Topic: Price Manipulation (Read 2631 times)

I think charts are a very useful tool insofar as they facilitate data analysis.  But as far as candlesticks, fibonacci retracements and other pseudo-scientific charting methods, I'm not a fan.

My intent in asking upon what the value of Bitcoin would be based after the last block was mined was simply to point out that it is inevitable that the price of Bitcoin become detached from the cost of mining sooner or later.  The scarcity of Bitcoins, as you allude to in your question above, will certainly be a factor.  So long as the Bitcoin economy continues to grow, so shall the price of Bitcoin.

Whereas you may see the price of Bitcoin being based on the cost of mining, I actually see it the other way around.  I see the price of Bitcoin generating demand for mining.  The greater the value placed on Bitcoin by the markets (through the process of supply and demand), the more profitable mining becomes, and thus we see the difficulty level rise.  According to this model, after the last Bitcoin is mined, we should see the value fluctuate primarily in response to the demand.

If I am correct, then the network hash power will actually lag the price of Bitcoin somewhat, rather than lead it (since it takes miners time to respond to the changing value).  It would be an interesting exercise to see if this hypothesis is supported by the data.

Not sure how that would have been answered only a couple short years ago, but today, forward, there's Bitcoin to rely upon.

@OP, in re. the $100K pump and dump example. At approximately today's exchange rate, $100K USD is what's being mined daily. And what I've recently read, it seems CoinBase is having a difficult time gettin' their hands on more bitcoins to satisfy their client base.

its good to see that some people like yourself rely on indicators to base the price. so keep it up. unlike others that use high school level terms such as 'supply and demand' (only 2 indicators) and have never put anything into a chart. to understand what causes supply and what causes demand to have more then just 2 indicators. they don't look below the surface. i have several indicators. the graph on the first page of this thread was a very very simplified version to point out one point.

looking at the result of reaching the 21 millionth coin...
i was going to write a long reply to your answer. but to answer your question ill just leave you with this question
imagine a country that stopped printing money.. what would happen eventually.

Or maybe people are finally realizing a double in price over a month is insane...

Who am I kidding, not like Bitcoin will every have a bubble, right?

Can you extend this argument to cover the value of bitcoin after the last block has been mined?  Should Bitcoin's value at that time be based solely on transaction fees?

I think there will be a strong correlation between mining costs and bitcoin value in the early years, but I expect this to decrease over time -- with mining profitability eventually falling to the point where it is unprofitable for all but a few.  This is speculation on my part, but it is based on modeling Bitcoin's value with several unrelated components and then extrapolating and comparing them with one another.

...at you (and about a thousand other miners) not understanding supply and demand?

all im saying is that the spot price should be based on mining costs plus a fair value ontop for profit based on value(supply and demand)
value is different then speculation/manipulation. i agree that everyone should make profit in different ways. but a sudden 300% spike in price (out of the blue) where there's no correlation to why it increased. is a bubble that always bursts.
that is not a valued price, that is pure manipulation/speculation.

so if you see a spike in price on the charts and there is no reason you can think of to explain it rationally. from the mindset of someone that is not the profiteer. then you know its a speculated spike for short term profit.

Historical precedent -- at least here in the U.S.  Look at what happened to other e-currencies that were based in whole or in part in the U.S. in the recent past.  E-gold is a good example.  The government mislead the owners into believing they were operating lawfully, then arrested the founders, seized a good portion of the assets by claiming they were involved in illegal activities, and forced customers to prove their identities before allowing them to recover any assets.  E-gold at it's peak had about US$120 million on deposits -- about 36% of the current Bitcoin market cap.  Fortunately Bitcoin is a harder target, but I don't doubt that they will act against it sooner or later.


So you're saying that Bitcoin's value should only be related to actual mining costs and not the value it brings to the market as a medium of exchange unlike anything else currently available?

double face palm.

ELEVATED/ volitile,/ fluctuating prices are due to supply and demand.. BUT LOOK DEEPER. there is a baseline of any raw material that is based on production costs first(time + machinary + electric) as you say the minimum wage.

the volitility is small percentage on top. the profit/speculation

go to a gold mine.. they dont say "well gold is $1600 so ill sell it to you at $800 so that you can take it abroad and selling to someone else for $1350 for them to then sell it to the mass markets for spot"

spot is created from the base line costs and then adding profit/speculation ontop...

many gold barons who dont actually mine but go to the source try to use many reasons/excuses to try pushing down their purchase price to maximise their profits by using excuses like "pffft im not paying that, havnt u seen the spot price drop 30% i want 30% cheaper or im leaving". and that is what your tryng to say...that is the attitude of a middleman. that has no experience of manufacturing.

that's manipulation..


its also been found how supermarkets are manipulating the price of milk by trying to push farmers to accept less then cost price by saying "consumer prices have changed blah blah blah"

but that is just middleman manipulation for profit. nothing to do with the underlying value. and the great think about milk is that it only has a week's shelf life so when farmers publicised how they were being manipulated, people slowed down the amount of milk they bought causing retailers to rethink their strategies. (its all happening in the UK for the last few years).

if the middle men manpulate the price down then miners will give up which cascades into a lack of supply which then makes the price rise. and thats what middle men want. profit from both sides.
using the milk scenario again retailers at first didnt care about farmers or consumers they wanted to buy a pint of milk for 14p and sell it fr 90p. but both the consumers and farmers revolted. farmers retired causing milk supplies to dry up and consumers refused to pay 90p for a single pint and £2 for 4 pints

now farmers get upto 25p and retailers sell 4 pints for £1.20 and everyone seems happy. now thats stable non manipulated pricing. and the farming industry is starting to grow again. retailers make a bit more profit selling single pints (50p) as its considered acceptable due to packaging /delivery costs increase.

another thing "Recommended retail prices" was invented to stop these middle men retailers from making excessive profits by pushing the price they paid to manufacturers down and pricetagging it to consumers at what they pleased. it gave manufacturers more powers to say if we sell if to you for X you have to sell it for Y giving the manufacturers the powers of pricing based mainly on costs+ small % of profit. the ultimate fair and more stable price begins with the miners/manufacturers. NOT the other way around!!

so if you want to know how to base things that are NOT manipulated then base it on the cost of production + reasonable percentage ontop of profit.. if the profit margin gets too high where costs have not increased then it is pure speculation/manipulation and eventually the bubble will burst where consumers (end purchasers) will not continue to buy it. causing a price drop.

its like commodity prices for wheat, oil, etc they are based on producton costs and vary depending on how much a middle man can manipulate the producers down to. but there is always a set bottom limit where producers will just say no...

that is the baseline of pricing.. everything above it is profit/speculation/manipulation. so as long as you see the production costs (mining difficulty(imagining electric prices never changed)) and you seen the retail prices move up on par (obviously at a higher level) then it is fair and stable.. sudden spikes in price that cannot be linked to production costs are where its very easiy to see a manipulation/speculation occuring

Price causes difficulty, not the other way around.
Regardless of whether miners sell or hang on to their coins, it's equivalent to them simply buying the coins into existence "at cost". The feedback loop is such that basically:
P causes C + W
where:
P = whatever the price happens to be, because of Demand which has nothing to do with miners.
C = mining cost.
W = minimum wage they're willing to tolerate in order to keep mining.

Let's start with the easy stuff. What might an evil manipulator try in order to destroy Bitcoin?

This part has been covered many times. To recap: Bitcoin is very powerful as an idea, it's smart, and it's backed by a diverse community. Therefore an organised strategy might try to cover all of those angles:

• the smartness: technical hacks, ddos, etc.
• the idea: e.g.: use a TV show such as "The Good Wife" to subtly portray Bitcoin and its founders as a bad idea, and do it in a way that will be imperceptible to most nerdy fanbois. Get some Wall Street and media guys to "pump and dump" and show the world that Bitcoin is all hype and no substance. Get bloggers/journos to write scathing articles about Bitcoin to reduce morale.
• the community: plant some (destructive) trolls in the on-line forums who work hard to create division and block progress.
• Be flexible. If one technique clearly doesn't work, try something else.

OTOH why assume malice?
Possible evidence of non-malicious manipulation: ECB's November 2012 report on "electronic currencies". It's obvious the report was really aimed at Bitcoin but they threw in an extra currency to make it seem more general. I interpreted the report's conclusions as generally embracing Bitcoin rather than opposing it. The main thing that puzzled me was the purpose of the report. Was it a threat to someone? A warning to governments or banks or something like that? No, I think it was a careful action disguised as "meh, just a publication by one of our juniors". But what for? The report was obviously prepared and held unpublished for many months in advance, so they didn't do it lightly. I think they wanted to seed some viral growth.

Similarly, forum members in the US seem perpetually worried that their authorities might decide to "clamp down" on Bitcoin. I keep waiting for the bad news... and waiting... and waiting... Then I look at the statistics and find that US dollar-denominated exchanges are the busiest, and that a large percentage of users are based in the US. Maybe one of their agencies has flagged Bitcoin as an asset and is telling the others "do not touch this"? Maybe their strategists want to secretly 'nurse' Bitcoin on home soil, and they're hoping for some future advantage over other nations?

There is some massive behind-the-scenes activity going on with the world's major currencies. One would have to be wilfully blind not to see the debasement and gradual revaluations. While I can't see senior executive/managerial types of people having much technical creativity, I can imagine them Googling and finding Bitcoin, and pasting it into the "X goes here" part of their grand plan.

i read the title so here is my brain fart and 2cents to add


KEY:
orange line is the mining hashrate
blue line is the price

bitcoin came into existance in january 2009 and for 1 year 9 months virtually nothing happened to it........

then people started seeing value in it (also thats when charting data began as services started being made to remember the important data)

A) people started seeing value in it, even when mining was lower the price would rise and fall mainly due to what people would use the coins for and what they deemed it worth (speculation)

B) the speculated price kept rising without links to how much it cost to make the coins. But more linked to peoples dreams and speculation which brang along with it, as a secondary item more people wanting to mine the coins so they can get in on it... But then due to some bad press/propaganda starting about hacking thefts the price nose dived and along with it 30% of miners decided its no longer for them.

C) this is where people started to shift their perceptions away from what they could spend it on, but more to do with how much it cost to make. and so the remaining miners held the price at a certain level and slowly the price began to rise again

D) even through the next media blitz of bad press (the pirate saga) miners still held strong and helped the price to not collapse but to be just a little blip.

straight after point D and into point E is what is known as the FPGA/ASIC drama mining stayed strong and with the block halving(E) it did drop a little, but no where near 50%.

now you know the history of the last 4 years..

now for the present..

what is great is just like rare minerals, EG diamonds, gold, silver platinum.. if you look deep enough the fundamental pricing of these minerals is based on how expensive it is to make. and right now i am glad to see that as the difficulty is increasing. so is the price.

right now today. the network hashrate jumped upto 35Thash where the price then responded with about a $31 price tag. and then when the network hashrate went down to about 32Thash the price then followed.

this is where it should be, where the price relates to actual mining costs and not speculation.

so if you see a major spike in the price but no network hashing spike. then you know that it is probably speculation and risky.

over the next few months more batch's of Avalons will be released. each unit yields 66Ghash which with February's batch of 300 still only just arriving through peoples doors is 19.8Thash (ontop of January's average of 23Thash)
bringing a "POSSIBLE" 42.8Thash by march 5th.

and the March Batch 2, consisting of 600 units (39.6Thash) will bring the network hashrate to a "POSSIBLE"  82.4Thash total.

i say possible due to the fact that some GPU miners may give up, some ASIC miners may be delayed.

final thought: if the price is based on mining costs, then bitcoin will remain safe and easily calculatable value. where by any other speculations/manipulation will only last as long as the people involved keep trying to push it. which could be just minutes for a financial pumper dumper. and weeks for media/government involvement.

now ill leave you to speculate......

I agree that there are many things you can apply statistics to in the markets. Obviously there's an entire industry of day-traders dedicated to this pursuit. And over a long term in huge aggregates we can find interesting patterns.

However, I believe that no matter how trivial the insight there's some way to make money of it and there'll be someone else out there to exploit it. This would tend to cancel the observation out in the future. Since the market is reacting to itself, how do we know if something is a new level manipulative volatility, or just the reaction of someone having seen a pattern they think they can exploit?

Would it really be wasting half a billion dollars?  Since Bitcoin could in theory undermine the US government's financial base, would it really be a waste to spend that kind of money (or even a lot more) preventing it's adoption from their point of view?

Yet at the same time the US government has to continue to pretend that it's defending freedom, the US Constitution, and that it really does care about the plight of the plebians, so an all-out assault like what you describe (or a 51% attack on the blockchain) seem a lot less likely at this point than a more clandestine operation.

I don't believe the individual events would be detectable as malicious, but rather that a pattern of malicious events could be detectable if there were no reason for large movements (e.g. Wordpress announcement, Mt. Gox hack, etc.).

As for your assertion that when humans are involved you can't make statements like, "We expect price to fluctuate no more than X percent," I disagree.  An entire branch of mathematics is based on the idea of being able to quantify the probability of observable events, no matter the cause.  When the events you are observing are the result of the actions of large groups of people (e.g. markets), the statistical outcomes correspond to known distributions.  Many financial models used to price derivatives, or to optimize portfolios are based on these principles.

Yeah, but even if the cat positions himself in front of the mouse, the mouse will run away whether he pounces or not. That's the point.

You and I may realize that this person is actually just wasting half a billion dollars, but most people won't care. Most people don't want to use a currency that changes in value so wildly. If bitcoin's value keeps jumping up and down without regard to the value of goods it represents (which is, technically, a bubble) for months on end, faith will be lost. By both loyal users who see that big powers are being wielded against the currently weak network, and by newcomers who will see it as gambling.

You: "Hey, try out bitcoin!"
Newcomer: "How much is it worth?"
You: "Well, this week it's worth $50, but last week it was worth 100!"
Newcomer: "So it lost half it's value in a week?!"
You: "Yeah, but it's just some super really rich dude who hates bitcoin. It'll be back at 100 by next week, trust me." [insert any rationale you wish here]
Newcomer: "Uhu..."

And if I (as a loyal bitcoin user/owner) see that someone is willing to throw half a billion dollars to ruin bitcoin (and lose them), I'll rethink bitcoin as an usable and lasting currency/asset/investment and so will you. That's how a currency dies.

Since markets are dealt with by humans, I don't expect "unusual volatility" caused by malicious parties could really be distinguished from poor investors or new trading bots. When humans are involved you can't make statements like "we expect price to fluctuate no more than X percent" because people change their minds about what to do based on the same observations you're making. The expectations themselves can change what happens as people try to play against the market or are psychologically swayed by "signs".

Now go back and come up with a way to do it that wouldn't be patently obvious to anyone paying the least bit of attention to the exchange markets.  The cat doesn't want to draw the mouse's attention before it pounces, but it does need to position itself behind the mouse and in a way that enables it to pounce.

Some would argue that certain branches of the US government are not lagging when it comes to new technology (e.g. NSA), but you'll get no argument from me.  I think the US government's actions generally rely on brute force or the threat of it, since it has a surplus of that over anything else (like brains), but I digress.

Regarding the move from 32 to 17 back in June of 2011 -- I'm just saying that the bubble had already popped (e.g. the price had already moved down dramatically) when Mt. Gox was hacked.  There is no doubt the Mt. Gox hack accelerated the decline in price and caused many people to lose confidence in Bitcoin.  If it was orchestrated, it was masterfully done as it was a big setback to the Bitcoin community.  The good news is that the community recovered and measures were taken to reduce the likelihood of such an event in the future.

Since trades on the exchanges are externally anonymous, the only public information available are what they publish.  Even if an exchange saw suspicious trade activity (which is probably impossible to define anyway) it seems very unlikely they would do anything about it.  From what I know, the only way to probabilistically detect price manipulation would be by watching the Bitcoin price volatility and see if there are any discernable patterns that are well outside the expected variance.  Of course I have no model for price volatility, so all I can do is to compare it with past volatility.  Then, absent any public event which could explain a large increase in volatility, the probability of price manipulation goes up.  A single event doesn't mean much because it could be coincidence.  But a large number of such events would suggest price manipulation to me.  But I'm no statistician -- which is why I was hoping someone with more knowledge on the subject might have better ideas?

In my opinion, if anyone really thought of bitcoin as a threat and had the means to deal with it, I would guess they would want in!

If you have that kind of money and you believe bitcoin is dangerous to fiat money, then:

- convert fiat to bitcoin
- ?? (or in this case just wait)
- profit!!!

But if I were acting under orders and had to sabotage, I would:

- take half a billion dollars
- buy as many bitcoin as you can with that money
(you'd probably be able to buy only about a quarter of the bitcoins available, even though you spent almost twice the cash of the current total bitcoin economy. this is because buying so many bitcoin would increase the price to insane amounts)
- every two weeks, slice off a fifth of your holdings
(if %10 of all bitcoins were sold in an instant, prices would drop very quickly. do this five times.)
- from whatever change you have, repeat the last two steps

Considering this shake would be lasting a good few months, people will start losing faith in bitcoin. In my opinion, probably the best way to devalue a currency you have no central control over...

By the way, if I were looking for ways to ruin bitcoin, I'd probably start by lurking around these forums, but I'd take these kinds of posts with a grain of salt. Because everyone here is a speculator...