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one has to wonder what would happen if people with a complex knowledge of how these things work (market fluctuations and what not) decided to mess with Bitcoin.

one has to wonder what would happen if people with a complex knowledge of how these things work (market fluctuations and what not) decided to mess with Bitcoin. What I mean is, investors can be twitchy, and susceptible to manipulation. It's sane to assume that people who invest in Bitcoin would be the same. Right now Bitcoin is new, so I doubt there's any sort of "Round Trip Trading" style activities going on, but should those types of speculators move in, could Bitcoin survive it? Especially since there's no laws protecting it.

rauljara 15y ago
Why are you so sure that it isn't happening already? How would you be able to tell if it was?
- tomelders 15y ago
  I'm not sure, but the thought only just occurred to me.
brianbreslin 15y ago
you mean someone like george soros & his dealings with the british pound?
- jarek 15y ago
  Soros made his money because Bank of England was keeping the pound's value above where the market wanted it to be. (Soros being a large part of that market, but that's another issue.) No government institution is going to be holding bitcoin's value anywhere. In a large, fully mature market, this wouldn't necessarily be a problem, because bitcoin would just trade at whatever its true value was. In a smaller market, especially an opaque one, it will be pretty easy to temporarily manipulate the price for fun and profit. I'd be ready to chalk up this drop to a speculator, except I doubt the market is mature enough to support arrangements that would enable reliable short-selling. The run-up is definitely at least partially orchestrated, however, and not by the guys who write public blog posts titled "why I put all my savings in bitcoin."
bdhe 15y ago
A very interesting observation. Especially since there's no laws protecting it. There are a couple of things to point out: * How well do traditional laws hold up in this new distributed, de-centralized model. In particular, if bitcoin is to take off are protection laws (like traditional currency) necessary? * How does Bitcoin's anonymity help or hurt such a legal protection? If people decide to mess with BTC will its anonymity come back to hurt it?
- recoiledsnake 15y ago
  >In particular, if bitcoin is to take off are protection laws (like traditional currency) necessary Most of the protection laws were in response to abuse of the system. BTC crashing would destroy the lives of people like this one http://falkvinge.net/2011/05/29/why-im-putting-all-my-savings-into-bitcoin/ http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving... Then it becomes a question of whether any technological "patches" need to be made in order to prevent subversion of bitcoin's agenda, whether the courts and govt. get involved via punishing the manipulators, regulating or banning BTC, etc. This is shaping up to be a highly risky pyramid scheme type deal. If you get in early and strong, you can expect a high payout, but the longer you hold on, the higher both the rewards AND the risk of a total bust.
- sethg 15y ago
  Advocates of Bitcoin portray its independence of state-sponsored currencies as a feature. Why should governments do anything to make Bitcoin safer to hold (even if they could)?
tomp 15y ago
There's a huge difference between algorithmic trading (I think that's what you mean with "Round Trip Trading") and speculation and market manipulation. Traders usually profit from very short term market movements, and big volatility is usually catastrophic for automated algorithms (see e.g. 2010 Flash Crash). For the long-term investors, algorithmic traders are actually beneficial, acting as market makers, providing sufficient liquidity. Also, I think that "no laws protecting it" is actually a good thing. Look at what happened to GBP when Soros went after it (another comment focuses on that...) - he earned huge amounts of money, and the UK Central Bank suffered huge losses. They also changed the currency regime to "no laws" to prevent such manipulation in the future.
- tomelders 15y ago
  I suppose I was thinking along the lines of: if a nation state, or group of nations, or banks - the kind of people who have a vested interest in devaluing bit coins - decided to attack the Market, what would happen? They would be free to use tehniques they can't use is real money markets, such as artificially inflating values ( via rtt) or misleading investors. Plus, they have large amounts of real money. Bit coins are a nice idea, but you can't buy a house with them. These are the kind of groups who have Pockets deep enough to invest enough to cOntrol bit coin, and also lose that investment in favour of longer term gains. And no matter how they do it, no one would have any meaningful legal recourse.
  - chopsueyar 15y ago
    Mark Cuban, are you listening?
yaakov34 15y ago
It's worse than that - a single exchange, Mt. Gox, has 98% of the bitcoin trading volume. The exchange operator(s) have access to all information about orders placed - and also have bitcoin holdings themselves. The potential for manipulation here is unlimited. I do not mean to accuse them of anything - there is no information. But this is not a healthy situation, given, as others have said, absolutely no legal protection. EDIT: I want to strengthen the statement that I'm not accusing the operator of manipulation. He's well-respected by bitcoin forum participants, and he is probably an upstanding guy. But in the world of finance, it is customary to have more than just that to guarantee the soundness of a central exchange. Add to this the fact that Mt. Gox is taking deposits totaling in the millions of dollars without having any license to operate as a financial institution, and that it apparently hold around 10% of all existing bitcoins (someone traced a 470,000 bitcoin movement to a Mt. Gox account), and I have a strong feeling that this will soon end in tears.
- nikcub 15y ago
  known as front running, and happens often on other exchanges
  - yaakov34 15y ago
    I know. My point is not so much about the possibility of front running, but about exchanges, and especially Mt. Gox, as the point of failure for bitcoin. Let's face it, 99% of the excitement about bitcoin lately is not along the lines of "hey, this is a great use of peer-to-peer principles and a fascinating economic experiment with a decentralized currency". No, it is along the lines of "hey, this thing is making tons of money for people! fortunes out of next to nothing!". Take one look at the bitcoin forums. A failure of a major exchange (and right now, there is exactly one major exchange) would damage the project severely. What's more, the focus on trading at exchanges is making the whole project look a lot less decentralized - yeah, the bitcoins themselves are peer-to-peer, but exchanges are sure not, and if what people really want to do is trade at exchanges, then that's what matters.
    - rms 15y ago
sireat 15y ago
I think a little bit of manipulation did take place during the drop. I saw quite a few well crafted SELL!SELL! posts across various forums. By well crafted, I mean, they were not obvious, they were designed to provoke response and negative discussion. Some of those posts might have been genuine, some might have been work of pranksters (some pranksters were public in their desire to make fun of bitcoin market), and some might have been speculators hoping to buy in. Not that it was much different from the BUY!BUY! manipulation in the runup previously. Finally, most of the drop might have been just from someone cashing in their big position.

rauljara 15y ago

Why are you so sure that it isn't happening already? How would you be able to tell if it was?

tomelders 15y ago
I'm not sure, but the thought only just occurred to me.

brianbreslin 15y ago

you mean someone like george soros & his dealings with the british pound?

jarek 15y ago
Soros made his money because Bank of England was keeping the pound's value above where the market wanted it to be. (Soros being a large part of that market, but that's another issue.) No government institution is going to be holding bitcoin's value anywhere. In a large, fully mature market, this wouldn't necessarily be a problem, because bitcoin would just trade at whatever its true value was. In a smaller market, especially an opaque one, it will be pretty easy to temporarily manipulate the price for fun and profit. I'd be ready to chalk up this drop to a speculator, except I doubt the market is mature enough to support arrangements that would enable reliable short-selling. The run-up is definitely at least partially orchestrated, however, and not by the guys who write public blog posts titled "why I put all my savings in bitcoin."

bdhe 15y ago

A very interesting observation. Especially since there's no laws protecting it. There are a couple of things to point out: * How well do traditional laws hold up in this new distributed, de-centralized model. In particular, if bitcoin is to take off are protection laws (like traditional currency) necessary? * How does Bitcoin's anonymity help or hurt such a legal protection? If people decide to mess with BTC will its anonymity come back to hurt it?

recoiledsnake 15y ago
>In particular, if bitcoin is to take off are protection laws (like traditional currency) necessary Most of the protection laws were in response to abuse of the system. BTC crashing would destroy the lives of people like this one http://falkvinge.net/2011/05/29/why-im-putting-all-my-savings-into-bitcoin/ http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving... Then it becomes a question of whether any technological "patches" need to be made in order to prevent subversion of bitcoin's agenda, whether the courts and govt. get involved via punishing the manipulators, regulating or banning BTC, etc. This is shaping up to be a highly risky pyramid scheme type deal. If you get in early and strong, you can expect a high payout, but the longer you hold on, the higher both the rewards AND the risk of a total bust.
sethg 15y ago
Advocates of Bitcoin portray its independence of state-sponsored currencies as a feature. Why should governments do anything to make Bitcoin safer to hold (even if they could)?

tomp 15y ago

There's a huge difference between algorithmic trading (I think that's what you mean with "Round Trip Trading") and speculation and market manipulation. Traders usually profit from very short term market movements, and big volatility is usually catastrophic for automated algorithms (see e.g. 2010 Flash Crash). For the long-term investors, algorithmic traders are actually beneficial, acting as market makers, providing sufficient liquidity. Also, I think that "no laws protecting it" is actually a good thing. Look at what happened to GBP when Soros went after it (another comment focuses on that...) - he earned huge amounts of money, and the UK Central Bank suffered huge losses. They also changed the currency regime to "no laws" to prevent such manipulation in the future.

tomelders 15y ago
I suppose I was thinking along the lines of: if a nation state, or group of nations, or banks - the kind of people who have a vested interest in devaluing bit coins - decided to attack the Market, what would happen? They would be free to use tehniques they can't use is real money markets, such as artificially inflating values ( via rtt) or misleading investors. Plus, they have large amounts of real money. Bit coins are a nice idea, but you can't buy a house with them. These are the kind of groups who have Pockets deep enough to invest enough to cOntrol bit coin, and also lose that investment in favour of longer term gains. And no matter how they do it, no one would have any meaningful legal recourse.
- chopsueyar 15y ago
  Mark Cuban, are you listening?

yaakov34 15y ago

It's worse than that - a single exchange, Mt. Gox, has 98% of the bitcoin trading volume. The exchange operator(s) have access to all information about orders placed - and also have bitcoin holdings themselves. The potential for manipulation here is unlimited. I do not mean to accuse them of anything - there is no information. But this is not a healthy situation, given, as others have said, absolutely no legal protection. EDIT: I want to strengthen the statement that I'm not accusing the operator of manipulation. He's well-respected by bitcoin forum participants, and he is probably an upstanding guy. But in the world of finance, it is customary to have more than just that to guarantee the soundness of a central exchange. Add to this the fact that Mt. Gox is taking deposits totaling in the millions of dollars without having any license to operate as a financial institution, and that it apparently hold around 10% of all existing bitcoins (someone traced a 470,000 bitcoin movement to a Mt. Gox account), and I have a strong feeling that this will soon end in tears.

nikcub 15y ago
known as front running, and happens often on other exchanges
- yaakov34 15y ago
  I know. My point is not so much about the possibility of front running, but about exchanges, and especially Mt. Gox, as the point of failure for bitcoin. Let's face it, 99% of the excitement about bitcoin lately is not along the lines of "hey, this is a great use of peer-to-peer principles and a fascinating economic experiment with a decentralized currency". No, it is along the lines of "hey, this thing is making tons of money for people! fortunes out of next to nothing!". Take one look at the bitcoin forums. A failure of a major exchange (and right now, there is exactly one major exchange) would damage the project severely. What's more, the focus on trading at exchanges is making the whole project look a lot less decentralized - yeah, the bitcoins themselves are peer-to-peer, but exchanges are sure not, and if what people really want to do is trade at exchanges, then that's what matters.
  - rms 15y ago

sireat 15y ago

I think a little bit of manipulation did take place during the drop. I saw quite a few well crafted SELL!SELL! posts across various forums. By well crafted, I mean, they were not obvious, they were designed to provoke response and negative discussion. Some of those posts might have been genuine, some might have been work of pranksters (some pranksters were public in their desire to make fun of bitcoin market), and some might have been speculators hoping to buy in. Not that it was much different from the BUY!BUY! manipulation in the runup previously. Finally, most of the drop might have been just from someone cashing in their big position.