Bitcoin Value Loses Its Mind as Trading Lags on the Mt.Gox Exchange | Hacker News Reader

Bitcoin Value Loses Its Mind as Trading Lags on the Mt.Gox Exchange

techcrunch.com

82 pointspccampbell60 comments

MtGox is known for abusing the market and cancelling trades when the price falls significantly. It happened before [1].

One way to look at it is that they prevent a bank run. The other perspective is that they trick people into thinking the market price is higher than it really is, making unaware people lose even more money as they buy at the high price and the crash happens anyway, just over a longer time.

[1] http://www.malwaretech.com/2013/11/mtgox-nearly-breaks-bitco...

I also can't help but wonder if insiders of sites like MtGox are taking advantage of their market knowledge.

This issue goes well beyond "market knowledge." MtGox _is_ the market; they control the order book, trade matching engine, data feeds and even the custodian accounting system. If you own your very own completely unregulated trading exchange and deposit syatem then you have a big incentive to cheat the market. One way to do so would be to allow your own trades to jump the queue in the order book. By ensuring that your order are always filled ahead of everyone else's (even when you place them later in time) you would have a massive advantage if you start doing market making trades. Another dimension is that MtGox plays not only the role of an exchange but also the role of a custodian for US dollar accounts. MtGox's systems decide how many USD a particular trading account has for buying Bitcoin. This incentivises them to create US dollars "out of thin air" for their own trading account and then use those fictional US dollars to buy Bitcoin from MtGox customers. Combining these two advantages (money "creation" power and total market book control), they could extract huge sums of money from customers through trading without even having to invest a single dollar from the "real world." And if this market making strategy were to go wrong and MtGox loses too much fictional USD currency they could simply reverse the trades! Worst case scenario, if they lost too much money, they could just disappear without paying out customer USD balances. This is why real financial exchanges are heavily regulated and the different roles are played by different legal entities (eg exchange role vs custodian role).

> Worst case scenario, if they lost too much money, they could just disappear without paying out customer USD balances.

So you risk your (incredibly profitable) business just to skim a little on the spread? Doesn't seem worth it.

Might not be the owner... could be a worker doing it.

And misconduct like that results in clear evidence which none of the people who claim to "know" can produce.

A lot of people who just do not understand how thing kind of market works make these allegations— due to things like issuing a market order and then having the trade execute at prices which are dissimilar to the last price but completely explained by the published orderbook.

Ah, but what's the margins? How do they compare to what they can skim?

There's a good reddit post about this possibility: http://www.reddit.com/r/BitcoinMarkets/comments/1rb1mc/poten...

I think it's very possible for exchanges to do this sort of thing, especially when their technology is so poor that it's difficult to audit how they match orders.

Excellent post, please tell us more, there's a whole blog post here on the downsides of bitcoin. Do share :)

Those aren't downsides of bitcoin, they're downsides of unregulated trading markets controlled by a single entity. You'd have exactly the same problems if MtGox was trading horseshoes.

Or, say, Magic cards (which is exactly what MtGox was originally, hence the "MtG" in the name).

But isn't the point of Bitcoin that it's unregulated and akin to digital cash? If you start regulating it, what makes it any different or better than using cash? What's the point, then?

Your confusing the currency (Bitcoin) with the Exchange/Custodian (MtGox). You can leave the currency unregulated, but police the exchanges that trade it.

> MtGox _is_ the market

They are _a_ market. While they may historically be the leader, many bitcoin trades and negotiations never touch them any longer.

This no longer belongs to a single site. It's too big now.

Don't stock markets typically have "circuit breakers" as well? Perhaps they're more transparent about it though.

Circuit breakers stop trading temporarily, they do not undo trades done in the past. There are other procedures for undoing "clearly erroneous" trades but those are generally less automated and sometimes less transparent.

Reminds me of the beginning of Arthur C. Clarke's "Childhood's End" (or was it "Fountains of Paradise"? It's been decades since I've read them), where he explains how, even in a networked, high-speed trading world, the stock trading system can get overloaded by orders and lag will cause the system to spiral out of control and collapse, repeating, in essence, the Crash of Black Tuesday.

I found that interesting because it showed how, despite advances in technology which we'd expect to solve failures of previous systems, the same fundamental vulnerabilities remained, just at a different scale.

It definitely was not Childhood's End that you're thinking of, although that's a fantastic book. I haven't read Fountains of Paradise but will have to add that to the list.

strongly recommend it; it's probably my favourite of his novels. also won both the hugo and the nebula, so i'm not alone in thinking so.

Hm, and here I thought I'd read all the double-winners... thanks for the extra information :-)

(Might have actually read it, just long ago -- but I don't think so -- haven't read that much by him).

The overloading of exchanges with orders has actually become an intentional strategy in the real world. High frequency firms send large quantities of junk orders to create arbitrage possibilites or even as an offensive measure for the purpose of slowing down the competition by making them waste ressources processing useless orders.

Um, no. This is a wild conspiracy "theory" [1] pushed by Nanex for publicity, but it's almost certainly false.

If it were true, it would be trivially easy for any of the broker, exchange or SEC to trace and shut down. These parties already have countermeasures in place to prevent you from doing this accidentally - you need to make sure the rolling average of your fill rate is above 0.5% (approximate cutoff, it varies but it's in that neighborhood).

Further, the risk of getting filled makes such a strategy insane. It's analogous to placing a bunch of bids on EBay in the hopes of slowing down their servers. Great plan, but it carries the risk that you win an auction and need to buy 1,500 copies of Dianetics @ $10.00 each.

[1] I use the term "theory" loosely. Nanex's allegations more or less amount to the idea that HFT firms are DDOSing the markets by pushing an order volume that a 2008-era laptop could handle without hitting 100% cpu, and expect to profit via unexplained mechanisms.

Whoa! It's plummeting just as I come here to read this thread.

http://bitcointicker.co/

I saw the first news of the Chinese restrictions last evening (United States time zones) and a person who kindly replied to my post here yesterday recommended the link I've just put here for tracking the price of Bitcoin. I saw this thread just after seeing

http://www.latimes.com/business/money/la-fi-mo-china-bitcoin...

on Google News.

Pretty wild. I opened your first link maybe 20 minutes ago and the price was $650. And now it's $750.

The volatility is just crazy.

I watched it live as it hit $600. A bunch of buy orders held it there for a few minutes, and then after burning thru all of them, it dropped like a rock to ~580.

I wonder where I can learn about day trading this stuff...

Answer yourself 2 questions :

1) why does trading lag on MtGox ... who benefits ?

2) does this happen every time the value drops ?

And you'll be back to day trading something else very quickly.

This also happened on the 19th. There was an article posted explaining that their crash prevention code was processing a big sell order, reversing, and then infinite looping. This looks like the same thing.

To expect that something volatile is anything other than volatile is, in general, folly. BTC may stabilize with time, but people throwing large quantities of money at it quickly doesn't help.

If BTC gains worldwide acceptance, it will be at the begrudging reluctance of governments.

I made similar screenshot as the one from this article. I noticed strange periodic behavior of bitcoinwisdom.com, asked myself WTF, uploaded image to imgur, then made a post on HN. Within 5 minutes, I guessed that this behavior is caused by the javascript replaying stale package of transactions and not getting new ones. I reloaded the page, artifact disappeared, I took down HN post to avoid misleading people (it got two upvotes already and one comment). Now I see this what I thought was local glitch prominently featured as a part of front page article. I guess it wasn't so local and accidental after all.

Since the image in article comes from http://bitcoin.clarkmoody.com/ not bitcoinwisdom I guess it was some glitch in MtGox API or case of clients wasn't able to tell that what they get from API is stale data not expected fresh one.

My screenshot from bitcoinwisdom: http://imgur.com/Q6gKIok

Todays (6/12) somewhat sluggish decline[1] is perhaps largely US driven, beginning at around 8AM EST (1PM UTC). Yesterdays crash was sharp, surrounding the Chinese announcement, and was at around 4 PM China time[2] but the price soon bounced back.

Overall not very interesting.

[1] http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-06ze...

[2] http://bitcoincharts.com/charts/btcnCNY#rg1zczsg2013-12-05ze...

Yes and then later on it fell even further. This is a cautious sell off. Big guys cannot sell tens and hundreds thousand of Bitcoins at once - they will crash the market. Super optimistic guys buy expensive and hope for better times. I witnessed today one guy buying nearly 2,000 BTC at $950 on Gox and then the price dropped by more than $100 in few minutes. I believe it will drop even further. I believe in Bitcoin, but it's doomed until its in the hands of speculators and they should get hurt and move to altcoins hopefully although they usually profit from drops as this is how they multiply their coins.

is that unsourced chart just a screenshot biscoinwisdom, and why isn't it sourced?

The first link in the article (hyperlink text "gone crackerdog") takes you to the source: http://bitcoin.clarkmoody.com/

A couple of days ago commenter on HN said they had pulled their savings from the bank and dumped it into bitcoins. It will probably recover but betting on bitcoins is akin to taking one hell of a ride by the looks of things.

You can see the last 24 hours here. Note data collection for MtGox was stalled due to their extreme server load. http://live.bitcoinindex.es/

How can anyone make seriously make statements like this:

> Following a steep decline that saw the currency trade at prices not seen since late November

That was 2 or 3 weeks ago and they speak of it like it was a generation ago.

Was hoping for a panic sell like April, O well give it a day or two and it will bounce back.

This topic is full of bitcoin advocates doing terrible jobs of reconciling themselves to a new .800~.900 standard USD.

However you criticize MtGox, this has spread to other exchanges. That's the price now.

Personally, I think this is the effect of the Chinese market reversing its positivity on Bitcoin.

(which is an outgrowth of bitcoin's lack of delivery on any significant front.)

Always the volatility remarks - because in contrast the world economy is so very stable, as recent years have shown?

Hooray for high-freq algorithmic trading, I guess.

Doesn't this almost guarantee profit, as long as the average price doesn't come down too much? As in, buy when it's [low enough] and sell once it's [high enough]? Of course, if the market is filled with these algorithms it will get harder, but low-risk investments and trading over long periods of time should turn to notable profit, no?

Weird stuff, machine pushing the man out of business.

It would be pretty easy for man to beat such a simple algo.

How? Assume it's binary buy up to x bit-coin's at 835 and sell all of them at 875 does not leave a lot of room for manipulation.

Because past trends do not predict future. You buy bitcoins at $835 and instead of going up to $875 they drop to $100.

Why bother with bitcoin? You can do the same with GOOG stock too.

Stocks aren't quite so volatile.

Borrow money for more leverage. Or buy derivatives.

Even if your assumptions of 'correct' price range would be 100% correct, there's an old saying "the markets can remain irrational for longer than you can remain solvent". If you buy bitcoins at 835, and the rational longterm price is above 835, then there is still a serious risk that the market price will remain much below 835 for an arbitrary amount of time.

determining "low enough" and "high enough" is what professional market-makers do all day. it's not easy.

The fun thing about Bitcoin is the immense latency in moving money (USD) between exchanges, which has at minimum 4 days of transit. This makes just about anything involving multiple exchanges or high frequency (especially arbitrage trading) absolutely impossible to do without a service such as bitinstant, which is currently MIA

Assuming that you're willing to maintain inventory at multiple exchanges, you could still absolutely do arbitrage inter-exchange.

Unfortunately there's no way to hedge your BTC inventory so you have to take on a lot of currency risk.

Just so that it's said, buying at Coinbase right now gets you the right now price (or at least their spot price at the moment).

You're perfectly right that you won't receive the coin for 4 or more days, which leaves a lot of opportunity on the table for turning it around quickly, and perhaps increases the risk non-negligibly, but buying is done at spot price, not receipt.

Where does this 4 days of transit come from?

Nothing stops you from doing HFT on one exchange, or on multiple ones independently. Most of them have APIs.

once your funds are in, you can instantly exchange between crypto-currencies

High frequency? MtGox, which is still the second largest exchange, has something like a 5 second execution lag.

You think 5 seconds is slow? If you were to do it manually it'd take much longer.

For the thought-of connotation of high frequency trading, yes, 5 seconds is slow.

Their new Midas engine is about to get released - will handle over 500,000 transactions/second and will support other cryptocurrencies (although I don't think they will open it to the public just yet). It may not be great as it is, but it's definitely better than the rivals at the moment.

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