
if they don't want to buy immediately. But if they are too far away the trade
may never happen and they pay the offer fee for nothing.

I think most of these trade platforms make money by fees. You make an offer,
you pay a fee (probably a percentage of your offering price). And there's also
a second kind of fee for trades that actually happened.

There are other kind of trades that basically simulate bets. And most of these
terms have different names. Both of these things mostly are created to make it
look more complicated and make you feel stupid.

The current price of bitcoin for instance is just the amount of $ per BTC that
the last trade contained. In theory it's totally possible that the prices of
two trades are totally far away, one selling BTC for $1, the other selling for
$2million. But in reality due to market dynamics they often are close together
and go up or down in steps.

~~~
smnplk
>> There are other kind of trades that basically simulate bets. And most of
these terms have different names. Both of these things mostly are created to
make it look more complicated and make you feel stupid.

I had a feeling about that too :)

------
herodotus
There is a Jim Cramer interview on Youtube
([https://www.youtube.com/watch?v=VMuEis3byY4](https://www.youtube.com/watch?v=VMuEis3byY4))
where he talks about how hedge fund managers routinely manipulate stock prices
on traditional exchanges in various ways. It would be nice if electronic
currencies really offered a level playing field for its participants. The
notion of fair-market is crucial for the long term health of any currency
mechanism.

------
kristopolous
Wouldn't the best strategy be to pull two exchanges apart, pushing them
opposite directions, and then arbitraging the gap as it closes?

~~~
eternauta3k
Aren't those opportunities instantly exploited by traders?

~~~
kristopolous
I don't think it's that easy. There's a time and currency cost to transferring
coins between wallets so that's not a good idea.

Instead you'd need to keep large balances in multiple exchanges and then sell
coins on the more expensive, buy on the cheaper, and then through the power of
algebra, you may make a profit? maybe. Since the direction/stability of the
market isn't known you don't know who's the dog and who's the tail. Does it
matter? Yes. If the market is genuinely trending and you have the insights to
exploit arbitrage, there's better strategies than arbitrage available to you.

But here's a different, more exploitable model. Pretend two exchanges had
price X. And you know for a fact you can make one X-1 temporarily and you can
make the other X+1 temporarily ... and then they will elastically close back
to X in a predictable time Y.

So you "stretch" the exchanges, do the scheme described above, in volume, and
all things being equal and nothing else dramatically affecting the market,
they will eventually snap back like a rubberband. Since you aren't pushing
everything the same direction, you probably won't trigger a trend.

Now you have USD in the +1 account and BTC in the -1 account so you stretch it
the other way and repeat.

This is a much better strategy since you are essentially bending the delta
back and forth and exploiting it each time.

Also this strategy, which I'll call twanging, is generally strongly knowable.
A reliable, repeatable, predictable, strategy with a profit>0 is almost always
worthwhile independent of the profit amount because the other factors, risk
and predictability, have been reduced to effectively zero.

Also the time to twang is probably on the order of an hour.

So you permute around the markets all day long, picking new tuples in some
shuffled sequence and you have a reliable profit machine at scale.

This is all theoretical of course - I'm not actually whaling around with
$100mil USD in assets spoofing markets. Like most trading strategies, it's
likely nonsense.

------
discombobulate
An exemplar of why !to day trade crypto. At least to me.

------
thinbeige
Why do we have then a similar price development of BTC/USD on a much larger
exchange (Poloniex)?

~~~
rocqua
arbitrage, especially arbitrage by bots.

------
baybal2
It is the last big exchange with accessible shorts after BTC-e went down

------
drcross
I would posit that it's different people at different times trying to move the
market in a direction favourable to them, but it's a case of caveat emptor,
once people realise these things are happening they are safe against them.

------
erikb
What's the difference between Wash Trading of a company and money printing +
fake (e.g. construction) projects by a government?

A little sad to see that all the banking problems are still existing with
Bitcoin as well.

~~~
ivoras
Its human nature to create similar behaviours in similar conditions. Early
Bitcoin anarchists who thought that they will be able to avoid "banks and
governments manipulating with the money" must be really bitter to find out
that manipulation is always going on, the entities in the Bitcoin world are
just named different from "banks" and "governments".

If there's a competitive advantage for screwing someone over, there will be
screwing over.

~~~
wuliwong
How I see the basic difference is, you have a choice to use Bitfinex or not.
If there is an exchange that really finds a way to reduce this behavior then
it would be very attractive to consumers. If the federal government and their
regulators are the ones that are corrupt and doing the manipulations, there is
no other choice.

------
makarb
Why decentralisation is a bad idea, take 340828493.

~~~
celticninja
Decentralisation isn't the problem here though.

~~~
makarb
Of course it is. No regulation = one entity ends up controlling the whole
cake.

~~~
nihonde
I would agree if the existing regulators were doing a decent job of avoiding
major anti-consumer blowups. But they really aren't.

~~~
_e
"They" aren't because the "players" give them very lucrative jobs when "they"
quit their govt jobs. Its the classic you rub my back and I rub yours.

------
aw3c2
In other words, trading currency is a disgrace.

