Another bitcoin scam?  I'd like to say I'm shocked, but I'm not.  It's rather difficult to go to the police (of a foreign country) and claim your bitcoins are missing.  Fraudsters are taking advantage of this and have come out to play.

I believe these people broadly fall into the following groups:

1. Bitcoin optimists.  The price will be higher tomorrow, so mine today.

2. Cheap power users.  $5 is still profitable if it costs $3 to make the bitcoin.  The gear is already purchased anyway.

3. Free power users (someone else is paying).  Why ever stop mining?

4. Libertarians.  They will never stop mining.

The percentage distribution between these three groups is anyone's guess, but I'd say #3 is the smallest.

It does look a bit like a dead cat bounce, although the bounce is gradual.  That kitty was rather rubbery.  I'm sure someone will post a log graph soon to prove the cat is alive and well.

People with lots of bitcoins would still be in if they expect the future price to be higher than today.  Watch for mass panic selling if those with substantial bitcoin holdings independently decide 'this is as good as it gets' and decide to bail out while their bit fortunes are still worth something. 

No matter how libertarian one's views are (and how much they detest fiat currencies), I suspect they would sell up now if they thought bitcoins would continue their slide towards parity with the US dollar.  They can always buy more later on and enjoy even more freedom.

Yeah, you caught me out there 


We just saw a dip to $5.06.  Not far from the $4.85 or so before the price jumped to over $7 in an instant.  I've placed asks all the way up to $9, just in case someone decides they'd love to own a few thousand bitcoins in a real hurry 

It is one of the great failings of investors and economists.  To predict the future they grab data from the last X days and just extrapolate it.  There were many justifications for bitcoins zooming up in price and many reasons given why it simply could not fall. 

I doubt the pundits sold at $30.  They probably thought if it's $30 today it'll be $60 next month, and $90 the month after.  Bitcoin went from $1 to $30 in 4 months.  People got a little bit too excited.

That's why I laced my post with words like "appears" and "think".  Nothing was stated as fact  

In all we have Bitcointalk compromised and a plea from the admins for people to change their passwords.  Soon afterwards there are massive price movements on MtGox without any positive news to explain the sudden 50% price rise and unprecedented pricing activity that followed.  MtGox cancels some trades and posts an official message about compromised bitcointalk accounts and for people to be careful with their passwords.  Many people use the same passwords across many sites.

Now, one could put all the above together and decide someone just decided to go on a bitcoin buying binge because they really wanted to own a lot of bitcoins very quickly.  I pull out a rather different conclusion.


MtGox never literally said "compromised accounts caused the buying binge to $7", but the available evidence points in that direction.  Is it conclusive?  No.  But it's the most plausible explanation.

From MtGox:

"Subsequently, some of the information have been used to conduct unauthorized orders, resulting in unusually high trade activities."

MtGox did cancel some $7 range trades but they know they can't cancel all the subsequent trades generated due to the price movements.  Once people saw the irrational trading activity on MtGox (hey, instant 50% price rise!) they piled in and sold bitcoins into the rally.  The compromised accounts did not have unlimited bitcoins or funds for the hackers to play with.  The rally petered out and now we're stuggling to maintain $5.40.  Bitcoin will retreat to $5 soon enough.

One guy?  What if it was a dozen bots trading into the artificial rally caused by the compromised account(s)?   Did MtGox contact all traders involved in the sudden spike from $4.80 to $7 to confirm they really wanted to trade?  I'm still waiting for my email from MtGox.  Looking at the current price ($5.55, and falling) I'd say those traders following the buying spike to $7 would be quite happy to have those trades wound back.  

We know there were compromised accounts (MtGox confirmed it on their support page).  We know the buying and selling activity appears to be completely irrational.  MtGox canceled the most extreme trades but they know they can't cancel thousands of subsequent trades that took their price cues from the compromised accounts.

It's on MtGox's Support page:

https://support.mtgox.com/home
*Resolved* [OUTAGE-11804] Unexecuted Trades

Now one could argue that only the subsequently canceled trades to $15.94 and $12.50 were due to compromised accounts, but I think the evidence is clear than the entire spike to $7 was caused by unauthorised trades.  Thinking about it logically, the price of bitcoins is stagnating at $4.80 for quite a while, then suddenly people decide bitcoins are a screaming buy and decide to trade them up instantly by 40%?  No one would believe that.  The much more plausible explanation is that the sudden unauthorised buying activity caused other traders and bots to trade into the artificial rally.  Some extreme trades were canceled by MtGox but really MtGox should have wound them all back.  $4.80 to $7, then $5.50 and back above $7 again was clearly caused by unauthorised trades.

The $7 price spike was caused (again) by hacked accounts being emptied.  If you missed the opportunity to buy bitcoins in the $4 range then sit tight: you'll get your chance in the next few days.

Anyone mining for under the cost of electricity per bitcoin is basically making one bet, that the future value of the bitcoin will be worth more than it is today.  Is it a safe bet?  Absolutely not.  No matter what you read on these forums no one really knows if bitcoins will be worth $25, $10, $5 or $1 in a year's time.  A lot can happen to bitcoin and its periphery during that time (just recall the last 4 months!).

Five months ago the 'difficulty drives price' argument was popular on these forums.  We've seen that argument fail many times (just check bitcon's value in June and now, and compare difficulty).  The next argument for much higher values is a reduction in bitcoins per block sometime next year from 50 to 25.  Yet no one really knows if this will have any impact on price.  Difficulty has more than quadrupled in the last few months (equivalent to getting 12.5 BTC per block instead of 50 with the same difficulty) yet the price is a fraction of what it once was.

Miners are probably not leaving in hoards now because they're betting on higher prices.  My suggestion is if bitcoin's price remains well below $10 we won't see new miners, and if it stays around $5 only North Americans can afford to mine for a rather meager return.

If the withdrawal was to happen it should be happening right now, so there's enough time to transfer the bitcoins, sell them on MtGox and get the cash out again.  Trade volumes have been very low and bitcoin's price is quite stable right now.  I don't think the Ron Paul factor will lead to any significant action.

Super thin market that's easily moved (mostly by bots) coupled with margin trading and short selling is indeed a fun combination for anyone wanting to manipulate the market and make a lot of money quickly.  Anyone margin trading bitcoins is in for a world of hurt, just like on Sunday.

The news can only be negative for bitcoins.  The currency is a highly speculative play with wild price swings.  It's not as safe as gold for stashing your wealth.  I bet 99% of Europeans would have no idea how to buy a bitcoin either.  During times of trouble people gravitate towards safe haven currencies: US dollar, Swiss Franc, Japanese Yen.  All of these are pretty easy to buy for most people (just head down to your nearest popular tourist spot).  Greeks seeking to protect their wealth would do well to own paper Euros not printed in their country.  We may see scenes similar to 2008, where Germans were seen withdrawing Euros from ATMs, keeping the ones printed in Germany and redepositing the rest in hopes of getting German bank notes.

That's what happens when MtGox lets bots run the show.  The bots are playing arbitrage with other exchanges.  The other common thing to do is flood the order book and just as quickly remove the orders.  They never get traded, but may influence less sophisticated bots into conducting a losing trade.

The lack of constant human oversight is often highlighted as a problem with real exchanges such as the NYSE.  Bot trading is a bit out of control.  Just today an article was published about a new Europe to USA Internet link that promises to shave 6ms off the ping time for $300M.

http://www.telegraph.co.uk/technology/news/8753784/The-300m-cable-that-will-save-traders-milliseconds.html

Traders are salivating over the possibility of playing the arbitrage game more effectively than their competitors.  It's all a bit silly really, but there's serious money to be made.  My ping time to MtGox is 190ms.  I wonder if bot traders have hosted their bots geographically close to MtGox's servers 

I wouldn't be surprised if 11 September's wild price swings were buggy bots at war, manically trading between themselves.  Either way the only real winner is MtGox.  They take their cut no matter what.

How long does a graph have to keep going down before the short term becomes long term?  Sure, bitcoins were once worth a few cents each, now they're worth $6.  Fantastic.  We're in a massive bull market.  Only problem is they were worth $30+ a few months ago.  Anyone who got bitcoins before March is probably still smiling.  The rest are rather unhappy.

It all depends on the time period you're willing to choose.  For example, Citigroup's share price is actually stable and there's nothing wrong with the stock.  The company has no problems... if you're willing to compare the share price today to what it was 20 years ago.  The stock hit $500+ in the meantime, but we shouldn't be worried by that.

http://www.google.com/finance?q=NYSE:C

Well, I wake up this morning and the massive volatility returned.  It let me get rid of some bitcoins in the low $7 range but even those Asks were too low.  These massive and on the surface irrational looking trades are very interesting, to say the least.

Trade still going from what I can see.  Not as vigorous as before, but it's still happening.  The massive volatility started 2 hours ago.  Not exactly a quick response to something that should have halted the market within minutes.

What we do now know is that MtGox has no self protections against massive price swings that can indicate processing of erroneous data.  An automatic trading halt would have been prudent.  After the June hack I would have thought that would be an obvious thing to implement.

Interesting theory, but I think it would be highly unethical (to say the least) for MtGox to do that.  People are making trades and moving money in and out of MtGox (btc or otherwise).  Imagine the NYSE turning around after a volatile day of trading and saying "HA! Just testing you, now we roll back everything".

I'm betting on another MtGox bug.  They've just opened 15 new currencies.  Chances are something went wrong.  Bots reacted accordingly.  Bots are dangerous in the playpen of MtGox and the real world of the NYSE/FTSE/etc.  There they can do real damage.

$15.94 order was wound back but $12.50 remains.  I wonder how many orders MtGox will cancel as being erroneous.  Is $12.50 sensible when the price was sitting at $4.75 before the mini madness?  Was $7 rational?

Now down to $4.82 as I type this.  And back to $6.30.  MtGox is f*cked