Icbit.se, the bucket shop.

[MPOE-PR]

Find the whole story here: Icbit.se, the bucket shop.

tl;dr: icbit btc future contract is settled at 22:00 each day. The site puts in fake orders at time of settlement, refuses customer orders at that time and enforces an arbitrarily small price (> 1 dollar under spot) to blow out margins. The site also reports fake volume.

You can either comment there and get answers from Mircea Popescu himself or comment here and I'll do my best to answer.

[Akka]

So it's basically a site, that tries to seem as if it would actually do trades, but in fact just have your BTC laying around, probably waiting to accumulate enough and then run?

Or did I get it totally wrong?

Thanks for the warning though. As more and more scam sites show up lately (http://www.bitcointalks.com & many more), maybe it's time to start collecting known scam sites on a sticky thread?

[Stephen Gornick]

refuses customer orders at that time and enforces an arbitrarily small price (> 1 dollar under spot) to blow out margins.

When you say it refuses orders, are you saying new orders placed right before clearing (like within a minute or so) are refused, or are you saying during other times that orders can't be entered as well?

Several times well before the daily clearing (e.g., more than ten minutes) I've placed bids at various levels and the ones that were at a price above the eventual clearing price did get filled, so I've not seen where my bids were not processed.  

As far as those trades before the bell occurring, it definitely has been noticed:
 - http://bitcointalk.org/index.php?topic=50817.msg1325425#msg1325425

[Luno]

Icbit.se appeared as a ticker first on the Deepbit.net a few weeks after Tradehill folded. Tycho might reconsider advertising their services, as it could be considered an endorsement of their credibility.

[ElectricMucus]

Interesting, historically it takes 2-3 months from the first whistle blowing to the official fuckup.

Lets be honest: It's been too quiet for a while in that regard and we need to sweat out those pointless endeavors at some point anyway.

[MPOE-PR]

So it's basically a site, that tries to seem as if it would actually do trades, but in fact just have your BTC laying around, probably waiting to accumulate enough and then run?

Well no, it's a site that makes it look like you could get cheap BTC except it simply takes your deposit under the guise of "price has moved against you" (and against the market).

maybe it's time to start collecting known scam sites on a sticky thread?

Maybe, but it would be a significant investment of someone's time. This is not an easy thing to do.

When you say it refuses orders, are you saying new orders placed right before clearing (like within a minute or so) are refused, or are you saying during other times that orders can't be entered as well?

Several times well before the daily clearing (e.g., more than ten minutes) I've placed bids at various levels and the ones that were at a price above the eventual clearing price did get filled, so I've not seen where my bids were not processed.  

As far as those trades before the bell occurring, it definitely has been noticed:
 - http://bitcointalk.org/index.php?topic=50817.msg1325425#msg1325425

Orders work in general, as smickles pointed out, within a second or less. However, right before settlement time (say about a minute) the site partially closes the book: it's closed for customer orders (which simply get ignored) but the site places its own orders, to manipulate the settlement price. These orders are then canceled within a minute or so of the settlement time.

Interesting, historically it takes 2-3 months from the first whistle blowing to the official fuckup.

At the rate BTC/USD is going, default may come as early as 12th of December, when the contract ends and they will have to actually settle to market.

[picobit]

What just happened doesn't exactly match this theory.

The manipulation occurred almost on the hour, but clearing is delayed due to maintenance, so whoever placed the huge sell order sold a lot of futures cheaply, and was unable to maintain the low price.  Too bad for him.    And too bad for the conspiration theory (although the site theoretically could be a scam, I think this thread paints a bleak picture based on too little evidence.)

Still, never place more bitcoins on a site than you can afford to loose - even if it is honest it could be hacked....

And the site operator is anonymous, that is never a good sign....

[Ichthyo]

Orders work in general, as smickles pointed out, within a second or less. However, right before settlement time (say about a minute) the site partially closes the book: it's closed for customer orders (which simply get ignored) but the site places its own orders, to manipulate the settlement price. These orders are then canceled within a minute or so of the settlement time.

can't confirm that. Orders and even trades work up until the very moment the clearing happens.
Since about the time of the last bitcoin mini crash, some traders seem to be sitting on an unfortunate short position and are desperately trying to manipulate the closure rate down.

Anyway, during the last days, on numerous instances, I was able to get a trade through only 5 secs before closure and thus managed to cross the manipulator's scheme. I saw other traders do the same thing. Moreover, since it's now known that such manipulatinons take place, you can watch people stage up bids and asks about one hour before the closure and clean up right afterwards. Since the manipulator regularily buys away the whole bid side (or ask side in the case of the oil futures), placing some additional orders just in expectation of this happenging can be quite lucrative.


All these observations don't really dismiss the suspicion, but make it look less likely.
Well -- of course it could also be someone from the platform, but this looks like a quite risky and complicated scheme for a scam.


PS: not affiliated with ICBIT in any way, just trading there

[Ichthyo]

So it's basically a site, that tries to seem as if it would actually do trades, but in fact just have your BTC laying around, probably waiting to accumulate enough and then run?

Or did I get it totally wrong?

To put that a bit more into perspective.
ICBIT offers futures contracts. http://en.wikipedia.org/wiki/Futures_contract
So they did never claim that users would actually trade through to the spot market. Beacuse of that, the accusation of "bucket shop" is somewhat of a stretch.

Basically, someone buying 1 "BUZ12" contract there agrees to sell $10 at 15.Dec.2012
And the counterparty picking up this bid and thus entering to sell 1 BUZ12 agrees to buy $10 at 15.Dec at the agreed on rate.
Every evening at 20:00 UTC, the platform "marks-to-market" every open contract. That is, it takes the "current" rate within this futures market and adjusts the gain/loss of the two counterparties -- kindof like an advance payment for the expected settlement at 15.12.2012

What makes this setup interesting for the trader is that you can engage into positions with roughly 1:10 leverage.
And contrary to a construction like Bitcoinica (Contract-for-Difference), the financial construction of the platform is way less risky, since it is a closed circuit (and never claimed to be anything else). So basically people's BTC deposits are sitting there and will be re-distributed among the traders on closure. The site doesn't need ever to touch USD, and it doesn't need a trading connection to any stock market. The site gets the trading fees and could possibly engage into short-term lending of BTC. And, of course, they could just run with the coinz.

So yes -- what we really need is these kind of sites, but implemented with multisig+contracts+colored coins.

[Stephen Gornick]

it is a closed circuit (and never claimed to be anything else). So basically people's BTC deposits are sitting there and will be re-distributed among the traders on closure.

So let's say the site has a total of two traders,

Trader A deposits 1 BTC and uses some of the margin available to put an order to buy 7 BUZ2 at $11.
Trader B deposits 1 BTC and uses some of the margin available to put an order to sell 7 BUZ2 at $11.

The trade is matched.

Then the next day say the clearing price rises to $12.   []Edit: Which wouldn't happen with just two traders, but just for my example, assume it happens.]
Trader A sees variation margin adjustment of 0.53030303 BTC on A's long position.
Trader B sees variation margin adjustment of -0.53030303 BTC on B's short position.

Trader B no longer has sufficient margin maintenance (under 0.5 BTC holding 7 BUZ2 exceeds the 1:10 minimum), and sees a forced liquidation of the 7 BUZ2 contracts that were sold short.

As we see, there isn't all that much liquidity.  With that forced liquidation, does ICBIT take the hit if the Trader B's BTC balance is insufficient as the result of the liquidation?   So this "closed" system is only closed when there's no forced liquidation.  We just saw that type of liquidation occur today, so we know it happens but we can't know if ICBIT's reserves took a hit or how much they can absorb.

At the rate BTC/USD is going, default may come as early as 12th of December, when the contract ends and they will have to actually settle to market.

Well, the variation margin adjustments occur daily, so if the spread narrows between the BUZ2 clearing price and spot  (which is now happening after some accounts that were too short BUZ2 were forcefully liquidated), it isn't like traders need to wait until Dec 15th to cash out.

[killerstorm]

FWIW I was discussing this kind of a problem (manipulation/margin calls) with Fireball back in summer 2011, before ICBIT was developed, when we considered making a futures exchange together.

Basically I've outlined a situation where a person with big enough pockets can effectively pwn the market getting profit out of nothing. Moreover this situation is very likely on bitcoin exchange: there are people with many bitcoins who do not mind risky endeavors. On the other hand, futures market is rather thin. Also, participants are pseudo-anonymous, so it's feasible to make an alt-account which would lose more money than it had.

So, well, I didn't want to deal with this mess (margin calls, forced liquidation, pissed off customers) and I designed a different kind of contracts ("capped forwards") which kinda serve the same purpose as futures, but do not suffer from same issues. I've also designed some non-traditional kind of futures.

But Fireball made it clear that he wants futures exchange similar to "traditional" ones, and apparently this margin call issue is a norm.

So problems were expected (it would in fact surprise me if nobody tried to squeeze the market), and there is no evidence that exchange operator is responsible for that. This simply make no sense in long term.

As for Mircea Popescu's accusations, they are largely baseless.

1. As I understand, volume displayed by ICBIT is a total for a security, and don't forget that it's leveraged.

2. Cash-settled futures are fine, it is a legitimate financial instrument. Yes, don't have direct effect on spot market, but that's OK.

3. There is no evidence that it was exchange operator who tried to squeeze investors.

4. I don't think that you should rely on being able to send order in last seconds, it could have been just a glitch. It is a web-based trading platform ffs.

So it's just FUD.

(While we are at it, colored coins would allow to organize delivery in USDcoins, for example.)

[Bitcoin Oz]

So it's basically a site, that tries to seem as if it would actually do trades, but in fact just have your BTC laying around, probably waiting to accumulate enough and then run?

Or did I get it totally wrong?

Thanks for the warning though. As more and more scam sites show up lately (http://www.bitcointalks.com & many more), maybe it's time to start collecting known scam sites on a sticky thread?

Just post them here http://www.reddit.com/r/douchebagfoundation/

[killerstorm]

Then the next day the clearing price is $12.  

Wait, where does it come from? As I understand, clearing price is based on spot price only on settlement day, and before that it is based on futures price.

And to get futures price to move from $11 to $12 you need other market participants.

As we see, there isn't all that much liquidity.  With that forced liquidation, does ICBIT take the hit if the Trader B's BTC balance is insufficient as the result of the liquidation?   So this "closed" system is only closed when there's no forced liquidation -- and we just saw that occur today, so we know it happens but we can't know if ICBIT's reserves took a hit or how much they can absorb.

Have you read this? https://icbit.se/margincall

In the worst case scenario, your profit is always limited by ability to pay of counterparties to your contract.

"Worst case scenario" is why I abandoned the idea of making a traditional futures exchange, it's kinda too messy for my taste.

[MPOE-PR]

Well, the variation margin adjustments occur daily, so if the spread narrows between the BUZ2 clearing price and spot  (which is now happening after some accounts that were too short BUZ2 were forcefully liquidated), it isn't like traders need to wait until Dec 15th to cash out.

At this point, I would like to point out two little tidbits of evidence:



A little later,



So basically, a bucket shop which artificially showed lower-than-reasonable prices for weeks was called out on the practice. The first reaction was to lower the price even more (down to 9!), the second reaction was to bring them back in line with reality, all this while retroactively changing logs shown to people.

Leaving aside the obvious (ie, that this is why the website model does not work for an exchange, this "you did too!" "we did not!" bs is pointless), you want me to believe that prices just naturally happened to move hours after someone blew the whistle, right?

I find that very hard to do.

[jgarzik]

As for Mircea Popescu's accusations, they are largely baseless.
[...]
So it's just FUD.

Unsurprising, as MPOE-PR is a competitor

[MPOE-PR]

Unsurprising, as MPOE-PR is a competitor

Nov 16 12:19:46 <kakobrekla>   good read
Nov 16 12:19:57 <kakobrekla>   hope to see some response from them about this
Nov 16 12:21:10 <mircea_popescu>   right.
Nov 16 12:21:22 <mircea_popescu>   pay me a bitcoin for every time fud is mentioned ?
Nov 16 12:25:23 <kakobrekla>   hehe
Nov 16 12:25:33 <kakobrekla>   no easy money, you know it.
Nov 16 12:25:37 <kakobrekla>   ;>

Pretty much the most stupid defense, this "call it FUD" bullshit.

[killerstorm]

you want me to believe that prices just naturally happened to move hours after someone blew the whistle, right?

What I see here is that somebody sold a shitload of BTC, filling all available bids.

He then spammed order book with many small asks going down to 9.6. (People say that this is ICBIT's deficiency: number of rows it shows in order book is limited so such spam can hide true market depth.)

9.5 and 9.1 orders you see on this screenshot are mine, BTW.

Apparently "manipulator" tried to squeeze the market right before settling time, but it was delayed this time. And apparently he was out of reserves since market was able to recover up to ~10.80 before settling.

It then shot up to 11.21 in the new session because some of manipulator's positions had to be liquidated and he no longer was able to post ask walls.

So if anything this shows that manipulator and exchange is not the same person, as apparently manipulator didn't get the news that settlement is delayed.

[Ichthyo]

At this point, I would like to point out two little tidbits of evidence:

So basically, a bucket shop which artificially showed lower-than-reasonable prices for weeks was called out on the practice. The first reaction was to lower the price even more (down to 9!), the second reaction was to bring them back in line with reality, all this while retroactively changing logs shown to people.

Leaving aside the obvious (ie, that this is why the website model does not work for an exchange, this "you did too!" "we did not!" bs is pointless), you want me to believe that prices just naturally happened to move hours after someone blew the whistle, right?

MPOE, what you are doing here is utterly dishonest.

You, like myself (and several other readers can certainly wittness this) where actively watching what happened last evening. You were reading (and posting to) the forums as everyone else. Yet you deliberately pick some "evidence" and leave out a lot of important contextual information that doesn't fit with your intended message.

So to put all of this back into perspective, I'll give a summary of the events as I observed them.
Please feel free to correct / add further information.

• there were market manipulations going on at clearing time (20:00 UTC) since some weeks now
• there was a long discussion in the ICBIT thread, with several proposals how to prevent such manipulations
• Fireball was aware of that discussion, participated, and indicated that ICBIT will take some measures.
• but Fireball made also clear that he sees a lack of liquidity as the underlying problem
• several people tried to cross the actions of the manipulator(s) more or less successfully now since several days.
• today, Fireball announced that the clearing will be delayed by half an hour or so, because of "maintenance work on the current session"
• shortly after 20:00, there was clearly some DB/maintenance work done, since all the bids / asks were empty, and then they were back unaltered just a minute later.
• then, the manipulator tried for the second time to sell into the bids to shift the market down. He cleared away all bids down to about $10
• then probably someone bought at the lowest ask (10.64), so the "current rate" jumped up back.
• next, the manipulator bought away every bid which was reachable within today's trading range
• again, other market participators bought at 10.64, letting the current rate jump back
• then the manipulator placed a really huge Ask order at 9.70. Shortly thereafter, he placed a smaller, Ask order (60 if I recall correct) at the very lower bound of the possible trade range
• this was commented in the forum
• shortly thereafter, other participants, including myself, started to buy away the lowest Ask
• then the manipulator sprayed the spread with small orders, to conceal where the large order is placed
• the other participants bought away the small camouflage orders.
• this is the time when you took your 1st screen shot
• next, other participants started to buy into the huge blocker Ask order at 9.70, reducing it significantly
• at this point, suddenly the walls at 9.70 and at 10.64 were removed
• the market quickly re-formed around 10.64 and then started moving up
• there was some pushing up and down around 11, until someone placed a 2000 BUZ bid wall at $11
• some sold into that, then the market re-formed above and basically settled down
• somewhere around this time, the closure and mark-to-market happened (I can't reliably recall the precise time point)
• this is when you took your second snapshot
• immediately thereafter, Fireball posted to the forum and indicated, that he forcibly closed some dangerously large short positions

Basically that seems to have been happengin right now
All the blocking Asks are gone and we're jumping up to 11

We had to liquidate some percent of clients short positions because of the high risk.

[Stephen Gornick]

Wait, where does it come from? [...] to get futures price to move from $11 to $12 you need other market participants.

I edited my post, I was trying to make the point how there could be exposure to the site when there is forced margin selling (and thus not a "closed circuit" as it was claimed", and that argument was easier made from a simple example of just two participants.)

What I see here is that somebody sold a shitload of BTC, filling all available bids.
[...]
it's kinda too messy for my taste.

"shitload" is relative.  I don't know the actual trading volume but it appears a single participant with just a 100 or so BTC balance using 1:10 leverage could have been responsible for most of -- if not all of, the bizarre trading.

[killerstorm]

I edited my post, I was trying to make the point how there could be exposure to the site when there is forced margin selling (and thus not a "closed circuit" as it was claimed", and that argument was easier made from a simple example of just two participants.)

As I said exchange is allowed to close winning guy's position too (if there is not enough liquidity), and so winning and losing guys will simply cancel each other: var. margin amount will be moved from losing guy to winning guy.

So it IS closed circuit. And that means that there IS counter-party risk, i.e. you cannot depend on futures contract being honored.

Of course, exchange might simply choose to put its own money on the table instead of forced liquidation of winning side's position. But it is not required to do that according to contract.

"shitload" is relative.  I don't know the actual trading volume but it appears a single participant with just a 100 or so BTC balance using 1:10 leverage could have been responsible for most of -- if not all of, the bizarre trading.

Yep, people need to realize that currently it's possible to wreak havoc with relatively small sums of money.