Bitcoin Forum

https://twitter.com/DoctorBitcoin/status/557526205709037568

The post was deleted on reddit but this guy saved it.

also see: https://bitcointalk.org/index.php?topic=930707.new#new

This is an expected behavior on unregulated exchanges ?

I've suspected this for a long time. Exchange owners or their employees tell other privileged traders of incoming fiat deposits. Insiders pump, forcing new money to buy at inflated prices. Then dump once bid depth surpasses insider buy-in price.

The bitcoin cult suffers from Stockholm syndrome. They are busy down-voting reddit posts on the subject and rationalizing/excusing BFX's conduct.  :D :D :D

correct.unregulated exchanges.

the "stupids" (normal people) are losing a lot of money and the "smart guys" (exchangers) are earning millions. Why? Because the "stupids" are doing nothing. Normally, all the Bitfinex clients would have to withdraw their funds and use other so called "exchanger" (even all of them are the same). :)

I am sure that many of you are not blind and not stupids. How can you tolerate a such behavior?

Bitfinex is making money based on YOUR losses. Wake up !

It was completely the opposite. He said he does not do that. I'm not saying he is doing it or not, just that he never admitted doing it.  

Someone else plz quote mjr before he edits/deletes.

You mean after MtCox people still refuse to accept that the price is being manipulated by unregulated exchanges? Wow, clueless.

We dont need regulations, we need p2p exchanges. Waiting for Coffeine like its xmas.

What many BTC fanatics does not want to see is that there are only 4-5 BIG exchangers.

These exchangers are making exchanges between them(offline). You will never see them trading between them "online"(in public).

ALL the little exchangers are using the big ones in order to process their BTC.

So, there are is a strong relationship between them. The big exchangers(including Bitfinex) see things normal traders cannot, like hidden orders, the size of everyone's accounts, the open margin positions of accounts, exact trading activity of each user, how much USD is flowing into and out of the exchange....

SEC defines insider trading as any securities transaction made when the person behind the trade is aware of nonpublic material information, and is hence violating his or her dutyto maintain confidentiality of such knowledge.
A person is liable of insider trading when he or she has acted on privileged knowledge in the attempt to make a profit.

I think we need a decentralized exchange , for trade directly  buyer <> seller without any intermediary  (like bitsquare).

explain how that would be possible when dealing with fiat.

He didn't think when he wrote that. :)  forgive him !

At least check this site  (beta) : https://bitsquare.io/

It is possible ....

Not sure this is avoidable until regulation kicks in (similar to trading standards with current trading systems) or how much impact it actually has on the markets.

imho, he has inside info on users accounts and how they could impact price movement, but its not all that huge a benefit as you might think and wouldnt be that easy to exploit.
we can all see the order book of the exchanges, knowing which accounts have lots of 'potential' with high balances to move the market doesnt mean they actually will use that potential in a predictable way and cause obvious price moves to exploit. not sure what other info this guy could have that cant be inferred from the public orderbook..
 
unless this guy was actually buying and selling in large amounts to directly affect the markets (like bots), not so sure the shock value is very high on this story (in terms of impact on the average user).  

probably damages the reputation of the exchange more than anything... im sure hes getting more money from the fees than any insider trading info.

could be wrong ofc! i dont use their platform so not sure how reliable it is.

If you see, that a big whale is moving in a lot of fiat, you know BTC will go up, if you see he is moving in a lot of BTC, BTC will go down. That is a simple prediction, you wouldn't even need a bot for and even I, can think of.

I concur, and if he has any advance knowledge advantage, it's only on the fiat side, since other people can figure out exchange input addresses and see when BTC is flowing into them heavily.

How do you figure out exchange input addresses?

Glad I'm not the only one who can read.

Nice...is it live?  Being used?

I think we need a decentralized transparent exchange

Well ideally it would be decentralized, thats what Satoshi intended with Bitcoin, decentralization.
As far as Bitifinex goes, I used to wonder about their legitimacy, but their volume is pretty high, so they are making good money from commissions, and it is in their better interest to continue running the exchange well than to abscond with depositors' funds. Not sure about legal recourse if they failed, but Hong Kong has a well-deserved reputation for fair business practices. Note: Bitfinex is definitely in Hong Kong because the SWIFT number used in routing is location-specific.

I dont know about the inside information thing tho.

Unfortunately there is a real world out there owned by real people.... Or should I say owned by real banks ;)

(that isn't a dig at you)

This is fun.

 ;D  this is my real post :


"I think we need a decentralized exchange , for trade directly  buyer <> seller without any intermediary  (like bitsquare)." 

 Maybe one day....

My bad - edited....

There is already a transparent exchange..  Atomic-Trade.com

Just look at the real time liquidity page https://www.atomic-trade.com/liquidity  .  Just needs volume but people obviously don't like to use transparent exchanges without fake volume. 

No fiat thought, It would be good to see flows between BTC and fiat day by day, month by month etc.

Ask yourself - in an unregulated, unsupervised, and completely unaccountable environment, why would anyone NOT do this?

The entire idea of markets is that participants and actors are constantly competing for the bigger share of the pie and/or creating bigger portions then fighting over the slices. Either way, it's all a competition.

COMPETITION.

He just played and won the game according to the rules of the market - that is, no rules at all. Aside from anyone's idea of 'honest trading' which frankly without agreed and standardized regulation, it just an individual preference.

Enforcement, mutual social agreement call law and regulations are inevitable basic flow of human nature. Question is how you handle it, not whether you can do without it. Same as everything else people normally consider 'oppressed' by.


Vast majority of these 'problems' are of crypto community's own making. Get out there and join/work with rest of the society, instead of screaming from your soapbox about how revolutionary you are.

LOL, I can bet every exchange involve  insider trading.

Totally agreed. I know regulation these days is a tool which serves the wealthy but it wasn't always that way. I am all for regulation as long as its by the people, for the people, enforced by the people. Just I can't see that happening again.

In fact after getting into Liberalism for just a little while I was against regulation and had a debate with my father on the issue. He actually made me change my mind. The wealth gap would be 10x larger if it wasn't for some kind of regulation and moderate tax policies. You can see this in the period 1800-1910 through out Europe where 1% owned 60%/70% of the nations wealth. Progressive polices developed between 1910 and 1960s put an end to such wealth disparity (+2 world wars and the great depression) and for the better I would argue. We would have no middle class today if it wasn't for this fundamental shift in national policies observed throughout the west.

It actually makes my blood boil when citizens from less privileged backgrounds argue that somehow letting fat cats do whatever the hell they want is going to be for the betterment of society. The sad fact is that policy makers have been making a u-turn since the 70's and 80's for the benefit of a select few (similar to policies adopted throughout the 19th century) and since we have seen a trend reversal in wealth disparity.

You can literally guarantee that, without a change of course, the 21st century is going to give rise to the importance of inheritance for wealth once again.   

Yes but is it ok to manipulate the price as they want? :)

Keep pumping money in them, fools :)

https://bitcointalk.org/index.php?topic=660948.0;all

http://www.reddit.com/r/Bitcoin/comments/2t3p7f/xpost_from_rbitcoinmarkets_bitfinex_cso_phillip_g/

www.google.com/search?q=bitfinex+front+running+site:reddit.com

www.google.com/search?q=bitfinex+front+running+site:bitcointalk.org

I'm not fine with the insider trading, but I almost consider this to be the price of entry into the BTC world. I can live with it. It is going to happen when the market is unregulated. What I am really not okay with is price manipulation. Knowing if something is going up or down is one thing, but knowing that and then adjusting the price as well is not okay.

Decentralized exchanging exists. Use LocalBitcoins. The very meaning of decentralized does not require a huge exchange platform. Exchanges are in it to make money, not play trust games for fun and the love of BTC.

well, tben you agree with the price manipulation and to lose the funds as well :)

MT gox did that without any problem, All the BIG exchangers are faking the transactions and manipulating the price.

It's so funny to see these videos:  :)

https://www.youtube.com/watch?v=DRnCuzAOJCA

https://www.youtube.com/watch?v=awU8c8fN2LI

https://www.youtube.com/watch?v=xE5wr0ejWLw

Do you think the new exchange by the Winklevii will also be manipulated? thats why I want decentralization, its so difficult to trust people these days lol.

Any unregulated unaudited exchange can engage in insider trading completely risk free very easily.  They can make a lot of money doing so.  It is so easy to do, and so easy to hide, that it would surprise me if any of them are not doing it.  This is one of several reasons that I avoid using any online exchanges.

Regulated and audited markets are just as corrupted if not more.

But these practices conducted in regulated markets IS often quote on quote 'illegal'. Shame the securities and exchange commissioners are usually in on the act too.

With the proper regulations engaging in the simplest insider trading can become "not worth the risk".  The exchange risks a huge long term profit in exchange for a small short term gain.  It can still happen if the proper audits aren't in place, but at least the incentive is watered down if not eliminated entirely.

With third party audits from a trusted auditor, it becomes far more difficult (and more expensive) to hide the insider trading.

Agreed - though I would argue that must exchanges do participate in insider trading. Example: High frequency trading is only available if select parties have 'inside' information unavailable to the majority of participants.

Whether "high frequency" trading should be considered "insider" trading is a philosophical debate that depends a lot on what you mean by "insider" and what it is that you don't like about "insider trading".  I'm not going to get into such a philosophical debate at the moment (and I'm not going to indicate in this post which side of the debate I tend to agree with more).

However, when it comes to the specific type of "insider trading" I'm talking about where the exchange itself can easily take advantage with 0 risk, I'm specifically talking about using knowledge about orders that are being added to the order book before those orders are public knowledge.  With "high frequency" trading, the traders know information faster than those that aren't a selected participant, but they still don't know the information before it is in the order book.

The exchange however receives a request to add an order to the order book from a user.  At this point, their software knows about this order (and other orders) that WILL BE a part of the order book in a moment, but isn't a part of the order book yet.  This puts them in a position to make automatic trading decisions that guarantee a risk free profit.  They can effectively roll back time and place their orders before (or after) the orders that are being added to the order book, making sure that the orders are filled in a specific order that guarantees that they come out ahead with no risk to themselves at all.

As an extremely simple example:

Albert places a BUY order for 10 BTC at $250 each ($2500 order).
A fraction of a second later, Bob places a SELL order for 10 BTC at $249 each ($2490 order).

Under normal circumstances Albert's BUY order enters the order book, then Bob's SELL order fills Albert's BUY order.  Albert gains 10 BTC from Bob, and Bob gains $2500 BTC from Albert. The exchange gets a small fee from both of them for maintaining the order book and trading engine.

Under circumstances where the exchange is engaging in "insider trading", Albert's BUY order is held in memory for a fraction of a second before being added to the order book.  The software sees Bob's order coming in and holds that in memory as well.  The exchange then adds Bob's transaction to the order book first, and inserts their own BUY order to buy all 10 BTC from Bob at $249.  They then allow Albert's order into the order book and immediately following it they add their own order to SELL 10 BTC at $250.  Now Albert has received his 10 BTC, and paid $2500 for them, but Bob only received $2490.  The remaining $10 goes to the exchange completely risk free since they knew that both transactions were entering the order book and could arrange them to their own benefit.  Then on top of that, the exchange gets a small fee from both of them.

With many transactions being added to the order book, this process can be repeated all day long completely automated.  The exchange can essentially take money out of the pockets of the people placing market orders without the users ever realizing it.

Yes I do understand how high frequency trading works. But this is still a classic definition of insider trading. Certain parties have access to information about select companies which is not yet publicly available through the SPI's of exchanges. With this information they can places trades which directly benefits them. Just because the timing is is milliseconds and not days/weeks does not alter the fact that this is a textbook definition of insider trading. I do know there is a massive debate on the issue, but any activity in which certain parties can benefit of knowledge gained before the public is insider trading.
https://i.imgur.com/lJS5X4f.png
https://i.imgur.com/euTi4Cq.png


P.S. I respect that you don't want to get drawn into a debate on the issue. Just giving my 2 cents.

Glad to hear it.

Since BitStamp (and BitFinex, and all other known bitcoin exchanges) don't offer high frequency trading, the rest of your post is off-topic and irrelevant to this thread.

Meanwhile, the bitcoin exchanges (which are on-topic and relevant to this thread) are all able to engage in their own "insider trading" before the order book is updated.  Proper regulations and good audit practices from trusted third parties can significantly reduce the incentives and likelihood of exchanges engaging in such conduct.

True that - my bad. Didn't mean to get so engrossed in the subject :)

I already have a solution to this which i have worked on for the past 2 yrs (and yes i'm aware bitcoin exchanges have been manipulating their orders since inception). Its a completely stateless realtime matching engine. I will decide to publish it thro an new exchange awaiting serious backers (not just fund but ppl with real reputations)

In stateless engine, every order entry and order matching is running at the chip cycles (real time), NO memory state to be manipulated.

Here is a bit explanation for the non tech members: stateful vs stateless
http://whatis.techtarget.com/definition/stateless

ftfy

why don't you use De-centralized exchangers?

It is difficult if not impossible to provide hard evidence of deliberate insider trading misconduct at bitcoin exchanges. That is not to say that there are no obvious signs that it is happening (at Bitfinex and some of the other large exchanges). I trade on more than 10 different exchanges and track "slippage" on each trade. Slippage occurs when trades are not executed as expected for one reason or another. I don't dwell too much on why it is happening and just respond to it by "penalizing" exchanges with significant execution slippage and re-route orders to other exchanges.

Do you care to share your list?

Sure. We trade mostly on a subset of the following:

Bitstamp
Bitfinex
ANX
LakeBTC
Kraken
BTC-China
BTC-e
Cryptsy
Ok Coin
Coinsetter

I am debating putting together a more in-depth analysis on trade execution. If you are interested follow  @ https://twitter.com/LiquidXCoin or sign-up at liquidX.io

Whats your opinion on Poloniex? I've moved everything there for my occasional altcoin daytrading, im paranoid about exchanges dissapearing these days, im not sure what to do, im starting to think i should put all on my local wallet but i want to daytrade.

Good to see, that Kraken is on your list. That's where I buy my BTC.

+1

I can't really say anything negative about Poloniex from a user experience standpoint. The trade execution is quite good - definitely better than cryptsy. Support at Poloniex has also been responsive and competent when I contacted them. I wouldn't recommend storing large balances on any exchange.

Bitcoin is not a stock and there is no inside information on the protocol itself because it is open source.  I suppose perhaps someone could trade on early info about a hard fork before an announcement by Gavin Andreesen, or something of that nature... but that would be a stretch.

I am really amazed on how far you missed the point of this whole thread.
DannyHamilton wrote a nice summary on how it works(hint: it has nothing to do with the Bitcoin protocol)

You seriously don't get it.  The best analogy would be if an employee of the NYSE traded shares in GLD, which is an exchange traded fund that tracks the price of gold.  You cannot have inside information on the precious metal gold just as you cannot have inside information on the bitcoin core protocol. 

Exchange employees can only trade based on information about trades and order books, which is not insider trading in the traditional sense.  The insider trading 2.0 example with HFT may be applicable.

Give it a rest Danny.

In the traditional sense (using the definition), the case of Bitfinex is not insider trading. The very definition negates this possibility; however, all can agree Bitfinex is using inner information (knowledge of the order books, processing transactions, etc.) to their advantage.

Is this illegal? No. Is it unfair? Yes, if you think morality has anything to do with BTC.

Caveat: If you believe this to be unfair, push for regulation. This will take care of your problem for argument's sake, but in the process you will lose all ability to play the game. As soon as the playing field is regulated, you will have no advantage. You may get secure trading, but you will have simultaneously given away your say in anything.