OK, let's play a game. Say you had $5mm. How would you manipulate the Bitcoin market and earn a guaranteed return?
For example, let's say that the exchange rate is 100 USD per bitcoin at the moment and that you have tons of people who would absolutely sell their bitcoins if it went below 90. I'm not in the bitcoin game, but I think mtgox offers "stop on loss" features so that people could get out of bitcoins automatically.
If you're sure that you want to be in bitcoins, but you think that there are a lot of scared players who put their "stop on loss" too high, you might be able to provoke some kind of selling avalanche by selling sufficiently many bitcoins at once. The price drops below 90, which triggers a lot of automated selling. This makes the price drop even further, triggering other stop on loss barriers, driving the price to 80 and so on.
With your $5 millions you buy up all those bitcoins at a rate of 50 USD per bitcoin when the avalanche stops. Then people realize what just happened and the price of bitcoins crawls back to 100 because that was more or less the fair market price.
The point is, with $5 million dollars you might have the power to create digital panics, a "flash crash", and use that to your advantage.
I don't know if $5 million is enough for that, and it's not a guaranteed return.
Someone sold off 5k bitcoins (~USD $450k at the time).
That's exactly what happened. Big sell off from 95 to 80ish, and then it sprang back to ~$90 today.
There's low confidence in it right now, but that's because most players are actual players. They aren't using bitcoins for groceries, like a bank reserve (yet). They're playing them like stocks.
That just shows most people are hording it / not really selling or trading, and a few people are buying it, probably the majority of which are doing so because they need to spend it on SilkRoad or a gambling site.
The moment that goes away, or a few big holders decides to cash out, watch out.
Imagine a hedge fund with an order of magnitude more monetary mass trying to provoke those kind of sell offs and benefit from them.
Even if they were, take a look at what happened yesterday when someone dumped 5k bitcoins onto mtgox.
My personal (amateur) theory is that people were hovering over their "sell" buttons, looking to cash out as we approach the landmark $100 point. Once they thought someone with a lot of coins was bailing, they took that as a sign to head for the exit.
I also think that MtGox's horrible lag factors into the dips. Their trading engine was running as much as 8 minutes behind during this event, which causes people to not be able to modify or place orders. Along with not being able to see actual "current" trading info, this causes a certain segment of the trading population to go into full panic mode.
Placing market sell orders in an engine that's showing you ancient data during a crash seems suicidal, but for some reason people do it.
I'd love to see Gox upgrade its engine. I honestly think it would make a notable difference in price stability.
Even better, I'd like to see the market grow strong enough to support 3 or 4 primary trading sites. There are a number of others now, but the rest have such low volume that you should only use them to pursue specific opportunities (arbitrage).
Likewise you could hack the computers of early adopters who own a lot of bitcoins (back when mining was easy). For example, someone paid someone else 10,000 bitcoin for a pizza a few years ago.
You now own a significant portion all all the bitcoins.
Alternatively, hire security professionals and finds bugs in the bitcoin protocol or client software. You may be able to force another fork.