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Price manipulation in the Bitcoin ecosystem (voxeu.org)
124 points by stablemap 93 days ago | hide | past | web | 49 comments | favorite



A very weak article - is it really surprising that someone who had access to the back end was able to buy enough to drive the price up?

There is a better version of the story here: https://willyreport.wordpress.com/2014/05/25/the-willy-repor...


All they do make a regression analysis and say that two traders traded on days the market went up. Given you can actually track every transaction you would think they would be able to point to size of the transactions, percentage of daily volume, or something more interesting. Instead they simply tell you the average amount the rate increased in days these guys traded.

Weak.


But their conclusions are fair, they don't overreach and call for more study on the matter as any scientist should do.

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is important to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.


Every market participant wants to buy low and sell high. They are all manipulators in some sense. Dedicated manipulators exist, but really they are just part of the market and assist in price discovery. Deep markets generally defeat the type of manipulation that worries people. Multiple competing exchanges keep the exchanges honest.


But they didn't show manipulation. They showed two parties trading on up days.


Heard of the Look Elsewhere effect?

Obligatory XKCD: https://xkcd.com/882/


Not really relevant here however.

And they call for more study to confirm or deny their finding. So far so good.

It's people that might overact in a way or another, this article is just a piece of data.


I haven't read this paper, but I remember it being theorised that Mt. Gox operated on a fractional reserve by using bots to manipulate the price.

That after being "hacked" and losing the coins, they kept operating even though they knew they couldn't payout everyone. They tried to make up the losses by manipulating the market against their users.


I thought it was common knowledge that cryptocurrencies get pumped and dumped. And they're unregulated so it's legal to do so if you are a whale.


This is not about pumping and dumping, it's about misappropriating client funds. Using your own money to pump is debatable. Buying Bitcoins with money you do not actually have (but promise to be available for withdrawal at any time) is fraud.



I don't see the relevancy to today's Bitcoin price? Presumably MtGox was able to execute the fake trades because they didn't have to provide the money for it? It was simply a number in the database, if the dollars couldn't actually be withdrawn?

Sure, another market could try to pull the same stunt, but do they even have the same scale nowadays? There are many more markets than at the time of MtGox.


I don't think many people claim this things can happen in such scale any more.

I see this article as an additional proof that the spike back then was caused in large part by the ponzi scheme MtGox was.

(Having said that, there were also other good news back then that helped the price - like the hearing in US Senate regarding crypto, that went very well)


Talking about price manipulation, maybe somebody here from MIT knows if this is something official, or - manipulation? http://litecoin.mit.edu/


What's that?


Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Due to the fact they have money, financial systems are under constant threat of theft and fraud.

FTFY


Also, such attacks make the system more robust in long term.

Kind of like open source systems end up safer long term, because every single day people are trying to find bugs in their source codes.


except that every update introduces two new buggy features for each bugfix, while the usability is not always great except where copied from existing solutions


An interesting analysis that Nanex twitted some weeks ago: http://parasec.net/transmission/order-book-visualisation/#sh...

The visualization code (R) is available here: https://github.com/phil8192/ob-analytics


This article could be a tweet with that table.


TL;DR: Researchers claim to have proof that the 2013 spike to $1,000 was engineered through fraud. It's unclear how much relevance this has to today's far deeper markets. Which isn't to say there isn't fraud going on today, as even a casual glance at ICOs will show, just that it's going to be that much harder to manipulate the price.

In recent work, we show that the first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in 2013 on Mt. Gox, the leading Bitcoin currency exchange at the time. We first quantify the extent of the suspicious/fraudulent trading activity and show that it constitutes a large fraction of trading on the days the activity occurred. We then show how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges [at the time].


It is commonly accepted that the mxGoT willy bot was the cause of the price rise in 2013 from 200 to 1000 dollars.

History

Gox started as a trading platform in 2010 by McCaleb. He sold this to Mark in 2011. It is rumored that Mark was using customers BTC to expand Gox or/and it was already sold to Mark missing 80,000 BTC. When the price started to go up, Gox was forced to create the willy bot to try and buy back (at a higher price) the bitcoins they missing as they were running a technical fractional reserve). The willy bot drove the price up because it was always buying and in turn defeated its own purpose as it ended up bankrupting MxGot by driving the price so high that they could never hope to recover the missing btc. I wonder if they had not created the bot if they could have made GoT solvant again over a longer time frame.

This sort of thing is still happening, Poloneix is rumored to be inside trading, There was a DDOS attack a few days ago which caused price drops and it is rumored the Dossers were shorting the currencys on the exchanges. One of the exchanges had such little liquidity that a whale was able to dump eth yesterday causing a massive price drop on one exchange (which I am prety sure they then used to buy up cheap coins but you never know)

Anyone activity trading in Cryptoland is at the mercy of these whales, they are mainpulating price, daily pump and dumps on alts and no regulartion

That said, I cannot stop watching it all, i just hlod coins I like the technical merit of

Some light reading

History of Gox https://en.wikipedia.org/wiki/Mt._Gox Information on McCaleb selling to Mark talk of missing 80k http://www.thedailybeast.com/behind-the-biggest-bitcoin-heis... Links on Willybot http://www.coindesk.com/bot-named-willy-did-mt-goxs-automate... Poloneix insider https://coinidol.com/suspicion-of-insider-trading-at-polonie...


This is just what stock exchanges were like in the 19th and maybe early 20th centuries. Reading "Reminiscences of a Stock Operator" which covers the period ~1890s-1920s I was stunned by how common (relative to now) inside trading, price manipulation and short squeezes were.

Most of these are now prohibited which I'm sure doesn't eliminate them but it makes them much less common - short squeezes in particular are now very very rare. BTC markets obviously won't have any restrictions.

Amazon link for anyone interested in the book (make sure you get the annotated edition): https://www.amazon.co.uk/dp/0470481595/


In that book he actually describes how he can't manipulate the market even though he was blamed for it i real life. The moral is that the market cannot be forced into submission and you need to just accept that fact and take what it gives you.


Short squeezes happen all the time. Look at the ticker RH in the past few months, or AMD over the past couple days!


I think perhaps a better example would be the bulk shipping industry during November of last year; take a look at DRYS in particular. $5 to $120 in a week, followed immediately by a breakdown right back to $5. (It's split a bunch of times since then, so the adjusted prices on a current chart are different, but what's important to note is the exponential shape of the price action in conjunction with absolutely zero fundamental reasons for a price increase.)


Would you be willing to share your opinion on which coins have technical merit?


It's key to note that in the periods where there was market manipulation there was a single exchange that handled over 90% of all Bitcoin trading. Today we have dozens of independent exchanges all around the world.


This article is kind of old news. It's been generally known for years now that MtGox ran the so called "Willy" bot to buy up BTC and that that contributed to the price rally.


On the other hand, there is an obsession from humans to find a reason for everything. One of my hobbies is to read financial press to see them find reasons to explain the smallest moves (and these guys are really inventive). On the opposite side, there is Elliott waves theory, which sees market moves as general and predictable growth patterns. This is not science (yet), just empirical observations, although it has remarkable connections to the Fibonacci ratios.

I'm not saying what is described in this article is wrong, but we should certainly take this obsessional need for explanation into account when reading such interpretations and consider that growth patterns are also something that could be at play, disregarding of any single individual intervention (we're dealing with statistic level high numbers, after all).


Elliott Waves do not meet the scientific criteria to be considered a real theory. They have no predictive power. It's just more after-the-fact rationalizations and attempts by humans to find meaningful patterns in chaos.


> Elliott Waves do not meet the scientific criteria to be considered a real theory.

It can't be considered a real scientific theory. It doesn't try to either (although, in all fairness, it was indeed the initial intention of Elliott, but he was not a scientist). Saying that it's not a theory is quite weird. Do you mean it's fact, then?

> They have no predictive power

Yes, it's not enough by itself, it's not a formula that you can apply and get rich. This is something people expect from EWT, and this expectation is the error. Like any technical analysis tool, people can loosely "use" it to see what they want to see. Their fault.

> It's just more after-the-fact rationalizations and attempts by humans to find meaningful patterns in chaos

While it's true that it's way easier to count correctly waves after they happened, it still provides a framework that allows for more successful trading with it than without it if people don't stop at the first interpretation they think they see and instead build strategies based all the interpretations they can find.

I'm always surprised how people easily reject EWT despite all its success, often based on a single failure or on the fact that it wasn't successful for them when they tried it without applying due rigor. My bet here is that people are scared it might be a clue of some yet to be discovered natural law, because it would have huge implications regarding determinism, at least for big enough social groups. People want to be free, badly.

EDIT : btw, saying that trying to see patterns in chaos is unscientific is quite funny : https://en.wikipedia.org/wiki/Chaos_theory


How exactly does one count waves "correctly"? Who defines correct? Which specific trading strategies based on waves have been proven to reliably deliver alpha?


im assuming its some kind of pump and dump. im not clear on how this is fraud though? i always thought this was part of the game... (to the moon!)


Mt. Gox didn't defend against transaction malleablity, and they claim this allowed free buys by malicious users. Some say that was just a cover for defrauding their customers. In any event, this was not business as usual for Bitcoin.


ah- maybe i should try reading the article :/


The volume is so slow and most of the market is very naive that tends toward greed. And bitcoin gets a lot of news. 3 weeks ago I was in a bar and 3 groups of people were talking about buying it.

Bitcoin seems the perfect market for someone with deep pockets to manipulate.


I remember this happening at the same time as Greece, Cyprus and others were on the verge of financial collapse. I heard of citizens moving their money to BTC as an emergency way of retaining what money they had. I'm not sure how widespread that was, but I could imagine 2 or 3 small nations such as those could inflate the cost somewhat, trying to move money in faster than the market could adjust for with supply.


It was not widespread, it was a fantasy.


However, I do remember there being a lot of coverage in the national press in the UK at the time about stuff like buying bitcoin for use on holiday!


A lot of coverage, but nobody provided any proof for this happening on any significant scale - aside from anecdotes.


Definitely - I only remember the coverage because we were going to Greece at the time and my wife (who has no interet in tech) announced one day that she was going to take some Bitcoin with us... Which rather surprised me.

I didn't think anyone was actually doing it just a lot of noise generated by journalists who should have known better.

Edit: did we see anywhere on Kos allowing you to pay by BTC.... no!


I have potential sources that the top trading firms in the world were involved in the manipulation.



The top trading firms in the world treat Bitcoin markets as an ancillary project to give to summer interns -- the actual trading floor doesn't give it any thought at all.


Sources or potential sources? That makes a huge difference. A potential source that something is true means nothing. A source at one of the top trading firms willing to verify this would be newsworthy (if confirmed).


Source is not at one of the top trading firms, but was at one of the top trading firms.


Source. Single. Not plural.


LOL no the top trading firm couldn't give a shit about your favorite Ponzi, not then and likely not now.




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