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!

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[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?

[prof7bit]

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?

You can also run the balancer bot (everybody could do it) its here in the trading disussion forum and its well documented. Its less agressive, orders are much smaller (and therefore its also less dangerous and it will never run out of money) but the effect is the same, it will harvest volatility (and therefore make "them" harvest less and also make it harder to pump) by placing limit orders above and below current price. Using a bot without emotions removes the "panic" component from your trading and it also makes you immune to all other forms of psychological manipulation that could result in irrational trading decisions.

[Odalv]

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?

You can also run the balancer bot (everybody could do it) its here in the trading disussion forum and its well documented. Its less agressive, orders are much smaller (and therefore its also less dangerous and it will never run out of money) but the effect is the same, it will harvest volatility (and therefore make "them" harvest less and also make it harder to pump) by placing limit orders above and below current price. Using a bot without emotions removes the "panic" component from your trading and it also makes you immune to all other forms of psychological manipulation that could result in irrational trading decisions.

URL ?

[Rampion]

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.

This happens because market depth is ridiculous. Just check the order book charts, nowadays we have aprox. $20M sitting on the bid side and BTC140k on the ask side. Volumes are low, this is penny stock market, a peanut in economic terms... And thus crazy, fun and unstable as hell

[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.

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

Pending....  2 weeks left in the semester then I'll put some time into cleaning it up and documenting it.  Pull requests are always welcome if you want to do some reading and add a few comments.  The code is pretty straightforward if you can read ruby.

[jzcjca00]

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.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

[BTC Books]

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

...
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.
...

Unsuccessful compared to what?

This latest spike and crash we only lost 80% of the exchange rate (from $266 > $50ish).  And that, only for a very brief period.

In the June '11 monster, we lost roughly 95% of the exchange rate, and it lasted forfuckingever.

Re-examine the basis for your assumption.

[notme]

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.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

[prof7bit]

balancer

URL ?

https://bitcointalk.org/index.php?topic=181584.0

[jzcjca00]

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.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

"A whale would eat them?"  What does that mean?  Please explain.

I had to limit the trading range because I have a limited number of bitcoins.  When the price goes above $200, all my assets dedicated to this system are tied up in fiat.  Then I must simply wait for the next crash to buy back in.

I know there are risks to my system:
1.  The price of Bitcoin could go below my trading range and stay there forever.  I'm left fully invested in bitcoins that have little value.  This is the same risk as "buy and hold."
2.  The price of Bitcoin could go above my trading range and never crash back down.  I don't actually lose anything, as I still have the fiat.  This is the same risk as not investing, except that my reserve stash of coins goes up in value.
3.  The exchange could fold and not return my fiat and/or bitcoins.

I choose this method because I believe Bitcoin is most likely to continue to show extreme volatility around an aggressive uptrend.  The best predictor of future behavior is relevant past behavior.  I was interrupted while writing this post by a flash crash, from $146 to $137.5 to $142.8 in 9 minutes.  I'm still testing my algorithm with manual trading at this point.  I closed out 7 open trade pairs and opened 3 new ones.  It's good to know that my assumptions are still valid.

I also choose it because price stability is good for Bitcoin.  If lots of people start taking advantage of the volatility, we can make Bitcoin much more viable.

[im3w1l]

Tried to do this. Price increased. Permanently. I think the trend is comparatively strong compared to the noise.

[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.

I forgot one other obvious sign.  The market will go for many hours with volumes of less than 100 bitcoins per minute.  Then, out of the blue, 5,000 or 10,000 bitcoins get sold all at once.  Are you suggesting that this is just random coincidence, that 1,000 people just decided to sell 10 BTC at the exact same instant?  This happens fairly frequently.  It sounds much more like deliberate market manipulation to me!

I've provided the data you requested.  Are you going to take back the "tin foil hat" comment?

[zeroday]

DEALER NETWORK = Volatility Reduction Group.

It will be the main topic at Bitcoin Supernode Summit on May 9-12



Read more at https://bitcointalk.org/index.php?topic=192008

[notme]

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.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

"A whale would eat them?"  What does that mean?  Please explain.

I had to limit the trading range because I have a limited number of bitcoins.  When the price goes above $200, all my assets dedicated to this system are tied up in fiat.  Then I must simply wait for the next crash to buy back in.

I know there are risks to my system:
1.  The price of Bitcoin could go below my trading range and stay there forever.  I'm left fully invested in bitcoins that have little value.  This is the same risk as "buy and hold."
2.  The price of Bitcoin could go above my trading range and never crash back down.  I don't actually lose anything, as I still have the fiat.  This is the same risk as not investing, except that my reserve stash of coins goes up in value.
3.  The exchange could fold and not return my fiat and/or bitcoins.

I choose this method because I believe Bitcoin is most likely to continue to show extreme volatility around an aggressive uptrend.  The best predictor of future behavior is relevant past behavior.  I was interrupted while writing this post by a flash crash, from $146 to $137.5 to $142.8 in 9 minutes.  I'm still testing my algorithm with manual trading at this point.  I closed out 7 open trade pairs and opened 3 new ones.  It's good to know that my assumptions are still valid.

I also choose it because price stability is good for Bitcoin.  If lots of people start taking advantage of the volatility, we can make Bitcoin much more viable.

A whale is a large trader.  When a large trader wants to take a position, they wait for a large enough portion of what they want to be available on the order book.  This helps them to make their trade without creating the types of trading patterns that TA can pick up on.  If the TAs catch on to you before you trade a good chunk of what you want to move, they will move it against you.

I'm wasn't dishing on your methods.  In fact, it's essentially what I do with my bot.  I just don't believe the risk/reward ratio would stay low enough at the 10k BTC level for it to be worth it.

But, now that we're here, I'll warn you that you're competing with bots who can automatically set up the new bids and asks when an order is taken.  Without some type of automation, you'll be missing out on most of the profits to be had.

[dbru77]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

[jzcjca00]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

There is nothing wrong with peaceful assembly, as long as it does not involve initiation of force.  The banks use the power of the government to steal from us.  That's WAY different from a group of peaceful individuals freely working on a project together.  Can you not see the difference?

As for eliminating human instincts, you may have missed "rule" #2 of this system:

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.

One thing that's awesome about trading volatility is that I had an awesome trading day today, even though we were overall way down, all these spikes and dips gave me 68 trades.  I increased my holdings by over 0.5% in a single day!  Compare that to a savings account that yields only 0.23% per year!

And I'm still experimenting with the algorithms.  I expect to do much better when I've honed the algorithm, gotten to a lower commission tier, and automated the trading.  As for eliminating human instincts, this group is all about greed!

You may be right about one thing.  This forum is insane, if by that you mean exhibiting behavior outside if the societal norm.  The normal person eats GMO corn and watches Fox News, and I'm sure no one here fits that mold!

[dbru77]

Obviously, I exaggerated a bit and maybe I did not read enough to really understand what you try to achieve.

Sorry for that "make fun of it" approach, congratulations for your trades.
Trying to use this extreme volatility for daytrading is way too hectic for me.

[Pteppic]

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

You could benefit by having a more sophisticated strategy which allows you to make more money and also will not run out of BTC or fiat whatever the price does. If the anti-volatility group wants to be more effective, you could develop your own version of the aricie trading bot which was set up and made open source for the explicit purpose of reducing volatility. I don't know whether it is working at the moment, but the source code is available so it gives you a good starting point and an insight into more effective market making strategy.

The main pointer for your approach is to have smaller orders near the current market price and bigger orders further out. Actually, thinking about it, the aricie bot might be hamstrung by the new restriction of 6 orders per minute at gox. It is still worth looking at, though, to see an implementation of a market making alogrithm.

[Prattler]

Despite a lot of criticism, I think the original idea is extremely good!

Money is about trust. Money can only function if people trust it. If you trust bitcoin, then:

Buy low and sell high. By doing that, you earn profit for yourself and help bitcoin by decreasing volatility. Lower volatility makes merchants and new adopters more confident, which over time will make more people trust bitcoin.

Finally, this is completely decentralized! Jzcjca00 is not telling you what to do, Jzcjca00 is just asking that you make a speculation strategy and stick to it both through the euphoria and the tough times!

[crumbcake]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

There is nothing wrong with peaceful assembly, as long as it does not involve initiation of force.  The banks use the power of the government to steal from us.  That's WAY different from a group of peaceful individuals freely working on a project together.  Can you not see the difference?

As for eliminating human instincts, you may have missed "rule" #2 of this system:

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.

[...]

This is a variant on the "Maximize profits and do what's best for Bitcoin at the same time" argument, unless you see more than simply semantic difference between "maximizing profits" & "not sacrificing profits"?
If that's the case, why muddy your argument (unless you think there's an equally profitable strategy, but that's just ... sophistry)?  Don't be afraid of saying what you mean, use language that's simple but bold -- like this:

I have devised an optimal trading strategy guaranteed to always maximize your profits! [describe the mechanics here]

Terse.  Concise.  Guaranteed to stand on its own merits.  Laissez faire in action!  If Bitcoin benefits in the process, hey -- gravy!