Bitcoin Forum

It's taken a few month to verify that this is actually the case, but it appears as though there is a (read: possibly many) trade bot on most of the major exchangers that is continually forcing the markets to be low.

The bot functions by buying bitcoins at a low value and then selling them back for a minimum of 1 - 2 cents profit, and a max of no more than 30 cents, consistently undercutting other sellers by sometimes only fractions of a cent (a single digit, 8 - 10 digits after the decimal lower) on bids, and other times multiple cents at a time in order to insure that it's bitcoins are traded primarily above everyone else's, and that the markets stay relatively balanced at all times.

The bot is identifiable by it's consistent patterns in trading, bidding and asking for amounts that are constantly changing in line with each new trade posted in order to undercut other posters and continue to drive the prices down while maintaining a relatively small window of profitability for itself.

A few notes about it's behavior:

• It wont bid for an amount higher than it's last trade unless other exchanges have dramatically increased in exchange rate.
• It wont ask for an amount lower than what would cause it to still generate a profit, even if that profit is 0.0000000001 USD.
• Easily identifiable by bids/asks with 5 to 10 digits following the decimal (ex: Asking 4.970209065 USD per BTC, bidding 4.76442 USD per BTC).
  

I believe this bot is the primary reason that the value of Bitcoin has maintained a low value and has not gone back up. I also believe that this bot has a large amount of BTC and/or USD behind it, which makes it very difficult to counteract it's movements in the market without a risk of significant personal loss.

If something isn't done to stop this bot from functioning, or to significantly impair it's advantage in speed to match that of what a person would be capable of doing (i.e. trades per minute) then it's only a matter of time before it forces BTC into the ground.

Is TM behind that bot?

Has it been identified how often is this bot trading?

The bot is always active, with only short periods of downtime per day (30 mins to an hour), and as far as I can tell, it is on most of the available exchanges.

http://i54.tinypic.com/ygem8.png

This is a snapshot of the current trades on Tradehill from about 5 minutes ago. All the entries that I can verify are the bot are highlighted.

I can verify those entries by subtle manipulation. Clone the bid, or out-price them by fractions of a cent and almost as quickly as you can pull the trades from API again, it has you beat.

I wonder if once the operator notices the bot has been made they will tweak the behavior of the bot to try to make it appear as if the bot isn't there anymore...

well if it's trades can be identified the exchanges can locate it, unless it's a bot net then we have a diffrent mess on our hands altogether

why would the operator even bother to stop this, they both earn $$. I could see the bots algorithm getting tweaked now that you've pointed it out though.

I've already spoken with Tradehill about it. Their stance on the subject is that they don't want to hinder the free-trade aspects of the market, and I agree that the bot should not be banned, but implementing a delay between posting trades to more closely match what a human being could do from the web interface would eliminate it's [the bot's] ability to so greatly control the markets. I strongly believe that this bot is the primary cause of the decline, as well as the maintained low value of Bitcoins.

This effects the entire community, reduces the profits the exchanges are receiving, and greatly reduces the appeal of Bitcoins to new markets. No one wants to invest in something that shows a steady and consistent decrease in value.

I've made some moderate projections over the past 2 months that I've been researching this bot's activity, and based on the trades that were made and the bot controlling declines, as well as some assumptions of what the markets may have done had the bot not been there, I can estimate that the current value of bitcoin would be somewhere closer to $10 - $15 USD without the bot running.

Do you think this is intentional or is it an unexpected sideeffect of the algorithm and the operator is unaware of the connection?

I honestly don't know if it's intentional or just a side-effect of the design. I only know the cause and effect in the markets.

I'm running a custom one on mtg, having no problems with it.

this bot activity is not nice at all, have been observing it for few months already and say that i would be more inclined to support exchanges that limit high freq trades from same ip or take some kind of measures to balance trading with humans and bots on the same platform. This is my personal opinion

Won't there always be at least one or two big exchanges that will still allow such usage?

If the bitcoin community as a whole could convince even the 2 largest exchanges (MtGox & Tradehill) to institute delays between trades, or some other countermeasure to bot activity, it would correct the issue.

So what's the problem? So someone has a trading bot that tries to make small profits on short term variations. That's legitimate. Some people are grumbling that someone else is better at short term trading than they are. Tough.

This bot shouldn't affect long term price trends much, since this bot apparently doesn't hold positions for long.  Unless it's a net buyer or seller, its effect over a day should cancel out.  Except, of course, that it's beating out inferior short term traders.

Your analysis of the bot's behavior was objective, except for the above statements, which seem to be conclusions without grounding. It isn't possible for one bot to drive the price down, it can only stabilize it (unless it's simply dumping BTC and not buying any). Bots that look for small profits actually create liquidity, stabilize the market, and are a good thing IMO.

If you want to compete with a bot on speed, write your own - it isn't too hard (https://github.com/weex/mtgox-trader). Or hire someone to do it for you. Bots and high frequency trading algorithms play a big role in standard financial markets; I see no reason to ban them or implement delays for them on bitcoin markets.

I agree with bitfoo. Moreover, there is no significant difference between people and bots. The difference is only in level of automation of decision process and speed. Some people automate their analysis (for example use different indicators) but take decisions and make orders manually. Others write high frequency bots and don't care about long term analysis. Limiting bots doesn't make any sense. To my mind it is the same as forbidding to use graphs, indicators, excel, etc.

Website hacks, wallet.dat stealing malware, scammers/hucksters, and a single bot is the main reason for the low market value? Could you please elaborate more on why you think this one bot is the primary reason for that and not because of the fluctuations the market has had previous or people holding back on bitcoins?

Over the past few months I've personally witnessed the bot continually undercutting other trades in order to force the price of bitcoins lower. This isn't a matter of just simple trading, the bot is actually forcing the value of bitcoins lower by preventing sales at current market values, and dropping prices to force the markets lower.

I noticed the bot too...

I think it is unintentional.

This bot, was designed to profit in USD, it works by buying BTC and selling it lower... It means that it constantly draws USD from the market, thus lowering BTC market cap.


Bot designed like that is not a problem... usually...

But this particular bot (or group of bots) have MASSIVE amounts of money, and with its 0.0000001 profits per BTC, it can still draw USD very quickly and heavily.

The problem is not the bots
The problem is not a "Manipulator"

The problem is both summed, in the form of a bot that CAN manipulate, and do it all the time to lower the price, plainly because it profits from selling lower...

Of course, that design means the author had no intention to hold BTC, it is quite probable that he does not give a shit, and will continue doing it until the market stagnates at the bottom or crash completely, then he will move on to another investment that allow bots...

I really don't have any objections bots be used at exchanges, as a poster before me said they regulate price, increase liquidity, etc. but this bot or group of bots is somehow different, it stomps on legal transactions very fast, downward every time, try to sell at market price you will see they put few lower orders lower right before yours, repeat your order at lower price, happens again very fast. I also believe they have huge amounts of both dollars and bitcoins, although dumping bitcoins over time.

Having the ability to make only one transaction every minute, as temporary measure, i guess would solve the problem and price would recover.

What you failed to deduce however is that in order to have any BTC to sell, the bot has to continually over-cut other buyers as well so your downward pressure theorem just crashed through the window. All bots do is shrink the spread (that means more stable prices), it can't affect the price in any one direction long-term, nor is it in their best interests to do so. Your entire "analysis" completely disregards one whole side of the equation, and is therefore bunk.

What's pushing the prices down is the fact that the inflation isn't matching the growth of the market, and is actually outpacing it. No one seems to complain when the inflation can't keep up with the market, because everyone "gets richer" ($_$) it's only when the market falls behind people start whining and looking for something to blame.

That doesn't mean anything needs fixing, because it's fixing itself: If the market price keeps falling, that simply means it was too high.

hm... inflation? if you mean emission, it is only about 35% a year and is doomed to decline.. do you want to say the market is growing even slower? I doubt it. the downtrend we saw is just a consequence of a bubble & broken expectations.. not sure if it is somehow related to real economy :)

This is the point I'm trying to make. Not that bots are bad, but that this particular bot is bad.

If someone wants to dump more bitcoins than they buy, there's nothing you can do to stop it. It could either be a bot always undercutting the current asking price, or the owner of the bot could simply dump them all at once (or once a minute). Creating any kind of regulation does nothing to prevent that, it only hurts legitimate traders (and "good" bots).

Could the 'bot just be liquidating a large Bitcoin position very slowly? There are known to be some early adopters with huge numbers of Bitcoins, and some of them must want to get out before the end.

After the drop from ~$35 per Bitcoin, anyone who didn't cash out then would have just cut loses by now and emptied everything. Works better to unload all at once rather than try and drag it out, leaving the investment holding onto money that could be put else where.

yeah, thanks for bringing the issues again, i had a post (https://bitcointalk.org/index.php?topic=34883.0) while ago about this and didn't know how to explain it. There are "good" and "bad" bots from our point of view but this one is getting the prize for the worst. Mt.gox would not do anything to stop it, they gain to much from that i guess.
I sugested 1 minute as an example, to simulate a more humane trading because when you put an ask or sell order you don't have the need to cancel it and re-order 10 times a second.

It's funny (and sad) that all of the free market concepts and "freedom" represented by bitcoin changes when some don't like how others use it and in turn want to see some regulations that don't exist in some of the markets bitcoin is attempting to supplement with a "better" alternative.

I don't get it - the bot can't force the price down without using up a supply of Bitcoins. If it is, then it's some early adopter cashing out, and they're doing it in such a way so as not to completely trash the market. Why the need to intervene at all then? It's going to run out of Bitcoins eventually, and the "early adopter problem is no problem".

Like others have noted about this community, I can't help but note the irony of "keep your filthy regulation off our people's currency" when things are going good, then when a few people don't like the direction something's headed they run and scream to MtGox to "regulate this shit". Personally I think the fact that the price is moderately stable even through this bad event and that to be a sign that the idea is working as expected. The success of Bitcoin is not tied to how high it's value is, particularly during the inflationary stage.

It's High-Frequency Trading with a trend toward lowered prices. The bot is still making a profit of micro-cents or cents per buy/sell, but trending the prices lower. It is buying as much as it is selling. It will sell at the open bids to drop the prices, and then set buys just slightly lower, it also undercuts the asks, even if only making 0.0000000001 usd profit per btc.

If it's buying as much as it's selling how is the price trending lower?

It will continue to undercut on sells to force the price down, while lowering it's buys, and selling to fulfill buy orders that are higher than it's own. Thus, forcing the price lower.

... and there's data to support this hypothesis?

How does it sell down to within 0.55% of it's own buys without eventually going broke?

Edit: actually, with the fees on both sides, don't you need a 1.1% margin to break even (I'm assuming that this bot is racking up enough volume to get the discounted trade rate)?

It's visible. You can watch it happen. Parse the order book and place competing orders, you'll see the previous orders shift to undercut or outbid you.

It doesn't seem as though the bot is too concerned with losing money on a few transactions as long as it is making money on others.

If two bots using that exact same algorithm were running on the same market, would that result into a downward spiral?

I would assume that would be the case, since this particular bot is trying to aggressively undercut/outbid other traders (while maintaining profit).

...and from the screenshot, you can see multiple trades that are shifting themselves in the same way that this bot generally does, which would indicate multiple threads of trading, or multiple users running the bot.

Likewise, I'm seeing it on MtGox, TradeHill, BTC-E, Exchange Bitcoins, etc... I even briefly saw it on Intersango, despite them not having an API to trade with (at the time, I don't know about now).

Btw, i think this presentation is kinda relevant: http://www.ted.com/talks/lang/eng/kevin_slavin_how_algorithms_shape_our_world.html

Exchanges make money on commissions.

If you limit the high freq. trades, you'll probably get a massive transaction fee imposed.

Higher prices directly cause higher commissions.

Commission = # of trades * value

So, as value increases, # of trades can decrease and commission will remain constant.

???

A bot can not force prices up or down at all.

Only large players can do that, and obviuosly they can use bots or trade manually.

In the end, the market goes where it wants, and bots can not change the direction.

Yes, but that is assuming the value will increase if you remove the high freq. trades.

This may happen to a small degree, but to a large degree I don't think it will.  The economy is too small to support high prices. 

OMG The Manipulator is back. This time he is in robot form !!!

Personally, I think it is the big fat gov trying to drive price down so miners quit and network is compromised and illegal activity like Silk Road is stopped  ;D <- method is much cheaper than buying up 6990s and doing it that way round.

do you have any evidence on that?

No evidence but it really is kind of obvious if you think about it.

Lots of things are obvious when you think about it.  That's kinda why people ask for proof.

Well you tell me how I can provide you proof the gov is onto the market and I will give it to ya.

It is highly likely somebody wants to drive price down. And also likely that this "somebody" is the gov.

Oh, quit whining. Someone else's short-term trading system is better than yours. It's not a Government conspiracy. Deal with it.

Nor is the 'bot driving the market either up or down. What it seems to be doing is arbitrage between the different exchanges, which has the effect of pulling those exchanges closer together. That's a good thing. It helps stabilize the markets.

http://bitcoincharts.com/charts/chart.png?width=640&m=mtgoxUSD&k=&r=30&i=15-min&c=0&s=&e=&Prev=&Next=&v=0&cv=0&ps=0&l=0&p=0&t=S&b=&a1=&m1=10&a2=&m2=25&x=0
Bitcoin/USD at 15 minute interval scale.

Large spikes are rare now. High frequency trading is damping out short term noise.

I agree with you Nagle.

We are seeing just normal market behaviour.

If someone complains about low bitcoin prices, he/she should either buy more coins or attract others to buy coins.

9/11 WAS an inside job

+1

So what you're saying if it weren't for the jews/illuminati with their robots, BTC would be back up over $10USD by now?

If this works like that, why are there no such bots on the stock exchange?

Yep, that's why I don't really buy into this story that the bot does this - it's pretty difficulty to do either without going obscenely broke in very short order. I think the implication here is that someone with a lot of cash doesn't mind losing a fuckton of it just to trash our market - pretty comical when you think about it. No one with that amount of money to burn is really going to give a shit about our little ~$38m economy. No one's going to spend shitloads of "fiat cash" trashing the economy when it's easier just to sit back and wait for Bitcoiners to do it themselves (time after time foolishly trusting anonymous companies).

Someone with a shitload of cash would have much more direct ways of fucking up the Bitcoin economy than by using a bot to trickle it down, no?

The MtGox commission accounting is sufficiently non-transparent that it is possible that the "side effect" is a "main goal" of "churn". http://en.wikipedia.org/wiki/Churning_%28stock_trade%29

Years ago, when day-trading first become popular, the special brokerage firms catering to day traders had employed dedicated people to induce the traders to keep transacting and generate commissions for the house. Maybe the observed "trade bot" behaviour is just a computer implementation of such strategy?

Risk vs. reward analysis would suggest that "trickle it down" may be the best strategy. It really worked well on the human day traders working out of the dedicated day-trading floors. There's added safety that it is done in distributed fashion over the Internet, so a repeat of the spree-killing from Atlanta is unlikely.

http://en.wikipedia.org/wiki/Mark_O._Barton

HFT's can be used to find and exploit weaknesses in trading systems.  This happens with regularity in the major western markets: http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html (http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html)

Given the relatively crude code used by BTC exchanges, I wouldn't be surprised if multiple exploits have been found.

FWIW, this particular article by Nanex explains just how HFT's hijack the U.S. exchanges through "quote stuffing" and effectively eliminate the NBBO:

http://www.nanex.net/Research/IsNBBOIgnored.html (http://www.nanex.net/Research/IsNBBOIgnored.html)

You have been warned! https://bitcointalk.org/index.php?topic=46000.0 (https://bitcointalk.org/index.php?topic=46000.0) Operation Delta Mine...  :D ;D

They could easily rent a botnet and use denial of service attacks against the exchanges. That has the benefit of not only bringing them down temperately, but datacenters often drop clients if they are the target of a such an attack since it affects the servers/pipeline of the other customers. They rather prevent it from happening again by dropping the one target than let the rest of their clients be affected a second time.


There are:
http://www.youtube.com/watch?v=WstJM_aNSj8

It is not the bots driving bitcoin prices down, but the fact that overall more people are selling than buying.

Bots have no chance to drive prices down if enough people start buying bitcoin with significant volume and less volume is up for sale.

Pyramid / deck of cards is falling in on itself. Get out while you can before price tanks to real value of this ( 0.1 USD ).

Mt. Gox prepared for that. They route through Prolexic (http://www.prolexic.com/), which is an anti-DDOS service with a big pipe, five "scrubbing centers" on three continents, and very good firewalls.  Prolexic has 375 Gbps of inbound capacity.

Efficient DDOS attacks aim to exploit the allocation of memory resources for the tcp/ip sessions. There is no defense against this without increasing latency. If the attacker has enough computing power and bandwidth they would need more ram than they can currently stick into a single machine.

The only real defense is massive cloud computing.

How does the bot keep a steady supply of Bitcoins unless it's willing to purchase BTCs at a higher price than the other participants in the market? If it's continually selling Bitcoins at a slightly lower price than all other participants, it will run out of Bitcoins unless it's willing to purchase Bitcoins at a slightly higher price than what others are willing to offer. This hasn't been clarified by anyone as far as I have read.

Well because you see it drives the price down by setting it's sell point, then buying up sell orders all the way down to that sell point. It's not worried about running out of fiat money because freemasons.

I'm sure it is the Annunaki or at least Israel or the Dutch Royalty  :D

But that wouldn't cause a decrease in the price of Bitcoins. That would mean that if I try to sell Bitcoins for a higher price than what the bot asks for, I am able to sell them, because the bot buys them. And the price won't go down.
You can't bring down the price of Bitcoins using USD. You need to have Bitcoins (or pretend to have Bitcoins) in order to bring down the price of Bitcoins.

If the bot is underbidding other asks and overbidding other bids, it's just decreasing the gap between the asks and bids, ie. decreasing the spread, not causing Bitcoins to decline in value.

Hmm, I disagree. The sole fact that he is overbidding current bids by a small amount means that what I can get for one Bitcoin increases (by a small amount). The value of a Bitcoin is what anyone can sell them for on the market, not what some participant on the market is buying them for. The price of currency A can be brought down only by selling A, not by buying A.

If X is the is the current bid, and Z is the current ask, and someone is offering (asking) to buy Bitcoins at Y (which is between X and Z), the spread changes from Z-X to Z-Y. No change in the price of Bitcoins happens, only a change in the spread. According to bitcoincharts.com, the current spread at Mt. Gox is .66%. Mt. Gox charges a 0.6% fee, which means what there is potentially 0.06% to be made by trading Bitcoins. If the spread decreases to below 0.6%, someone is making less money trading Bitcoins than they are paying to Mt. Gox in fees.
If I recall correctly, the fee drops to 0.55% at some trading volume, but you get the picture.

Yeah I know, I don't actually believe this shit I was just ironically reiterating the kooky theory for you.

IMHO: Bitcoins are sliding down because of downward pressure caused by new coins being minted and lack of interest outweighing new interest (slightly) and actual bona-fide economic activity (by a long shot).

I don't pretend to be good at technical analysis or anything - I have zero experience with it, but it strikes me (as an amateur) that as people begin to realize they won't "get rich quick" off Bitcoin if they haven't already, they will slowly cut their losses and withdraw, and the price will slide back down to what it should be, based off the economic activity and the people who are really, really long (ie, always planned on holding Bitcoin until we enter deflationary stage).

Unfortunately, even now, fools are working on convincing the next batch of suckers investors that the price can only go up, when there's absolutely nothing to indicate it has to for a good many years to come.

..pretty good if you have alot of money and want to hold bitcoins a long time - you simply buy them all

Bucket shop? ...who can proof it isn't?

If the bot belongs to mtgox itself, to generate commission? On every trade they would earn 0,6% or 0.55%...

If trading at mtgox or other BTC "exchanges" there is no transaction in the network, right? E.g. if I buy BTC and sell USD, the exchange does send internally the BTC from customer A to costumer B (in this case, me), not through the network, right?

If MtGox was running the bot for commissions, they would have that money to begin with, and wouldn't be making any money with it. They would be paying themselves with money they already have.

Unless you to meant to mean that MtGox is using the bot to churn customer accounts, though that would be easily noticed.

I believe you need to separate the asks and the bids in your examples. You can't mix up the asks and bids and say the value is between the asks and bids. The value of Bitcoins is not somewhere between the highest bid and the lowest ask; it's the highest bid. In your example, X is the highest bid and Z is the lowest ask. The highest bid (X) is what I can sell Bitcoins for at the moment (to the one bidding), ie. the value of Bitcoins. The lowest ask (Z) is what someone else is willing to sell his Bitcoins for.
The value of Bitcoins (or any currency) is determined by what it can be sold for, ie. the bid price. Not what other people are offering their Bitcoins for, the ask price.

Mr. Speculator does not see that the value of Bitcoins has dropped. He sees that what he can buy Bitcoins for is now less than it was before, but what he can sell Bitcoins for is slightly more than it was before, ie. the spread has decreased.

Of course, psychology can have any effect on the market. If Mr. Speculator doesn't realize that only the spread has decreased, he could conclude what you do and sell all his Bitcoins, thus causing Bitcoins to decline in value. But this doesn't mean the decreased spread has caused a decline in the value of Bitcoins, it means that Mr. Speculator's ideas about finance has caused him to sell his Bitcoins, which then causes a decline in the value of Bitcoins.

This is normally called Market maker: http://en.wikipedia.org/wiki/Market_maker its not without risk, but the owner of the Bucket shop, would ahve has a great advantage for market making.

I see your point; it's a valid one.

As far as I can tell, the price you suggest - an average between fulfilled asks and bids - is the past price of Bitcoins, ie. what Bitcoins were traded for. The price I suggest - the highest current unfulfilled bid - is the current price of Bitcoins, ie. what someone is willing to pay for Bitcoins right now.