The Mt Gox Master Plan

[bitrebel]

What if Mt Gox, as an exchange, waited and waited for each good opportunity to buy bitcoins himself [Mark], at the lowest price he could, and sell them off through his own exchange each time, using the earnings to buy up more bitcoins at the cheapest price, thus acquiring 500,000 bitcoins in a very short period of time?

He would not have done anything wrong, really, legally, but his advantage as an exchange would be considered something of a "conflict of interest", yes? or No?

I'm pretty sure the 500,000 bitcoins that got hacked into and sold off through the exchange that early morning, were his. I never had much doubt about that. Originally I speculated that maybe the he was the hacker and tried to benefit from other people's coins, but now i'm thinking.....how would Mark have legally acquired 500,000 bitcoins? That's the only way I can think of? (If the 500,000 bitcoins were in fact his, which I believe they were)

[ploum]

Why would he have an advantage as an exchange? The guy running the exchange has no more information than we have, except maybe the black pool.

Other than that, making money by buying low and selling high is more or less what every speculator is trying to do, isn't it?

[bitrebel]

Why would he have an advantage as an exchange? The guy running the exchange has no more information than we have, except maybe the black pool.

Other than that, making money by buying low and selling high is more or less what every speculator is trying to do, isn't it?

Well, if you were making a percentage of every trade, and say , on black friday, with 300,000 trades, you cleared approx. $40,000 roughly, and when prices dipped, or you created artificial selloffs and prices dipped, you used your profits to buy up everything you could, eventually in short time, you would a mass a large sum of bitcoins, right?

Being the exchange, I don't think you are supposed to use your own exchange for trading. That's some form of manipulation of the markets, right?

[DonnyCMU]

So... the 'Master Plan' is to... buy low... and sell high... -_-"   and accumulate your way to 500k coins

Well I wish I could master this plan too!

(the title is so misleading)

[ploum]

Well, if you were making a percentage of every trade, and say , on black friday, with 300,000 trades, you cleared approx. $40,000 roughly, and when prices dipped,

The money they earn with the trade is because of their work. It is exactly the same as the money you earn with you own work. This is paid by the users and is well accepted. You know, when signing on MtGox, that you give 0,65% of you trade as a fee.

or you created artificial selloffs and prices dipped, you used your profits to buy up everything you could, eventually in short time, you would a mass a large sum of bitcoins, right?

How could they create artificial selloff? Every order is done by an user. The only thing that the owner could manipulate is to add fraundulently founds to his own balance. Let say that he add 10000$ without effectively sending those to the bank account. Then, indeed, he can do some transaction. Well, in that case, the money would have to be send anyway as soon as someone withdraw.

Thus, there is no real fraud.

Let say that MtGox owner create thousands of bitcoins to manipulate the market. This is a big risk because if there is a bank rush and everybody withdraw their bitcoins, they will not be able to pay.

Being the exchange, I don't think you are supposed to use your own exchange for trading. That's some form of manipulation of the markets, right?

How are they supposed to change their bitcoin for dollars then? They probably have lot of providers who don't accept bitcoin. And how would you enforce such a rule anyway?

[bitrebel]

So... the 'Master Plan' is to... buy low... and sell high... -_-"   and accumulate your way to 500k coins

Well I wish I could master this plan too!

(the title is so misleading)

Well consider if you were making a large profit daily, like say, $3000 ave. Okay?
That's with approx. 30,000 trades daily.

With that money you could afford to buy bitcoins daily at the best prices it reached each day. It's not a cheating thing to do, really, but isn't it a conflict of interest to do that in his own exchange?

In a very short time, he could have easily acquired the 500,000 bitcoins, but would it have been completely legal?

I'm just bringing this up, because he is hiding something in relation to the account that held 500,000 bitcoins, and if it's his, and it's held legally by him and he did nothing wrong, then why not reveal that it was theirs?

[Pieter Wuille]

So... the 'Master Plan' is to... buy low... and sell high... -_-"   and accumulate your way to 500k coins

Well I wish I could master this plan too!

(the title is so misleading)

Well consider if you were making a large profit daily, like say, $3000 ave. Okay?
That's with approx. 30,000 trades daily.

With that money you could afford to buy bitcoins daily at the best prices it reached each day.

How is that different from anyone else making a legal profit of $3000, and using that to speculate on bitcoin trading?

[JoelKatz]

Being the exchange, I don't think you are supposed to use your own exchange for trading. That's some form of manipulation of the markets, right?

Umm, no. It would be pretty boneheaded to trade on someone else's exchange if you owned your own exchange. Trading on your own exchange is one of the ways you help keep prices stable. If the price of a currency drops lower than it should be on your exchange (compared to other exchanges), you buy it up to protect the people selling on your exchange from being underpaid. If the price gets too high (compared to other exchanges), you sell currency to protect the people buying from your exchange for overpaying. This makes you money and benefits your exchange customers. It benefits the market generally by reducing volatility. It's win/win/win. It would be insane to discourage this or see it as "manipulation".

[andes]

My thought from the start is that just one Exchange concentrating 90%+ of the trade of Bitcoins is not healthy. Its a risk for Bitcoin, no matter how honest the founders of the exchange. Sooner or later corruption would be unavoidable. This is history repeating itself for hundreds of years.

On the other hand, 2 or 3 big closed exchanges is not the solution either, they could become a cartel in the shadow.

Is there any technical way of doing a open source Exchange, with open records for everyone to see? This would be the only possible solution to avoid corruption and concentration of power.

A closed private fishy system dosent cut it.

This is my humble opinion, after weeks of pondering the matter.

[killer2021]

What if Mt Gox, as an exchange, waited and waited for each good opportunity to buy bitcoins himself [Mark], at the lowest price he could, and sell them off through his own exchange each time, using the earnings to buy up more bitcoins at the cheapest price, thus acquiring 500,000 bitcoins in a very short period of time?

He would not have done anything wrong, really, legally, but his advantage as an exchange would be considered something of a "conflict of interest", yes? or No?

I'm pretty sure the 500,000 bitcoins that got hacked into and sold off through the exchange that early morning, were his. I never had much doubt about that. Originally I speculated that maybe the he was the hacker and tried to benefit from other people's coins, but now i'm thinking.....how would Mark have legally acquired 500,000 bitcoins? That's the only way I can think of? (If the 500,000 bitcoins were in fact his, which I believe they were)

here we go again....

[zby]

Why would he have an advantage as an exchange? The guy running the exchange has no more information than we have, except maybe the black pool.

Black pool is one advantage - but the bigger one is the current balances and also the time and dates of in and out transfers.

[tomcollins]

Why would he have an advantage as an exchange? The guy running the exchange has no more information than we have, except maybe the black pool.

Other than that, making money by buying low and selling high is more or less what every speculator is trying to do, isn't it?

He also knows when money is coming into the site through deposits.  You see a lot coming in, you buy, then sell off at the top.  It's actually potentially really profitable.

[JoelKatz]

My thought from the start is that just one Exchange concentrating 90%+ of the trade of Bitcoins is not healthy. Its a risk for Bitcoin, no matter how honest the founders of the exchange. Sooner or later corruption would be unavoidable. This is history repeating itself for hundreds of years.

I don't think it matters how concentrated the exchanges are. The fundamental problem is not exchange but banking. If Mt Gox only paired buyers with sellers and didn't hold anyone's money, the damage done would have been quite minimal.

And the irony is that you don't need anyone else to hold your bitcoins.

[andes]

This is not a question of IF. It is obvious they can profit form information only they have. I am not saying they are using this information for personal gains right now, but hey, who could avoid the temptation in the long term?

[saqwe]

Yeah and actually mtgox is a subsidary of the bilderberg group  

[JoelKatz]

This is not a question of IF. It is obvious they can profit form information only they have. I am not saying they are using this information for personal gains right now, but hey, who could avoid the temptation in the long term?

We would hope they wouldn't, because it benefits everyone for them to do so. By acting on secret information, they make the market price reflect that secret information, effectively publicizing it.

It works the same way as insider trading. Say you know a company's stock is likely to dip. You sell that stock. This causes the price to dip, communicating to the market that the price is too high. This cushions the drop so it is more spread out rather than sudden, benefiting the market generally.

[andes]

This is not a question of IF. It is obvious they can profit form information only they have. I am not saying they are using this information for personal gains right now, but hey, who could avoid the temptation in the long term?

We would hope they wouldn't, because it benefits everyone for them to do so. By acting on secret information, they make the market price reflect that secret information, effectively publicizing it.

I think you dont know what you are talking about. 

[JoelKatz]

I think you dont know what you are talking about.  

If you know the price of bitcoins will go down, you sell them. This makes the price of bitcoins go down sooner than it would have otherwise. It also means they won't go down as sharply. This reduces the volatility in the market and benefits everyone. You can sell against a slow drop to protect yourself. It's much harder against a sudden drop.

We *want* people to trade on any information they have as soon as humanly possible so the market can reflect that information. Hidden information is very bad for a market -- it means people are paying too much or getting too little.

[andes]

This is not a question of IF. It is obvious they can profit form information only they have. I am not saying they are using this information for personal gains right now, but hey, who could avoid the temptation in the long term?

We would hope they wouldn't, because it benefits everyone for them to do so.By acting on secret information, they make the market price reflect that secret information, effectively publicizing it.

It works the same way as insider trading. Say you know a company's stock is likely to dip. You sell that stock. This causes the price to dip, communicating to the market that the price is too high. This cushions the drop so it is more spread out rather than sudden, benefiting the market generally.

So by your judgement, insider trading benefits the market generally! Ha ha...

[JoelKatz]

So by your judgement, insider trading benefits the market generally! Ha ha...

Yes, it benefits the market generally. It may harm specific groups of people, particularly when it's a violation of a confidentiality agreement, but it benefits the market generally.

For example, when a CEO trades against his own stock based on inside information this hurts his stockholders, and he has a legal obligation to protect their interests. But it benefits the market generally by appropriately reducing the value of the stock as quickly as possible. (The CEO benefits, the market benefits, the stockholders suffer. The crux of the crime is that the CEO has betrayed his stockholders.)

If you believe otherwise, feel free to present an argument.