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Comment by TwoBit | Hacker News Reader

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.

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