Bitcoin Forum

I am new here. Been trading bitcoin for a month now. I am young but I have studied markets seriously for about 4 years now. Not just technical analysis but also financial history and a little known subject known as market microstructure -- which is basically the study of "how" trade occurs in any market. I have never seen a market trade quite like bitcoin and probably never will again. It makes silver's runup 3 years ago look like child's play.

You can attribute bitcoin's crazy runup to news, value, or mania, and every answer has validity to it but I have another answer that's just in front of everyone's eyes. It's an extremely illiquid and thus extremely volatile market. It's that simple. My theory is that it's a unique combination of bitcoin's low float, the ineptitude of the primary exchange mtgox, and a young market (only 3 years old) that lacks sophisticated liquidity provision (i figure most of the supply probably belongs to the major miners, whom have more expertise in technology than being efficient market makers). Along with that, it is also difficult to move a lot of cash around to all the major exchanges, and to short sell, creating barriers to entry for bigger money players who could add a little liquidity. There are one hour bars that represent 50% and 100% moves... in BOTH DIRECTIONS! When I watch it trade on clarkmoody, it just strikes me as so inefficient. Like the people who are making the biggest decisions probably never traded their entire lives. They send market orders down for 20 straight points, and then the other direction for 15 points within the next 5 minutes! Who trades like that? Or maybe something else can explain that phenomenon? Another crazy anomaly to me was the lack of volume increase while the price kept soaring... usually bubbles require increased participation until there is nobody left to buy, or total short seller capitulation (which isnt possible in this market). Almost every parabolic chart has increased volume towards the peak.

The only market that I have ever seen comparable to bitcoins in terms of how fast it can rise and how easily it can fall, are OTCBB bulletin board stocks. Pump and dumps, basically (though not all of them, see FNMA (http://stockcharts.com/h-sc/ui?s=fnma&p=D&b=5&g=0&id=p80469797489), FMCC both which recently had a parabolic rise and fall but are real companies). Not saying bitcoin is a pump job, but there are some apt comparisons. For one, the OTCBB is highly illiquid. They are not like their NASDAQ/NYSE counterparts where you just click a button and get out of a position within milliseconds. 95% of the time you can out reasonably well, but when there is a panic (or a squeeze), your fill is at the mercy of the market.... kinda similar to getting out of bitcoin near its highs with all the lag on mtgox and all the bids disappearing.

I am not a bull or bear, just someone who wants to make money. I really do think this is the frontier of trading right now. If anyone else shares the same line of thought with me, as opposed to say, being obsessed about where bitcoin will be in 3 years (which frankly, I don't care about), send me a PM.

What if you think this is the frontier of trading right now AND you are obsessed over bitcoins potential in 3 years

I watched the trades in the hours before the peak. It appeared there were a relative lack of bids - so sellers had to take what was there and prices dropped fast on little volume. Then gox lag prevented any new market orders for crucial hours during April 10. That too, restricted volume.

In my experience, I don't find a lot of people who can simultaneously be "married" to a position (if you're dreaming about 4-5 digits in 3 years, to me, that's being married to the bitcoin long position) and yet still maintain the agility/flexibility needed to be a good trader. It'll always cloud their judgment.

On a personal note, I like the bitcoin technology/concept a lot. I trade to make cash though.

Welcome to Bitcoin, your post is spot on!  :P

What I find in this market, is most participants won't buy into the "wall". The wall must be bought by the big boys, then in a panic driven frenzy, everyone gets in on low depth and low volume as they chase the price up to the next resistance. In this market, it seems it's not about minimizing slippage, it's about maximizing the price movement with the least amount of Fiat.

What's behind all this insane movement?
Insane levels of greed and fear is the short answer.

Normal markets don't have people all over the internet talking about how much money they made (i.e The thread where someone bought in at $5 and now they have a new $30,000 vehicle), and/or how certain they are that prices are going much higher.
Then add people borrowing money to "invest", and you are set up for huge price moves.

Greed and fear is in every market. I don't think bitcoin traders or investors are inherently more "greedy/fearful" than those who trade stocks or oil.

I think the market structure itself makes people more reactive than they should be. It's an unnatural level of volatility for humans to deal with. There is so little "work to be done", so to speak, to create pain. Whether it be pain of loss or pain of missing out the next move.

have you ever visited yahoo finance forums for any speculative stock, like a $5 biotech or a random otcbb stock?

there are plenty of people like that.

and who knows who's really telling the truth most of the time.

Oh it's pumping and dumping no doubt. They use large dumps to nudge the market in either direction.

There's no fundamentals. The biggest "fundamental" is

1) the price is going up - that's good! there must be a reason!
2) the price is going down - that's bad! there must be a reason!

So when market movements are pretty much the only "fundamental" data people are using, it's really easy to manipulate the market. If you ask people why they sold, most will say "the price was going down". If you ask people why they bought, most will say "the price was going up".

Not to mention it's a pretend exchange. We can't even be sure the data is real. There's no regulation. MtGox could be making up huge chunks of the trading data people are using. So you can't even look at the charts and assume what you are looking at is accurate or real. Pretend exchange, pretend currency, with a lot of pretend traders.

Last month of BTC parabolic rise and chrash simply indicates some large insider behind all these moves and made a nice profit from it. Who lost? Of course uneducated one with sheep mentality who frequently watch CNN and other major channels for financial news and theory. Last 30 days of BTC charts has no meaning to keen BTC miners. Just remove this data from the charts.

Anything changed?
Nothing!

Will miners stop mine BTC?
No.

Will miners seek most efficient ASICs and GPUs for their rig?
Yes.

Will alternative cryptocurrencies dead?
Majority of them will be dead. Only innovators will survive.

Will we see solar-powered GPU mining rigs available before 2015?
If not solar-powered, more energy efficient rigs will be available within a year or so.

Ok, perhaps the greed level is similar, but the fear is stronger here.
How many people take insane risks to invest in crude oil, the big new thing that is unlike any other?

people who demand liquidity trade like that. go read Mr Harris again

on an illiquid market, thats how price moves. plus, your perception is off simply because BTC trades for so many decimals. you see 20 bids get hit but in reality they might all be 0.00001 difference which is irrelevant

yeah, because it's so efficient to demand liquidity til the point where the price impact is 5-10% in a few minutes right? what other market actually does that, do tell?

my perception is not off. i am not talking about the number of levels, i am talking about POINTS, as in DOLLARS.... i have seen the stock rip 10+ points on all offer prints and drop 10+ points on all bid prints in 1 minute.

thanks for the stating the obvious anyway, not sure what point you were trying to make that i didnt already kind of make in my original post.

there were times with bigger liquidity and very stable prices. Recent price rise due to coming of big players to market disturbed this, lots of market makers that provided liquidity at previous price levels vanished or cashed out and looking at recent busts of some of the exchanges (btc24, bitfloor) it is not very encouraging to keep money there. So, looks like no stability in foreseeable future.

I wonder what Nassim Taleb thinks?

OP's post is spot on, there's no real liquidity.  Also I have questions about how well the exchanges are matching orders and staying solvent.

mtgox is still highly illiquid market.
if you looked at the volume graphs before the crash it was basically nothing
since the crash there has been more coins traded than the whole month leading up to the crash.
there has been more traded on the 16th than i think a week leading up to the crash
market was not ready. too much slippage too much guessing. too much trying to take advantage of opportunities.
ddos/lags didn't help either
yes- you are correct there is a lot of wrong things with the market at the moment. mtgox is trying to be completely hands off and perhaps if they were more like a professional company they could try to keep things stable one way or another

If conventional banking industry has managed anything, than it's to limit access to serious trading activities to an exclusive club of people, all sharing a highly in-tuned mentality. These people used to think to have a tight grip on what an "effective market" is, when a market is "sane" and how it should behave "orderly".

Change any of the border conditions and -- surprise -- the market behaves "strange"

you're doing it wrong, you have to trade in such a way to increase your bitcoin stach not your fiat stach. trust me, bitcoin is ultimate inflation hedge, it will increase in value as people find it useful and it will keep up with real inflation rates... if hyperinflation happens tomorrow, how long do you think it will take the market to adjust? -12hour, thats right, Negative 12hours!  8) bitcoin baby ya!

You are what's behind it.  You have no belief in the underlying value of the security/commodity.  You just want to trade it to "make" money.  That behavior tends to magnify trends...

any market where liquidity is scarce. price is impacted greatly in low liquidity environments. do you even know what liquidity means?

if you don't understand these basics, you are an idiot. go back to reading Harris like i said

Would anybody be interested in an algorithmic brokerage service? Smart limit orders (pegged to same side/midpoint/opposite side with an offset), VWAP, TWAP, POV are some simple examples.

Wrong. You are cherry picking one example. What about biotech? Tons of people take insane risks in $5 biotech stocks, for the "big new things" (genetically modified goats with spider genes or whatever) that is unlike any other.

Greed and fear is in every market. There are low-risk investments and there are high-risk investments. Even within the cryptocurrency world, there are even ways to bet on Bitcoin being stable (high risk) or Bitcoin being volatile (low risk, as it tends to be volatile.)



Lol. If that is what magnifies trends (rather than underlying low liquidity and other issues outlined by OP, you know, obvious things) how come DOW NYSE S&P other huge markets don't see wild 50% swings in an hour's trading?

This is a common misconception, that the reason for the BTC volatility is "the people who don't care about BTC and just want to make money off of it. Whether or not you are a "true believer" is completely irrelevant because it is a 100% subjective value judgement, therefore, you can't even prove or disprove the statement - applied general semantics is not on your side if you attempt to use subjective value judgements to support an argument.

Op says (I'm guessing you didn't read this part)
 

OP's entire premise is that the volatility is NOT a result of "people not believing in bitcoin" but rather the very market structure itself, including the factors that OP detailed in his post.

You attempted to respond to this not by [providing a thorough, well thought out refutation of his points - explaining why, in fact, it is not the market structure including numerous factors explained by OP, but the speculative "day-traders" who "don't care about bitcoin."] but by simply saying "Lol no dude, You're the reason it's volatile, it's people like you who don't 'care' about bitcoin." Like a champ, you simply stated your position as if it is self-evident, providing absolutely no support or reasoning whatsoever. For this, I give you 10 fail points ;D ;D ;D

Bitcoin does not have feelings. Bitcoin is not God or Jesus or a religion. Bitcoin is not your girlfriend. Bitcoin doesn't care if you care about it, doesn't care if you "believe" in it, doesn't care what percent of your coins are saved and what are spent, doesn't care whether people label you as a spender or a saver even if you do both, doesn't care what your feelings are. Bitcoin doesn't care if you pray to it every night.

NYSE and the Dow Jones and other huge, highly liquid markets have "Evil speculators" "day-traders" "rich hoarders" and other types. Sure, there is volatility, especially with HFT, but the Dow doesn't lose 50% of its value within hours and gain it back in a week. The dow doesn't make wild 10-20% swings every single hour. On the occasion that something like this happens, it is an HFT glitch once in a blue moon. If "evil speculators" "day traders" "people who don't pray to their bitcoin altar every night" "people who don't make sure to spend every single one of their bitcoins lest they be labelled a hoarder" exist in other markets with comparatively LOW volatility, why are they the problem in Bitcoin? Bitcoin's problem is low liquidity, no market-makers, poor infrastructure, and all the other problems OP outlined - everything BUT the "evil bad people that hate bitcoin."

I believe a small group of people with millions of dollars in resources is manipulating the Bitcoin market, artificially injecting extreme volatility and reaping huge profits.

In my post at https://bitcointalk.org/index.php?topic=187530.0 (https://bitcointalk.org/index.php?topic=187530.0), I propose that the true believers take action to defend Bitcoin from this attack by acting as market makers.  I would appreciate your feedback.

The aim of the big price movements is to "TRY" manipulate the market into inducing  panic sell-off or  frenzy buying.