The Volatility Reduction Group (Market Makers)

[jzcjca00]

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.

They start rallies by gradually, relentlessly buying when the price is low.  These rallies become self-sustaining as more and more investors pile in, not wanting to miss the runaway Bitcoin train.  Then they create flash crashes by selling huge blocks of bitcoins at the top, accompanied by DDoS attacks to further increase the panic selling and completely trash the price.  Then they start the cycle over again.

They don't give a damn about the success of Bitcoin and scoff at the idealistic dreams of the true believers.  The long-term effects of their actions are extremely damaging to Bitcoin, as article after article points out that Bitcoin is useless as a currency because of the extreme volatility.

It’s impossible to call all the tops and bottoms without being privy to their plans, but I believe we can reduce their profits, add stability to Bitcoin, and yield some profit for ourselves at the same time.

The secret is for the true believers to start acting like “market makers.”   A market maker is “a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.”  Market makers add liquidity and price stability to markets.

We cannot succeed simply by buying and holding.  We must actively fight against the forces that are working to undermine Bitcoin.

This is my proposal for a Volatility Reduction Group (Market Makers):

1.  We do not need to act in a coordinated way.  We are better off with a distributed defense, where each individual acts independently.  Specifically, we should not all pile onto the same buy and sell points, as that leaves us vulnerable.  However, we can use this thread to share our successes, failures, and ideas with each other.

2.  No one needs to sacrifice profits to participate.  The goal of a market maker is to buy low and sell high, profiting from most trades.  As long as the market shows significant volatility, we can expect to do better than those who just buy and hold.

3.  The actions of the manipulators are carefully crafted to psych people into panic buying when the price is high and headed for the moon, and into panic selling when the price falls into an endless black hole.  The market maker must resist these panic errors.

4.  Market makers buy when the price is lower than usual.  The lower it goes, the more we buy.  We know that crashes are often accompanied by DDoS attacks, so we use long-standing limit buy orders to make sure they happen.  We know that most crashes are relatively small (10-40%), so we gradually buy all the way down and don't try to time the bottom.  At the bottom of every major crash, we stay “all in” and patiently wait for the next cycle.

5.  Market makers sell when the price is higher than usual.  We use long-standing limit orders to make sure the sells execute at the appropriate time.  The higher the price goes, the more we sell, waiting patiently for the inevitable correction.  Just when you're certain it will never crash again, that’s when the bottom drops out.  (However, as true believers, we know that Bitcoin will eventually be worth $1 million each, so we never sell our last few coins.)

6.  We expect the average price to increase over time, so after each crash, we wait until an even higher price before selling into the next overheated rally.

7.  This is a thinking man’s game, played gradually over weeks and months.  The enemy’s tools are patience, cynicism, and panic.  Our tools are patience, discipline, comradery, and optimism for a better future!

Here’s how to join us.  First, figure out what you think Bitcoin’s price should be, if all the manipulators went away.  As of this writing, I'm estimating that that the unmanipulated price would be around $125.  At that target price, you should be half in fiat and half in Bitcoin.

The higher the actual price is above the target, the the greater percentage you should hold in fiat.  The lower the actual price compared to the target, the more should should hold in Bitcoin.  Buy or sell as necessary to adjust your percentage holdings.

Place buy orders totalling all your fiat scattered below the current price, and place sell orders totalling most of your bitcoins scattered above the current price.

When the price goes up and some of your sell orders execute, place buy orders to reinvest those funds at a lower price.  When the price goes down and some of your buy orders execute, place sell orders to switch those coins back into fiat at a higher price.  You profit on every pair of trades.

Never sell all of your coins.  If enough people join this strategy, the new stability will be good for long-term strength.  Eventually we hope to leave the 3-digit and 4-digit numbers for good.

Prepare yourself mentally for the fact that you'll be mostly in fiat, missing out on some amazing rallies, and mostly in Bitcoin when the future seems most bleak.  Be ready for the fact that some of your limit orders might just sit there for months.  It will not be easy, but stick with the plan, and it should be profitable!

[nkspace]

read the frirst sentence +1, now to get back back to read your thread

[RationalSpeculator]

hey jzcjca00

I like your plan very much. I agree that's the only way to stabilize bitcoin price more today. I'm already doing something similar but I am considering to change strategies and go for the buy and hold strategy if we get another bottom and I am fully loaded on bitcoins again.

The reasons why I think buy and hold is better:
1. in the long run it seems to be more profitable, for some reason my stash of bitcoins only seems to go down while I do buy low and sell high.
2. it's simpler: all this trading requires followup, putting in orders etc
3. it's more safe: less exchange risks, less bank transfers, less tax accusation risks,

True that buy and hold does not add very much to stabilizing the price today. But I care more about my profit than about the stability of the bitcoin price. Also, since buy and hold seems to be more profitable, and profit means generally you are doing more useful and valuable stuff than the less profitable, it might be that we are missing something.

For example
1. maybe volatility of price is not bad at all, and is actually the one thing that attracts the most new users to bitcoin.
2. volatility will automatically go down as market cap goes up, simply because a single user becomes less and less powerful to cause ups and downs


I'm just guessing, but I think 9 in 10 bitcoin millionaires today followed a buy and hold strategy while probably only 1 in 10 did active trading. If my guess is right, then I should also do buy and hold, simply as to increase my chances. However, I have no proof of this statement.

I'm curious what you think of these counterarguments?

[fitty]

There are already big players who actively try to limit volatility. It's up for debate whether that's a good or bad thing.

Anywho, just realize that people are pumping up the price to sell, then dumping coins to push the price down so they can buy back in. Buy/sell along with them, you'll make plenty of money. It's pointless to fight it, I'm not even sure if you were successful it would be a good thing. You're trying to take an unregulated market, unregulated virtual currency, exchanges that are not the least bit trustworthy, and regulate them? Control them? Control the price?

MtGox has an insane amount of power in the market. We don't even know if the volume is real, the buys/sells are real, the bids/asks are real, really we can't verify anything that they tell us. Anyone reading charts, analyzing data, trying to stabilize the market, could be wasting their time because those actions assume MtGox is 100% legit, honest and telling the 100% truth. Which is highly debatable.

Accept the volatility, make money off it, you'll save yourself a lot of energy and make more money. And I doubt a "wild" market will hold back or kill Bitcoin. If Bitcoin needs a stable exchange price, then it's already fucked, because that won't ever happen. Bitcoin doesn’t need anything, except the community. That isn’t going anywhere, anytime soon. At $5 or $500 Bitcoin will endure.

[prof7bit]

Accept the volatility, make money off it, you'll save yourself a lot of energy and make more money.

This is exactly what OP is proposing. Make money from it to make "them" make less (need more) money.

[jzcjca00]

There are already big players who actively try to limit volatility.

Thanks for your answer.  You've given me a lot to think about.  This was the kind of conversation I hoped to start.

Sometimes, looking at the walls, it does seem like there are major players trying to limit volatility, but I have to wonder why they are so unsuccessful!  They let the price go stratospheric, then crash by 80%!  The result was a slew of bad press.  Was that their goal?  I cannot see how this can be good for Bitcoin in the long term.

They don't even seem to be able to stop the micro flash crashes.  Today around 12:50:00 we saw prices go from 134 to 131 to 139.88 to 135 in a 10-minute period.  That's not very stable.

On a slightly larger scale, in the past week the price went from 110 to 166 to 120.  Very unstable.

Is the problem that they don't have enough money to counter the actions of the manipulators?  If so, then perhaps they need to recruit more people to help, which is the point of my proposed group.

Is the problem that the manipulators made the stabilizers ineffective through DDoS?  If so, then are they planning to make better use of limit orders from now on?  Are they considering taking action in the future to stabilize prices on the other exchanges when Mt.Gox goes down?

Perhaps we need more discussion about how best to stabilize the market, because they are not succeeding using their current methods.

[GigaCoin]

What you discuss is great on paper, however Bitcoin markets are completely un-regulated, which allows pump/dump clubs to easily manipulate the market.

A coordinated effort of the masses to fight the 'manipulation' machine would be very difficult, unless a body of members is formed to protect Bitcoin based on some of your ideas, etc. But then people would scream "regulation", as they are now with the whole Bitcoin Foundation (which is trying to regulate bitcoin exchanges/trade)

I believe a community effort is possible, but it's something that needs to be born out of the free-market ideas, which i'm sure it will with time (unless regulators take over ofcourse!).

[odolvlobo]

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.

Do you have any data under your tin foil hat to support this claim?

I don't think market makers are a solution to the problem you see. Market making might reduce some liquidity spikes, but it wont stop the big price swings. First of all, the function of a market maker is to provide liquidity and reduce the bid/ask spread. Second, a market maker has to be nimble. A market maker that tries to block price swings by putting up big walls is just going to lose a lot of money.

Anyway, I don't disagree with your goal. Increased volume reduces the effect of large trades, but what we really need are more big exchanges and an improved arbitrage channel between them.

[Malawi]

There are often pretty large walls that gets removed just before the dumping starts.

[ajk]

There are often pretty large walls that gets removed just before the dumping starts.

Why do you think this is? the wall cant be there if the person is deciding to just sell if the coins are available, unless there is another hand with equal amounts of coins there is a reason the wall goes before the price starts going down, conversely if you see a bid "wall" and it gets removed the price moves upward unless someone else with an equal or more number of coin decide to buy before them,

derp derp

[phelix]

Accept the volatility, make money off it, you'll save yourself a lot of energy and make more money.

This is exactly what OP is proposing. Make money from it to make "them" make less (need more) money.

That's pretty much what a trading bot does.

[Malawi]

There are often pretty large walls that gets removed just before the dumping starts.

Why do you think this is? the wall cant be there if the person is deciding to just sell if the coins are available, unless there is another hand with equal amounts of coins there is a reason the wall goes before the price starts going down, conversely if you see a bid "wall" and it gets removed the price moves upward unless someone else with an equal or more number of coin decide to buy before them,

derp derp

If an investor has a very large stash, he/they can put up a buy-wall to push the prices up. If needed the same investor can do many small buy-orders. As prices move upwards the buy-wall are also moved upwards to give buyers confidence to buy at higher prices. When there are enough buy-orders above a certain point, the wall is removed and a large sell-order is submitted.

Rinse and repeat.

PS: It's called pump and dump

Derp derp.

[meangreen]

There are already big players who actively try to limit volatility. It's up for debate whether that's a good or bad thing.

Anywho, just realize that people are pumping up the price to sell, then dumping coins to push the price down so they can buy back in. Buy/sell along with them, you'll make plenty of money. It's pointless to fight it, I'm not even sure if you were successful it would be a good thing. You're trying to take an unregulated market, unregulated virtual currency, exchanges that are not the least bit trustworthy, and regulate them? Control them? Control the price?

MtGox has an insane amount of power in the market. We don't even know if the volume is real, the buys/sells are real, the bids/asks are real, really we can't verify anything that they tell us. Anyone reading charts, analyzing data, trying to stabilize the market, could be wasting their time because those actions assume MtGox is 100% legit, honest and telling the 100% truth. Which is highly debatable.

Accept the volatility, make money off it, you'll save yourself a lot of energy and make more money. And I doubt a "wild" market will hold back or kill Bitcoin. If Bitcoin needs a stable exchange price, then it's already fucked, because that won't ever happen. Bitcoin doesn’t need anything, except the community. That isn’t going anywhere, anytime soon. At $5 or $500 Bitcoin will endure.

great post. i agree to much money in it to be legit.

[notme]

Just run this:
http://guthub.com/yrral86/rubybot

gem install bundle
bundle install
edit settings.rb
bundle exec ruby bot.rb

It does what you want, without the risk of emotion inherent in manual control of trading.

[ajk]

There are often pretty large walls that gets removed just before the dumping starts.

Why do you think this is? the wall cant be there if the person is deciding to just sell if the coins are available, unless there is another hand with equal amounts of coins there is a reason the wall goes before the price starts going down, conversely if you see a bid "wall" and it gets removed the price moves upward unless someone else with an equal or more number of coin decide to buy before them,

derp derp

If an investor has a very large stash, he/they can put up a buy-wall to push the prices up. If needed the same investor can do many small buy-orders. As prices move upwards the buy-wall are also moved upwards to give buyers confidence to buy at higher prices. When there are enough buy-orders above a certain point, the wall is removed and a large sell-order is submitted.

Rinse and repeat.

PS: It's called pump and dump

Derp derp.

BAHAHAHAHAHAHAHAHAHAHAHAH right your so smart guy you got me, WOW just WOW


thats exactly it,

[jzcjca00]

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.

Do you have any data under your tin foil hat to support this claim?

I don't have proof, but there are signs.

There was this report posted:

First there was a huge increase in users regeristing with My.Gox which started to cause the system to lag, then there was a huge sell order in the range of 5000 bitcoins which caused the price to go down as they were sold and created latency as it filled current buy orders.  That initial large drop greatly affected the price causing nervous traders to sell because of this and the current price at the time.  The continuous sell from nervous sellers, selling lower and lower to get out from under there bitcoinx crashed the market.  Then Mt.Gox shut down trading and has been repeatedly hit with DDoS attacks causing further doubt in the trading system most base bitcoin prices on.

It seems that the crash was caused by two separate events: a huge sell order of 5,000 BTC, followed by a massive DDoS.  The combination of those two events was much more devastating than either would have been alone.

Was it just bad luck that the DDoS started shortly after the huge sell order?  To me it seems more likely that they were two prongs of the same attack plan.

If the primary motive was hatred of Bitcoin and a desire to see it crash and burn, then a two-pronged attack was the best way to accomplish that goal.  However, it seems like a lot of trouble to go to just for hatred.

I believe money is a more likely motivation.  We know that they had 5,000 BTC, which means they had invested a great deal of money in the scheme, probably over a period of several weeks at a minimum.  We know they sold at the top, presumably making a lot of money in the process.  My guess is that they also bought at the bottom, or that they are accumulating now in preparation for another attack.

If it's NOT someone manipulating the market to make a lot of money, there are a lot of outstanding questions to be answered.  Why did someone dump 5,000 bitcoins all at once?  What is the purpose of the DDoS attacks?  Was it pure coincidence that the two events happened at the same time?

At this point market manipulatin for monetary gain seems the most plausible explanation to me.

It's not as if market manipulation is unusual.  People do "pump and dump" all the time.  Do you really find the idea so crazy that you accuse me of wearing a "tin foil hat?"  Or was that just supposed to be a funny remark?  Sometimes it's hard to tell whether a post is intended as an insult or a joke.

[effect]

I'm only new to bitcoin trading but that's exactly what I have recently started doing. If more people are spreading buy/sell orders at set prices, then individuals won't be able to manipulate the market as easily plus you can potentially make a lot more than buying and holding.

[lebing]

It's not a bad plan - but honestly it requires much more time/ patience/ strategy then simply holding... and if you are believe in it long term, you remove 50% of your profit potential by keeping that much in fiat.



full disclosure: I keep about 15% in fiat (im part of the wall at 120) and use a similar strategy, just far lower %.

[ManBearPig]

You're always going to lose to the big money.

Make few, well-considered trades and don't advertise what your reaction to DDoS or other market manipulation is or might be.

That's what I'm doing anyway. I'm a natural contrarian and that has saved from me making a few mistakes in this market.

Don't be the 80%/90% who are predictable.

[jzcjca00]

Just run this:
http://guthub.com/yrral86/rubybot

gem install bundle
bundle install
edit settings.rb
bundle exec ruby bot.rb

It does what you want, without the risk of emotion inherent in manual control of trading.

I'm having trouble finding the documentation, and the code doesn't seem to contain any comments.  Where is the documentation?