A recent paper on Bitcoin (BTC) price manipulation has shown that just one actor was likely responsible for driving the price of Bitcoin from $150 to $1000 in 2013.
The paper, co-authored by Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman, examines the suspicious trading activity that took place on the now-defunct Mt. Gox cryptocurrency exchange, and claims that it correlated with the sharp increase of the USD-BTC exchange rate in late 2013:
“The USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity.”
The suspicious activity mostly consisted of two bots, Markus and Willy, which used bitcoins that they didn’t own to perform what appeared to be valid trades. These fraudulent transactions were included in the overall trading volume by the Mt. Gox exchange, showing a higher than normal amount of trading activity and thus prompting the public to begin trading legitimately.
The paper postulates that the use of the Willy bot and its trades were additionally used to cover up an earlier hack at Mt. Gox:
“A theory, initially espoused in a Reddit post shortly after Mt. Gox’s collapse (Anonymous, 2014b), is that hackers stole a huge number (approximately 650,000) of bitcoins from Mt. Gox in June 2011 and that the exchange owner Mark [Karpeles] took extraordinary steps to cover up the loss for several years.”
The price manipulation that occured in the early Bitcoin crypto market, and the possibility for it to happen now as well, is due to the relatively thin market for cryptocurrencies that leaves them vulnerable to high price fluctuations.
Chairperson Jay Clayton of the US Securities and Exchange Commission (SEC) gave a speech in November, warning about the high potential for price manipulation in the market for initial coin offerings (ICO).
Back in August 2017, Cointelegraph reported about an anonymous actor, known as Spoofy, who has been manipulating the Bitcoin markets by “spoofing” (bidding or offering with the intent to cancel before the execution) large amounts of bitcoins.
Spoofy, who also engaged in wash trading, or buying and selling to himself, has been successfully manipulating prices mainly on the Bitfinex exchange, which in turn influences the whole market due to how thinly cryptocurrencies are traded.