Bitcoin: Evidence of spoofing, wash trading, and a scheme known as ‘Tether’
medium.com
medium.com
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.
Bitfinex is the second largest bitcoin exchange, their daily volume is $130 million [1]. $2-4M trades are not anything out of the ordinary.
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.
The reason it's illegal or banned on normal exchanges is because it drives out legitimate customers and you end up with a den of thieves. Everybody looks at the order book to gauge liquidity and make decisions, not just bots. Users want prices to be relatively stable and tied to fundamental values. An exchange where manipulators spoof or wipe the order book in a high stakes game of chicken is unstable. Imagine an eBay with no protections against counterfeit goods, or a StubHub full of fraudulent tickets.
And spoofing is very easy for regulators to detect. The behaviors of market makers, who also cancel many orders, and spoofers, could not be more different. Market makers place orders for small symmetric size on both sides of the book. If they quote asymmetric sizes, they quote smaller bids when they're long, or smaller offers when short. They cancel bids after they buy, offers after they sell. Spoofers do the exact opposite. They place asymmetric sizes where one side makes up a large amount of liquidity. They place big size on the same side when long or short to press their trades favorably. They cancel buys after they sell, and sells after they buy.
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
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.
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.
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."
Furthermore, would that be legal? You are just using publicly available information.
Of course, if there is value in short-term trading (eg. adding liquidity) then this is unhealthy for Bitcoin/Ethereum.
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.
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.
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.
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
(Accurately valuing bitcoin is fraught with risk, but a limit-buy at $1000 today is likely to be a net win. Let the bully sell, and let the limit order soak it up.)
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.
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.
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).
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.
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.
I had a feeling about that too :)
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.
A little sad to see that all the banking problems are still existing with Bitcoin as well.
If there's a competitive advantage for screwing someone over, there will be screwing over.
All financial systems are a Red Queen's race.