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Fraudulent trading activity at Mt. Gox

648 points by pmorici 12y ago

kolev 12y ago
The fraud continues today in China. Those exchanges were caught several times faking volume and placing phantom orders. I think the game now is: fake price hike in China, sell coins for real money on Bitstamp, buy cheaper, repeat. Just look at the recent hike - no news, no reason for 30% jump from $440 to $580 in a week.
- kylebrown 12y ago
  > Just look at the recent hike - no news There was a Federal Election Commission (FEC) decision to allow BTC donations to Political Action Committees (PAC's). Also circle.com showed started taking e-mails and showed a demo video.
  - kolev 12y ago
    Circle.com didn't release much more than we knew already. Regarding donations - you really think the Chinese "investors" care about this?
  - battani 12y ago
    This does not qualify as a bullish catalyst.
- panarky 12y ago
  Right now the exchange rate on Bitstamp is USD 576 and the rate on Huobi is RMB 3578. Converted, those prices are within one-half of one percent of each other. If there are fake price hikes in China, wouldn't Huobi prices be higher? And how would buying coins for real money on Bitstamp allow you to buy for cheaper anywhere else?
  - kolev 12y ago
    Maybe I wasn't clear, but I wasn't talking about arbitraging. I'm talking about faking demand to hike prices and extend profit margin 10-fold. You can do this two ways - you can sell and buy cheaper, but then there's a risk that the price will stay low, so, you have more bitcoins, but less fiat. With this trick, you don't risk anything, and you make both more coins and more fiat. Having Bitstamp and BTC-e copy the direction that Huobi takes without questioning makes them puppets in the hands of those who control Huobi and the likes. I think it's clear that Bitcoin market is predominantly amateur investors from the trigger-happy kind and the smart crooks can do with the market whatever they want with just a few hundred coins. As recently the crypto wasn't profitable (the stock market performed way better) and people started to lose patience, some of those crooks had to do something to revive the market and keep doing what they've been doing so far. It's much easier to manipulate Bitcoin than the stock market, Forex, Gold, etc., so, those crooks didn't want to use their unique opportunity. When you see "to the moon" everywhere, you know the game is back on, and many are gonna get taken advantage of pretty soon.
  - aqme28 12y ago
    There are enough arbitrage bots out there now that major differences between the exchanges flatten out rather quickly.
- eliteraspberrie 12y ago
  My theory is that Bitcoin is used by the elite in China as just another way of transferring money out of the country. Buying Bitcoin from a Chinese exchange, and selling it on an American exchange, allows you to transfer money between countries, avoiding foreign exchange regulations.
  - kolev 12y ago
    I've heard this so many times! The elite has billions and although you can buy and sell many times working around the market cap of Bitcoin, I don't think it's practical to transfer tens and hundreds of millions as the low liquidity will drive prices up and down crazily. Plus, I have friends in China with money, there are no practical limitations of moving money around as the Bitcoin propaganda portrays it, only because it serves it well.
antonius 12y ago
Further proof that the absurd run-up in November when bitcoin reached $1,200 was illegitimate.
- drcode 12y ago
  Unfortunately this is plausible: The only reliable way to trigger a run-up in a commodity is to expend a lot of capital to acquire that asset at inflated prices- You'd have to "burn through" a lot of money to get this to happen. ...so, then where was this cache of money that was destroyed to inflate the price? It would have to be a pretty large quantity to have such a drastic impact. Occam's Razor to me suggests the answer is obvious: The vaporized deposits of MtGox users are the most obvious large cache of money, large enough to cause such a run up. The next question is, who would do this, and why? The answer suggested by Occam's razor would be "Someone who could modify the MtGox database to create nonexistent fiat currency, but could not (or did not want to) create fake MtGox bitcoin holdings." This is because a person with this power would have reason to trade the "fake fiat" with legitimate bitcoin holders to generate bitcoins that can be leeched out of the site, and this would certainly cause the price to rise. This doesn't answer however whether it was an inside or external party, I could imagine scenarios both with or without inside actors that would lead to this kind of activity. (Though I'd put my bet on internal fraud, based on the fact that so much effort was put into hiding the fraud and extending it over a long period, as opposed to going for quick profit.)
  - deleted 12y ago
    [deleted]
  - qnr 12y ago
    Doesn't seem obvious to me at all. As a result of bankruptcy proceedings we know that Mtgox has lost primarily BTC deposits, not fiat (on mobile now, but IIRC only $27 million USD was lost which is peanuts compared to the value of lost BTC) In other words, the situation at Mtgox was the opposite of what you describe: it had a lot of FakeBTC, bit its USD reserves were mostly real.
  - deleted 12y ago
    [deleted]
EGreg 12y ago
This is another example of centralization runing things. Once you have a "trusted" exchange, accounts can do shenanigans like buy bitcoins internally for no fiat money, whether through hacking or collusion. An actual bitcoin exchange should just set up parties to do a 2-of-3 trade. It would be slower, but better for the stability of the currency!
joliv 12y ago
Permalink at http://willyreport.wordpress.com/2014/05/25/the-willy-report-proof-of-massive-fraudulent-trading-activity-at-mt-gox-and-how-it-has-affected-the-price-of-bitcoin/ http://willyreport.wordpress.com/2014/05/25/the-willy-report...
- dang 12y ago
  Thanks; changed.
sillysaurus3 12y ago
The reason I'm inclined to believe this report's implications about Karpeles is because I spent a long time in Mt. Gox's IRC support channel talking with support reps, and they were paid to lie. They didn't know they were being paid to lie, but they were instructed by management to say "don't worry, all user coins are safe" right up until the day the Mt. Gox crisis report was leaked. They could have said "we are investigating the extent of the problem," but no, Karpeles was paying them to say "nothing is wrong," even while Karpeles was crafting his crisis report to investors about how all the coins were gone. Karpeles seems to have a history of lying. He was caught in a lie by his employer in 2004: http://newslines.org/mt-gox/joins-linux-cyberjoueurs/ http://newslines.org/mt-gox/joins-linux-cyberjoueurs/ From a game theory point of view, it's interesting that the price at every major exchange depends on every other major exchange. For example, when Mt. Gox was active, if its price went up, BTC-e, Bitstamp, etc would simultaneously go up. It's a natural phenomenon which has rather grim implications: if an exchange is conducting fraudulent activity, then the entire bitcoin trading ecosystem is affected. And since bitcoin is completely unregulated, there's nothing really stopping anyone from manipulating the market. For example, no one knows who's behind BTC-e, but it has a lot of trade volume. What if they're engaging in fraudulent trading as well? There's every incentive to. The inevitable conclusion seems to be: you can try to come up with a bunch of logical reasons about why the price of bitcoin is going up or down, but you can't ever rule out "the price is due to large-scale fraudulent behavior," i.e. it's a bubble. Bad behavior from one exchange will always affect all the others. As Karpeles has probably shown, you can become a millionaire by manipulating the market and then escape all consequences by letting your company go bankrupt.
- CamperBob2 12y ago
  I don't know about "escaping all consequences," unless his idea of "escaping all consequences" is having to watch his back for the rest of his life. Seems like a pretty dumb way to make a few million bucks, IMHO.
  - mattm 12y ago
    Especially since he could have been a legitimate multi-millionaire just by doing things correctly. The market lead MtGox had is something people dream about.
panarky 12y ago
Step 1: create USD out of thin air. Step 2: buy BTC at $1200. Step 3: sell BTC at $200. Step 4: profit!
- drcode 12y ago
  Yes, this is exactly right, but you should clarify: Step 1: create USD_FAKE out of thin air. Step 2: buy BTC at 1200 USD_FAKE on MtGox. Step 3: sell BTC at 1100 USD_REAL on Bitstamp. Step 4: profit!
  - panarky 12y ago
    Whoever sold you BTC in Step 2 isn't going to accept USD_FAKE for their coins. Doesn't this scam fall apart right there? There's something like $600M missing. Were people really leaving that much fiat on account at Gox?
    - thefreeman 12y ago
      I don't follow your argument. The person selling the bit coin in 2 assumes that when the number in their account balance goes up by USD_FAKE that there was really money to back it up. They have no way of knowing that Mt Gox didn't ever have that money. I think that is the point they are trying to make.
    - patio11 12y ago
      Mt. Gox didn't let you withdraw real currencies other than JPY, most interestingly the dollar, from approximately last August. This meant that when you were selling BTC for USD, you were actually accepting a USD liability of Gox -- Bitcoiners sometimes called them GoxBux or GoxUSD. It's a number in a database and now, apparently, something which you'll eventually be allowed to assert as a claim in their liquidation, but it is not actually a dollar. The failure to allow withdraws in currencies they supported is why many people were speculating that Mt. Gox was insolvent, for much of the year prior to them admitting insolvency. As it turns out, we were probably right.
  - pmorici 12y ago
PhasmaFelis 12y ago
I'm a fan of RationalWiki's Bitcoin article: http://rationalwiki.org/wiki/Bitcoin http://rationalwiki.org/wiki/Bitcoin > This is the sort of thing that gets bitcoins called "Dunning-Krugerrands."
- VMG 12y ago
  A shockingly one-sided article. Probably colored by their aversion to Libertarianism.
  - sillysaurus3 12y ago
    Which sentences from the article do you disagree with?
    - pseud0r 12y ago
      The following is presented as indisputable facts in the article: Bitcoin is a scam Bitcoin is a Ponzi scheme There is zero chance that bitcoin will ever be mainstream Bitcoin does not have a single advantage over fiat currency Bitcoin will never be useful for online shopping None of the problems with bitcoin can be fixed All bitcoin users and developers are incompetent, does not know anything about economics, does not understand people at all and has no understanding on how to build reliable financial computing infrastructure Looks pretty one-sided to me.
      - sillysaurus3 12y ago
        The reason I asked "Which sentences from the article do you disagree with?" was to have you quote a sentence and then write a rebuttal. We strive to do better on HN than write strawman arguments, and we try to make our critique substantive and thorough. (A handy test: if I can't find a specific sentence to disagree with, I might be arguing a strawman position, so I try doubly hard to be thoughtful in that circumstance.) Also, on HN, a line in italics usually means "this is a direct quote," so it's generally taboo to put things in italics which you didn't copy-paste from some source. For example, the word "mainstream" never appears in the article, so it shouldn't be in an italicized line.
etchalon 12y ago
Bitcoin - The economy of WoW, writ large.
- rasz_pl 12y ago
  WoW has real economy? please This is classical EVE Online ponzi scam. http://www.tentonhammer.com/eve/news/eve-online-ponzi-scheme-claims-over-1-trillion-isk-from-players http://www.tentonhammer.com/eve/news/eve-online-ponzi-scheme... http://massively.joystiq.com/2011/08/12/biggest-eve-online-scam-ever-recorded-nets-over-a-trillion-isk/ http://massively.joystiq.com/2011/08/12/biggest-eve-online-s... http://www.lockergnome.com/news/2011/08/18/how-two-people-scammed-thousands-on-eve-online/ http://www.lockergnome.com/news/2011/08/18/how-two-people-sc...
- onnoonno 12y ago
  http://en.wikipedia.org/wiki/Bernie_madoff http://en.wikipedia.org/wiki/Bernie_madoff The world (of warcraft?) economy.
spacefight 12y ago
Well researched findings there. Imagine a world, where the same logs would be public of what and by whom happens on the stock exchanges where all the high frequency trading is happening these days...
- grkvlt 12y ago
  So, the world we live in right now then? All trade data, even HFT sourced, is available from exchanges. The only possible exception is dark pools or other crossing networks, but in general it is quite possible to know who bought what from whom, when and for how much.
  - shutupalready 12y ago
    > All trade data, even HFT sourced, is available from exchanges. You mean it's available to government regulators, but not to the general public, correct? If stock and option trades are part of the public record, there are lots of questions I'd like to answer for myself. Otherwise, we're just taking the word of other people (the regulators). Here's one question: I'd like to know who specifically was behind the huge volume in put options on United and American Airlines stock immediately before the 9/11 attack. Someone was essentially shorting those two airlines, and only those two. (For example, Bloomberg data showed that on 6 September 2001, the Thursday before the attack, the put-option volume in UAL stock was nearly 100 times higher than normal: 2,000 options versus 27 on the previous day.) The 9/11 Commission report concluded that, "A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy", but they refused to identify who it was. Everything is not so transparent unless there's some public repository for all this information that I'm not aware of.
    - fabulist 12y ago
      This is chilling. What are the odds that this wasn't "insider trading" with the attackers?
      - 12y ago
sciguy77 12y ago
As one of the many people who lost money in the Gox implosion, this is nauseating to read. On a less related note, I heard they recovered 1/5 of the missing bitcoins awhile ago. Anyone know what will happen to that 1/5?
- comboy 12y ago
  According to they official announcements, these are going to be liquidated to pay some part of the debt to creditors.
- sillysaurus3 12y ago
  I've got your back: https://news.ycombinator.com/item?id=7777831 https://news.ycombinator.com/item?id=7777831 Our money was lost the moment we decided to transfer it to a third party. That 1/5 probably won't recover very much of it, if any of it, for reasons explored in that thread. Whether it's Mt. Gox or Coinbase, money we put into a webwallet is no longer ours. It's the legal entity's. If they go bankrupt, which can happen for a variety of reasons, sometimes unfair ones, then that money is gone. Best magic trick ever. Try to be at peace with the loss. Easier said than done; it was difficult for me. If you need someone to talk to, please feel free to shoot me an email.
  - sciguy77 12y ago
    Thanks for the information and advice. I figured as much, my hopes weren't too high. I don't think I'm going to be investing in anything like Bitcoin for a long time. Best of luck.
    - bodski 12y ago
      Don't forget, 'real' bank accounts work like this as well. The money is no longer yours once you deposit into an account. The bank represents it as a liability on its balance sheet. As an account holder you are an 'unsecured creditor' of the bank. I have a feeling a lot more of us will be aware of this arrangement within a year or two, once the bail-ins begin.
Tycho 12y ago
How does this fake_usd demand driving up the price of Bitcoin tenfold compare with the New York Fed's ex nihilo asset purchase program?
- nroets 12y ago
  (I assume you're referring to QE1, QE2 and QE3) It's say a supermarket advertises bread for $1. Anyone who reads the ad, will consciously or unconsciously believe that the dollar has value. Now multiply this effect by all the similar advertising over many years and you'll see that the dollar is the strongest brand ever. When the financial crisis hit in 2008, the public starting saving and they choose the most stable brand they could find (the dollar) and the brand was well on it's way to get even stronger. The way to counter act it was by flooding the market with money (lowering interest rates and later printing money). Bitcount does not derive it's value in the same way and printing bitcoins is fixed by the block chain rules.
  - judk 12y ago
    And to close the point, the US Government doesn't go bankrupt, because they never actually get called out to show their accounts of (fake) money. Their new money is as good as the rest, meaning that their actions dilute all dollars equally, instead of only wiping out accountholders at one institution.
    - Tycho 12y ago
      I wasn't really talking about the dollar, I was talking about the effect on the assets being purchased (MBS securities, and indirectly other assets on the financial markets). Notice how much the stock market and house prices have gone up in the last few years.
emrehan 12y ago
Discussion on r/Bitcoin: http://www.reddit.com/r/Bitcoin/comments/26g46e/the_willy_report_proof_of_massive_fraudulent/ http://www.reddit.com/r/Bitcoin/comments/26g46e/the_willy_re...
jackgavigan 12y ago
The ironic thing about this is that the nature of Bitcoin (specifically, the fact that all transactions are recorded in the blockchain) means that auditing a Bitcoin exchange is an eminently solvable problem. To my mind, given the ease with which Bitcoin wallets can be created, any exchange that commingles its clients' Bitcoins should be viewed with suspicion. Yes, it's easier to dump everything into a few wallets, instead of maintaining individual wallets for every client. However, if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place.
- nwh 12y ago
  Segregated wallets doesn't work, that would mean every single trade would be a transaction on the block chain. It would absolutely flood the network and result in massive fees. It literally can't be done that way.
  - jackgavigan 12y ago
    And that inherent inefficiency is just one of the reasons Bitcoin is not the future of finance.
    - nwh 12y ago
      No, it's just why exchanges don't needlessly segregate wallets.
    - zymhan 12y ago
      So you went from " if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place" to "that inherent inefficiency"? Which is it, an inherent flaw in BTC, or ineptitude on the part of the exchangers?
      - jackgavigan 12y ago
christianbryant 12y ago
Exactly the reason why technology must be open and transparent. Sadly, decision makers that define economic policy and allow organizations to reach this level of misuse (or misconduct) know little to nothing about what these technologies are capable of, or to what extent they can be compromised and manipulated. Kudos to the tech makers and users who do understand for maintaining a watchful eye and not hesitating to report wrong-doing, or the suspicion of wrong-doing. How can we get these guys in office instead of the people that are currently holding back good technology while letting loose the bad?
- nl 12y ago
  Isn't this almost exactly the opposite of the problem here? What appears to have happened here is something completely unrelated to the technology. The same thing could have happened in any financial exchange. There were two difference that made it possible here: 1) the investors may have been technical experts but were financially naive and dramatically underpriced the risk, and 2) the market was completely unregulated, so the financially naive investors had no protection from those who weren't so naive.
  - judk 12y ago
    MtGox customers surely ate not technical experts. Technical experts would hold their own wallet instead of handing it over to some guy in Japan who was publicly known to be unable of running a secure website, let alone a financial exchange.
    - nl 12y ago
      I think the "unable of running a secure website, let alone a financial exchange" part of your comment goes to the "dramatically underpriced the risk" part of my comment. Denying their technical expertise is more interesting. I've heard that theory often, and yet there are plenty of people I thought were technically proficient who lost money. Indeed, I have some (small) amount of money in another Bitcoin exchange - it is convenient. Perhaps the level of technical expertise of these users is roughly that of an average HN reader: ie, somewhat higher than the general population.
deleted 12y ago
[deleted]
iancarroll 12y ago
It would be interesting to see what exchanges had higher prices during the climb to see who started it.
kristianp 12y ago
The buy-bot has been speculated about since January at least: http://www.reddit.com/r/BitcoinMarkets/comments/1uosly/daily_discussion_wednesday_january_08_2014/cekcq05 http://www.reddit.com/r/BitcoinMarkets/comments/1uosly/daily... Is this the first article that links the leaked data to the "buy-bot"?
oznathan 12y ago
I don't think the bot is responsible for either bubble. But, if it was, the bitcoin world owes everything to Mark Karpeles. Because of the price surges it got all the media attention, VC investments, hundreds of companies popping up, millions of users...
- sillysaurus3 12y ago
  ... and hundreds of thousands of people losing everything they had in Mt. Gox (at best) and straight into Karpeles' pocket (at worst). Are you sure we owe him?
  - oznathan 12y ago
    I lost some money there too, I've been their customer since 2011. But if the main reason for the April and November bubbles is Willy, than the current (amazing) state of bitcoin is thanks to him.
- throwaway7767 12y ago
  These kinds of market manipulation shenanigans only reduces trust in bitcoin, so no, we don't owe that fuckwad anything. I did gain (ever so slightly) from the higher price, and I didn't have any money with MtGox so no loss there. But I'm still unhappy about it, because I want to see bitcoin succeed in the long term.
  - oznathan 12y ago
    Unfortunately every market is highly manipulated... And in any market you deal with people who have more information than you. The game is trying to understand the manipulation.
endriju 12y ago
It is indeed unfortunate when people like Karpeles manipulate such perspective technology-based market as btc was. The trust is irreplaceable, and the bitter taste which users of mtgox experience each time they hear about btc has already had almost devastating effects on bitcoin economy. Lesson learned.
flurpitude 12y ago
Did anyone grab a mirror before the site disappeared? "willyreport.wordpress.com is no longer available. This blog has been archived or suspended for a violation of our Terms of Service."
- yaluen 12y ago
  Here's google's snapshot: http://webcache.googleusercontent.com/search?q=cache:http%3A%2F%2Fwillyreport.wordpress.com%2F2014%2F05%2F25%2Fthe-willy-report-proof-of-massive-fraudulent-trading-activity-at-mt-gox-and-how-it-has-affected-the-price-of-bitcoin%2F http://webcache.googleusercontent.com/search?q=cache:http%3A...
stellabpenida 12y ago
blog_nutella

648 points by pmorici 12y ago

kolev 12y ago

The fraud continues today in China. Those exchanges were caught several times faking volume and placing phantom orders. I think the game now is: fake price hike in China, sell coins for real money on Bitstamp, buy cheaper, repeat. Just look at the recent hike - no news, no reason for 30% jump from $440 to $580 in a week.

kylebrown 12y ago
> Just look at the recent hike - no news There was a Federal Election Commission (FEC) decision to allow BTC donations to Political Action Committees (PAC's). Also circle.com showed started taking e-mails and showed a demo video.
- kolev 12y ago
  Circle.com didn't release much more than we knew already. Regarding donations - you really think the Chinese "investors" care about this?
- battani 12y ago
  This does not qualify as a bullish catalyst.
panarky 12y ago
Right now the exchange rate on Bitstamp is USD 576 and the rate on Huobi is RMB 3578. Converted, those prices are within one-half of one percent of each other. If there are fake price hikes in China, wouldn't Huobi prices be higher? And how would buying coins for real money on Bitstamp allow you to buy for cheaper anywhere else?
- kolev 12y ago
  Maybe I wasn't clear, but I wasn't talking about arbitraging. I'm talking about faking demand to hike prices and extend profit margin 10-fold. You can do this two ways - you can sell and buy cheaper, but then there's a risk that the price will stay low, so, you have more bitcoins, but less fiat. With this trick, you don't risk anything, and you make both more coins and more fiat. Having Bitstamp and BTC-e copy the direction that Huobi takes without questioning makes them puppets in the hands of those who control Huobi and the likes. I think it's clear that Bitcoin market is predominantly amateur investors from the trigger-happy kind and the smart crooks can do with the market whatever they want with just a few hundred coins. As recently the crypto wasn't profitable (the stock market performed way better) and people started to lose patience, some of those crooks had to do something to revive the market and keep doing what they've been doing so far. It's much easier to manipulate Bitcoin than the stock market, Forex, Gold, etc., so, those crooks didn't want to use their unique opportunity. When you see "to the moon" everywhere, you know the game is back on, and many are gonna get taken advantage of pretty soon.
- aqme28 12y ago
  There are enough arbitrage bots out there now that major differences between the exchanges flatten out rather quickly.
eliteraspberrie 12y ago
My theory is that Bitcoin is used by the elite in China as just another way of transferring money out of the country. Buying Bitcoin from a Chinese exchange, and selling it on an American exchange, allows you to transfer money between countries, avoiding foreign exchange regulations.
- kolev 12y ago
  I've heard this so many times! The elite has billions and although you can buy and sell many times working around the market cap of Bitcoin, I don't think it's practical to transfer tens and hundreds of millions as the low liquidity will drive prices up and down crazily. Plus, I have friends in China with money, there are no practical limitations of moving money around as the Bitcoin propaganda portrays it, only because it serves it well.

antonius 12y ago

Further proof that the absurd run-up in November when bitcoin reached $1,200 was illegitimate.

drcode 12y ago
Unfortunately this is plausible: The only reliable way to trigger a run-up in a commodity is to expend a lot of capital to acquire that asset at inflated prices- You'd have to "burn through" a lot of money to get this to happen. ...so, then where was this cache of money that was destroyed to inflate the price? It would have to be a pretty large quantity to have such a drastic impact. Occam's Razor to me suggests the answer is obvious: The vaporized deposits of MtGox users are the most obvious large cache of money, large enough to cause such a run up. The next question is, who would do this, and why? The answer suggested by Occam's razor would be "Someone who could modify the MtGox database to create nonexistent fiat currency, but could not (or did not want to) create fake MtGox bitcoin holdings." This is because a person with this power would have reason to trade the "fake fiat" with legitimate bitcoin holders to generate bitcoins that can be leeched out of the site, and this would certainly cause the price to rise. This doesn't answer however whether it was an inside or external party, I could imagine scenarios both with or without inside actors that would lead to this kind of activity. (Though I'd put my bet on internal fraud, based on the fact that so much effort was put into hiding the fraud and extending it over a long period, as opposed to going for quick profit.)
- deleted 12y ago
  [deleted]
- qnr 12y ago
  Doesn't seem obvious to me at all. As a result of bankruptcy proceedings we know that Mtgox has lost primarily BTC deposits, not fiat (on mobile now, but IIRC only $27 million USD was lost which is peanuts compared to the value of lost BTC) In other words, the situation at Mtgox was the opposite of what you describe: it had a lot of FakeBTC, bit its USD reserves were mostly real.
- deleted 12y ago
  [deleted]

EGreg 12y ago

This is another example of centralization runing things. Once you have a "trusted" exchange, accounts can do shenanigans like buy bitcoins internally for no fiat money, whether through hacking or collusion. An actual bitcoin exchange should just set up parties to do a 2-of-3 trade. It would be slower, but better for the stability of the currency!

joliv 12y ago

Permalink at http://willyreport.wordpress.com/2014/05/25/the-willy-report-proof-of-massive-fraudulent-trading-activity-at-mt-gox-and-how-it-has-affected-the-price-of-bitcoin/ http://willyreport.wordpress.com/2014/05/25/the-willy-report...

dang 12y ago
Thanks; changed.

sillysaurus3 12y ago

The reason I'm inclined to believe this report's implications about Karpeles is because I spent a long time in Mt. Gox's IRC support channel talking with support reps, and they were paid to lie. They didn't know they were being paid to lie, but they were instructed by management to say "don't worry, all user coins are safe" right up until the day the Mt. Gox crisis report was leaked. They could have said "we are investigating the extent of the problem," but no, Karpeles was paying them to say "nothing is wrong," even while Karpeles was crafting his crisis report to investors about how all the coins were gone. Karpeles seems to have a history of lying. He was caught in a lie by his employer in 2004: http://newslines.org/mt-gox/joins-linux-cyberjoueurs/ http://newslines.org/mt-gox/joins-linux-cyberjoueurs/ From a game theory point of view, it's interesting that the price at every major exchange depends on every other major exchange. For example, when Mt. Gox was active, if its price went up, BTC-e, Bitstamp, etc would simultaneously go up. It's a natural phenomenon which has rather grim implications: if an exchange is conducting fraudulent activity, then the entire bitcoin trading ecosystem is affected. And since bitcoin is completely unregulated, there's nothing really stopping anyone from manipulating the market. For example, no one knows who's behind BTC-e, but it has a lot of trade volume. What if they're engaging in fraudulent trading as well? There's every incentive to. The inevitable conclusion seems to be: you can try to come up with a bunch of logical reasons about why the price of bitcoin is going up or down, but you can't ever rule out "the price is due to large-scale fraudulent behavior," i.e. it's a bubble. Bad behavior from one exchange will always affect all the others. As Karpeles has probably shown, you can become a millionaire by manipulating the market and then escape all consequences by letting your company go bankrupt.

CamperBob2 12y ago
I don't know about "escaping all consequences," unless his idea of "escaping all consequences" is having to watch his back for the rest of his life. Seems like a pretty dumb way to make a few million bucks, IMHO.
- mattm 12y ago
  Especially since he could have been a legitimate multi-millionaire just by doing things correctly. The market lead MtGox had is something people dream about.

panarky 12y ago

Step 1: create USD out of thin air. Step 2: buy BTC at $1200. Step 3: sell BTC at $200. Step 4: profit!

drcode 12y ago
Yes, this is exactly right, but you should clarify: Step 1: create USD_FAKE out of thin air. Step 2: buy BTC at 1200 USD_FAKE on MtGox. Step 3: sell BTC at 1100 USD_REAL on Bitstamp. Step 4: profit!
- panarky 12y ago
  Whoever sold you BTC in Step 2 isn't going to accept USD_FAKE for their coins. Doesn't this scam fall apart right there? There's something like $600M missing. Were people really leaving that much fiat on account at Gox?
  - thefreeman 12y ago
    I don't follow your argument. The person selling the bit coin in 2 assumes that when the number in their account balance goes up by USD_FAKE that there was really money to back it up. They have no way of knowing that Mt Gox didn't ever have that money. I think that is the point they are trying to make.
  - patio11 12y ago
    Mt. Gox didn't let you withdraw real currencies other than JPY, most interestingly the dollar, from approximately last August. This meant that when you were selling BTC for USD, you were actually accepting a USD liability of Gox -- Bitcoiners sometimes called them GoxBux or GoxUSD. It's a number in a database and now, apparently, something which you'll eventually be allowed to assert as a claim in their liquidation, but it is not actually a dollar. The failure to allow withdraws in currencies they supported is why many people were speculating that Mt. Gox was insolvent, for much of the year prior to them admitting insolvency. As it turns out, we were probably right.
- pmorici 12y ago

PhasmaFelis 12y ago

I'm a fan of RationalWiki's Bitcoin article: http://rationalwiki.org/wiki/Bitcoin http://rationalwiki.org/wiki/Bitcoin > This is the sort of thing that gets bitcoins called "Dunning-Krugerrands."

VMG 12y ago
A shockingly one-sided article. Probably colored by their aversion to Libertarianism.
- sillysaurus3 12y ago
  Which sentences from the article do you disagree with?
  - pseud0r 12y ago
    The following is presented as indisputable facts in the article: Bitcoin is a scam Bitcoin is a Ponzi scheme There is zero chance that bitcoin will ever be mainstream Bitcoin does not have a single advantage over fiat currency Bitcoin will never be useful for online shopping None of the problems with bitcoin can be fixed All bitcoin users and developers are incompetent, does not know anything about economics, does not understand people at all and has no understanding on how to build reliable financial computing infrastructure Looks pretty one-sided to me.
    - sillysaurus3 12y ago
      The reason I asked "Which sentences from the article do you disagree with?" was to have you quote a sentence and then write a rebuttal. We strive to do better on HN than write strawman arguments, and we try to make our critique substantive and thorough. (A handy test: if I can't find a specific sentence to disagree with, I might be arguing a strawman position, so I try doubly hard to be thoughtful in that circumstance.) Also, on HN, a line in italics usually means "this is a direct quote," so it's generally taboo to put things in italics which you didn't copy-paste from some source. For example, the word "mainstream" never appears in the article, so it shouldn't be in an italicized line.

etchalon 12y ago

Bitcoin - The economy of WoW, writ large.

rasz_pl 12y ago
WoW has real economy? please This is classical EVE Online ponzi scam. http://www.tentonhammer.com/eve/news/eve-online-ponzi-scheme-claims-over-1-trillion-isk-from-players http://www.tentonhammer.com/eve/news/eve-online-ponzi-scheme... http://massively.joystiq.com/2011/08/12/biggest-eve-online-scam-ever-recorded-nets-over-a-trillion-isk/ http://massively.joystiq.com/2011/08/12/biggest-eve-online-s... http://www.lockergnome.com/news/2011/08/18/how-two-people-scammed-thousands-on-eve-online/ http://www.lockergnome.com/news/2011/08/18/how-two-people-sc...
onnoonno 12y ago
http://en.wikipedia.org/wiki/Bernie_madoff http://en.wikipedia.org/wiki/Bernie_madoff The world (of warcraft?) economy.

spacefight 12y ago

Well researched findings there. Imagine a world, where the same logs would be public of what and by whom happens on the stock exchanges where all the high frequency trading is happening these days...

grkvlt 12y ago
So, the world we live in right now then? All trade data, even HFT sourced, is available from exchanges. The only possible exception is dark pools or other crossing networks, but in general it is quite possible to know who bought what from whom, when and for how much.
- shutupalready 12y ago
  > All trade data, even HFT sourced, is available from exchanges. You mean it's available to government regulators, but not to the general public, correct? If stock and option trades are part of the public record, there are lots of questions I'd like to answer for myself. Otherwise, we're just taking the word of other people (the regulators). Here's one question: I'd like to know who specifically was behind the huge volume in put options on United and American Airlines stock immediately before the 9/11 attack. Someone was essentially shorting those two airlines, and only those two. (For example, Bloomberg data showed that on 6 September 2001, the Thursday before the attack, the put-option volume in UAL stock was nearly 100 times higher than normal: 2,000 options versus 27 on the previous day.) The 9/11 Commission report concluded that, "A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy", but they refused to identify who it was. Everything is not so transparent unless there's some public repository for all this information that I'm not aware of.
  - fabulist 12y ago
    This is chilling. What are the odds that this wasn't "insider trading" with the attackers?
    - 12y ago

sciguy77 12y ago

As one of the many people who lost money in the Gox implosion, this is nauseating to read. On a less related note, I heard they recovered 1/5 of the missing bitcoins awhile ago. Anyone know what will happen to that 1/5?

comboy 12y ago
According to they official announcements, these are going to be liquidated to pay some part of the debt to creditors.
sillysaurus3 12y ago
I've got your back: https://news.ycombinator.com/item?id=7777831 https://news.ycombinator.com/item?id=7777831 Our money was lost the moment we decided to transfer it to a third party. That 1/5 probably won't recover very much of it, if any of it, for reasons explored in that thread. Whether it's Mt. Gox or Coinbase, money we put into a webwallet is no longer ours. It's the legal entity's. If they go bankrupt, which can happen for a variety of reasons, sometimes unfair ones, then that money is gone. Best magic trick ever. Try to be at peace with the loss. Easier said than done; it was difficult for me. If you need someone to talk to, please feel free to shoot me an email.
- sciguy77 12y ago
  Thanks for the information and advice. I figured as much, my hopes weren't too high. I don't think I'm going to be investing in anything like Bitcoin for a long time. Best of luck.
  - bodski 12y ago
    Don't forget, 'real' bank accounts work like this as well. The money is no longer yours once you deposit into an account. The bank represents it as a liability on its balance sheet. As an account holder you are an 'unsecured creditor' of the bank. I have a feeling a lot more of us will be aware of this arrangement within a year or two, once the bail-ins begin.

Tycho 12y ago

How does this fake_usd demand driving up the price of Bitcoin tenfold compare with the New York Fed's ex nihilo asset purchase program?

nroets 12y ago
(I assume you're referring to QE1, QE2 and QE3) It's say a supermarket advertises bread for $1. Anyone who reads the ad, will consciously or unconsciously believe that the dollar has value. Now multiply this effect by all the similar advertising over many years and you'll see that the dollar is the strongest brand ever. When the financial crisis hit in 2008, the public starting saving and they choose the most stable brand they could find (the dollar) and the brand was well on it's way to get even stronger. The way to counter act it was by flooding the market with money (lowering interest rates and later printing money). Bitcount does not derive it's value in the same way and printing bitcoins is fixed by the block chain rules.
- judk 12y ago
  And to close the point, the US Government doesn't go bankrupt, because they never actually get called out to show their accounts of (fake) money. Their new money is as good as the rest, meaning that their actions dilute all dollars equally, instead of only wiping out accountholders at one institution.
  - Tycho 12y ago
    I wasn't really talking about the dollar, I was talking about the effect on the assets being purchased (MBS securities, and indirectly other assets on the financial markets). Notice how much the stock market and house prices have gone up in the last few years.

emrehan 12y ago

Discussion on r/Bitcoin: http://www.reddit.com/r/Bitcoin/comments/26g46e/the_willy_report_proof_of_massive_fraudulent/ http://www.reddit.com/r/Bitcoin/comments/26g46e/the_willy_re...

jackgavigan 12y ago

The ironic thing about this is that the nature of Bitcoin (specifically, the fact that all transactions are recorded in the blockchain) means that auditing a Bitcoin exchange is an eminently solvable problem. To my mind, given the ease with which Bitcoin wallets can be created, any exchange that commingles its clients' Bitcoins should be viewed with suspicion. Yes, it's easier to dump everything into a few wallets, instead of maintaining individual wallets for every client. However, if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place.

nwh 12y ago
Segregated wallets doesn't work, that would mean every single trade would be a transaction on the block chain. It would absolutely flood the network and result in massive fees. It literally can't be done that way.
- jackgavigan 12y ago
  And that inherent inefficiency is just one of the reasons Bitcoin is not the future of finance.
  - nwh 12y ago
    No, it's just why exchanges don't needlessly segregate wallets.
  - zymhan 12y ago
    So you went from " if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place" to "that inherent inefficiency"? Which is it, an inherent flaw in BTC, or ineptitude on the part of the exchangers?
    - jackgavigan 12y ago

christianbryant 12y ago

Exactly the reason why technology must be open and transparent. Sadly, decision makers that define economic policy and allow organizations to reach this level of misuse (or misconduct) know little to nothing about what these technologies are capable of, or to what extent they can be compromised and manipulated. Kudos to the tech makers and users who do understand for maintaining a watchful eye and not hesitating to report wrong-doing, or the suspicion of wrong-doing. How can we get these guys in office instead of the people that are currently holding back good technology while letting loose the bad?

nl 12y ago
Isn't this almost exactly the opposite of the problem here? What appears to have happened here is something completely unrelated to the technology. The same thing could have happened in any financial exchange. There were two difference that made it possible here: 1) the investors may have been technical experts but were financially naive and dramatically underpriced the risk, and 2) the market was completely unregulated, so the financially naive investors had no protection from those who weren't so naive.
- judk 12y ago
  MtGox customers surely ate not technical experts. Technical experts would hold their own wallet instead of handing it over to some guy in Japan who was publicly known to be unable of running a secure website, let alone a financial exchange.
  - nl 12y ago
    I think the "unable of running a secure website, let alone a financial exchange" part of your comment goes to the "dramatically underpriced the risk" part of my comment. Denying their technical expertise is more interesting. I've heard that theory often, and yet there are plenty of people I thought were technically proficient who lost money. Indeed, I have some (small) amount of money in another Bitcoin exchange - it is convenient. Perhaps the level of technical expertise of these users is roughly that of an average HN reader: ie, somewhat higher than the general population.

deleted 12y ago

[deleted]

iancarroll 12y ago

It would be interesting to see what exchanges had higher prices during the climb to see who started it.

kristianp 12y ago

The buy-bot has been speculated about since January at least: http://www.reddit.com/r/BitcoinMarkets/comments/1uosly/daily_discussion_wednesday_january_08_2014/cekcq05 http://www.reddit.com/r/BitcoinMarkets/comments/1uosly/daily... Is this the first article that links the leaked data to the "buy-bot"?

oznathan 12y ago

I don't think the bot is responsible for either bubble. But, if it was, the bitcoin world owes everything to Mark Karpeles. Because of the price surges it got all the media attention, VC investments, hundreds of companies popping up, millions of users...

sillysaurus3 12y ago
... and hundreds of thousands of people losing everything they had in Mt. Gox (at best) and straight into Karpeles' pocket (at worst). Are you sure we owe him?
- oznathan 12y ago
  I lost some money there too, I've been their customer since 2011. But if the main reason for the April and November bubbles is Willy, than the current (amazing) state of bitcoin is thanks to him.
throwaway7767 12y ago
These kinds of market manipulation shenanigans only reduces trust in bitcoin, so no, we don't owe that fuckwad anything. I did gain (ever so slightly) from the higher price, and I didn't have any money with MtGox so no loss there. But I'm still unhappy about it, because I want to see bitcoin succeed in the long term.
- oznathan 12y ago
  Unfortunately every market is highly manipulated... And in any market you deal with people who have more information than you. The game is trying to understand the manipulation.

endriju 12y ago

It is indeed unfortunate when people like Karpeles manipulate such perspective technology-based market as btc was. The trust is irreplaceable, and the bitter taste which users of mtgox experience each time they hear about btc has already had almost devastating effects on bitcoin economy. Lesson learned.

flurpitude 12y ago

Did anyone grab a mirror before the site disappeared? "willyreport.wordpress.com is no longer available. This blog has been archived or suspended for a violation of our Terms of Service."

yaluen 12y ago
Here's google's snapshot: http://webcache.googleusercontent.com/search?q=cache:http%3A%2F%2Fwillyreport.wordpress.com%2F2014%2F05%2F25%2Fthe-willy-report-proof-of-massive-fraudulent-trading-activity-at-mt-gox-and-how-it-has-affected-the-price-of-bitcoin%2F http://webcache.googleusercontent.com/search?q=cache:http%3A...

stellabpenida 12y ago

blog_nutella