Topic: Price Manipulation - page 2. (Read 2644 times)

I didn't limit it to the US government. In fact, they've been lagging when it comes to new technology adoption for a while. Besides, the number of imponderables is just too large to have any inkling as to what someone might be thinking or doing.

In fact, I'm not certain we would be able to detect and pinpoint any kind of manipulative strategy from the other end. Who knows? All you need is one kid with 20k BTC still sitting in his hard drives and a hankering for a Porsche to send any theories into a tail spin.

Finally, the 2011 "bubble" did pop as a consequence of the MtGox hack and the theft of around 250,000 USD in bitcoins. Theft came first, hack came later, volume was such that any kind of dump would have explained the drop from 32 to around 15-20 quite easily at the time... and there was a lot of SELL SELL SELL coming from the community. The whole thing did seem very much orchestrated... but again, no certainty at all.

The Mt. Gox hack in June of 2011 is not what initiated the fall in Bitcoin's value.  Indeed it had already fallen from a high of around $32 to $17 when Mt. Gox was hacked.  While there is no doubt that the Mt. Gox hack contributed strongly to a further decrease and to undermining public confidence in Bitcoin, there was more at work here than just the hack.  Not claiming it was price manipulation as bubbles are an inevitable consequence of human nature.

In your final paragraph you express your opinion that it would make sense for some government to invest in Bitcoin with the goal of making money as well as holding a decent percentage of bitcoins.  I think this is unrealistic.  How many times in recent history has the U.S. government ever acquiesced when it comes to dominating and controlling something within their perceived sphere of interest?  Do you really think that U.S. bureaucratic mentality would be thinking along the lines of, "Well, we can't stop Bitcoin, so let's at least figure out how to make some money off of it and get some influence over it?"  Wouldn't it be more along the lines of, "Let's figure out how to crush this threat to national security, but in the meantime why don't you buy us some time by quietly causing some disruption to slow its rate of adoption."  I'm sure any strategies they may be considering would be multi-pronged, with price manipulation being but one of many tools they have at their disposal.

My intent in starting this topic was to point out that there is precedent for the central bankers/governments to manipulate prices, and to develop some ideas for how we might detect such manipulation if and when it takes place.  So far most replies have been about why this will never happen despite historical evidence to the contrary.  Let me try a more pointed approach:  How might a clandestine group with deep pockets go about causing a significant increase in Bitcoin exchange volatility and what specific methods might be used to detect such manipulation?

If an entity had that much money to waste on disrupting bitcoin it would be a lot cheaper to simply send thousands of transactions back and forth between itself in order to saturate the block sizes and prevent real transactions from getting verified.  Real users simply get sick of bitcoin and decide that its not worth the trouble adopting it as a payment solution. If the entity had that much money to burn they could invest in a large number of  asic processors in order to recoup some of the fees needed to pay increasing transaction fees.   Hence another reason to increase the block size.

There's a strong argument to be made for the theory that the MtGox hack in June 2011 was intended to disrupt Bitcoin as an idea, as opposed to making money for the hacker. Indeed, had the hacker wanted to make money out of the hack, they would've gone about it in a completely different way (there were limits to BTC withdrawal from MtGox, and it made no sense to make the exchange fill every order down to a few cents per BTC if the goal was to steal some money).

I'm not disputing there is a lot of money behind the recent rise. Nor am I disputing necessarily that the goal is to move the market. But if the ultimate goal is to make Bitcoin disappear, I doubt this would be the smartest way to go about it.

Then again, back in 2011 I wrote about the possibility that some (government? US? China?) may want to start a slow and steady investment in BTC with the two-fold goal of making the currency more valuable while at the same time having a controlling interest in it. In other words, if I had all sorts of money, and had future plans for Bitcoin that make it integral to my monetary or trading system, I'd be doing EXACTLY this.

In June of 2011, public interest in Bitcoin shot up massively in parallel with the rise in Bitcoin price to about US$32[1,2].  When the bubble popped, Bitcoin probably lost 90% of its constituency along with 90% of its price.  If that were a planned event, and I'm not saying that it was, it would probably be regarded as a success if the goal was to disrupt the adoption of Bitcoin.

My assumption here is that the goal of the price manipulator in this context is not to make money, but rather to disrupt Bitcoin.  In fact, in this scenario the idea would be to lose money, but to lose it in such a way so as to retard Bitcoin adoption by the community.  The concept is straightforward:  In general, people are afraid of price volatility.  So what strategies might be employed to this end?  Could it be done with a quantity of funds representing a small percentage of the total Bitcoin value (which is somewhere around US$335 million as I write this)?  How might such a manipulation be detected?  

There is ample evidence that central banks have manipulated the price of gold over the past decades, probably "spending" billions of dollars in order to do so.  Should we really be so naive so as to believe that the same thing won't happen with Bitcoin, sooner or later?  How much does it cost you to manipulate the market when you control the printing presses?

[1]  http://www.google.com/trends/explore#q=bitcoin
[2]  http://bitcoincharts.com/charts/mtgoxUSD

They would probably shoot themselves in the foot by doing it the way you describe. Pushing up the price would have severe consequences. It would most likely increase attention to Bitcoin.

Trying to crash the market by selling down Bitcoin would be stupid too because selling below market price would just cause them a financial loss.
If the market doesn't have enough liquidity for the moment they might be able to influence the price but the investors that know the true value of Bitcoins will just cheer.

As you said, for a limited time. Eventually the market would compensate and stabilize the offending behavior.

Central banks have long been known to manipulate the gold price.  I'm sure they have had many reasons, including the perceived danger that allowing gold to reach a fair market value would cause massive creation of liquidity, driving inflation up (c.f. letter from Fed Chairman Arthur Burns to President Ford in 1975).  When it comes to Bitcoin, they may have different reasons, but it's difficult to speculate beyond suggesting that they may want to attempt to discredit it in order to stop or slow its acceptance in the world (at least in the online world anyway).

Prior to this, most of the discussions around disrupting Bitcoin have centered around a 51% attack on the blockchain.  But even if we assume this is the cheapest way to attempt to destroy Bitcoin, it is risky to those involved because it is likely that they would be discovered in the ensuing mayhem.  Discovery would expose them to numerous lawsuits and the court of public opinion may not be kind, either.  While there may be ways to mitigate such a risk (I'm sure the CIA could think of a number of possibilities), it may turn out that simple manipulation of the price will accomplish the same goals.

So my question is:  If an entity has at least few million dollar budget to work with and the goal of discrediting, or at least slowing the adoption of Bitcoin around the world, might there be a way to accomplish this through price manipulation?  For example, slowly accumulating 100K bitcoins and then suddenly dumping them?  Obviously not from a single Bitcoin address, but from hundreds of addresses in order to assuage suspicion.

Note:  I'm not suggesting that any of this is actually happening -- I'd just like to hear if others think this would be a plausible "attack" on Bitcoin by the powers that be, and if so how might we differentiate it from ordinary investment activity (bubbles forming and popping) or even detect it while it is happening?