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Author Topic: Pump and Dump: Market Manipulation  (Read 3251 times)
luv2drnkbr
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June 26, 2011, 01:04:48 PM
 #1

I was talking to a friend, and randomly he brought up "it's very easy to crash a fiat market and profit from the low value.  Remember that bitcoin crash a few weeks ago; one of my buddies was part responsible for that.  We did it with those Linden dollars from that game a while back."

Now every time I've seen a post similar to that quote, I've replied something similar to "you can't buy back for the value you lost in selling trying to drive the price down, so it's not possible to profit.  Sure you can crash it by just selling a ton, but you can't profit from it."  I was pretty sure this was true, but admittedly I have zero knowledge about this kind of thing.

Now here's the bigger kicker.  The guy who I was talking to is exceedingly smart, like genius level smart, and I believe him 100% when he says this.  So I would like to have this thread going in the direction of already going on the assumption that it's possible to do it and profit from it, and I want to ask HOW would you go about it?

I won't get to talk to this guy any more for at least a few days, but this has been driving me nuts.  How can you both drive the price down and still buy up at a profit?  Do you sell a large amount and scare the market and let fear get the better of them and then slowly buy up and end up with more simply because the initial panic you caused took life of its own?  I don't know how it would be possible.  But if my friend says it is, then it is.

How would you do it?

EDIT:  I'm not talking about the recent mtgox thing, I'm talking about the going from $30 to $12 a few weeks back.

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June 26, 2011, 01:13:17 PM
 #2

I was talking to a friend, and randomly he brought up "it's very easy to crash a fiat market and profit from the low value.  Remember that bitcoin crash a few weeks ago; one of my buddies was part responsible for that.  We did it with those Linden dollars from that game a while back."

Now every time I've seen a post similar to that quote, I've replied something similar to "you can't buy back for the value you lost in selling trying to drive the price down, so it's not possible to profit.  Sure you can crash it by just selling a ton, but you can't profit from it."  I was pretty sure this was true, but admittedly I have zero knowledge about this kind of thing.

Now here's the bigger kicker.  The guy who I was talking to is exceedingly smart, like genius level smart, and I believe him 100% when he says this.  So I would like to have this thread going in the direction of already going on the assumption that it's possible to do it and profit from it, and I want to ask HOW would you go about it?

I won't get to talk to this guy any more for at least a few days, but this has been driving me nuts.  How can you both drive the price down and still buy up at a profit?  Do you sell a large amount and scare the market and let fear get the better of them and then slowly buy up and end up with more simply because the initial panic you caused took life of its own?  I don't know how it would be possible.  But if my friend says it is, then it is.

How would you do it?

You scare people, then profit off the panic.  Your friend is an ass, but he's far from the only one who will do something like that.  That's why you should be very careful trading during big swings.  Your emotions will be exploited.

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June 26, 2011, 01:13:41 PM
 #3

Remember that bitcoin crash a few weeks ago; one of my buddies was part responsible for that.  We did it with those Linden dollars from that game a while back."

Now here's the bigger kicker.  The guy who I was talking to is exceedingly smart, like genius level smart, and I believe him 100%

This same story is repeated on various forums, in various scenarios and situations, it's always 100% bullshit.

Always some spotty teen claiming "he" caused a market crash, hacked the servers or created a tornado. His lapdog friend running to forums like a faithful little brother & repeating everything he said with enthusiastic vapidness.

The crash was caused by one Mt. Gox account being compromised, and not your friend dumping a bunch of Linden dollars from Second Life.
That account was used to fill all open buy orders which means some were sold even at a token 0.01BTC price. He then attempted to cash out a ton of BTC but the $1,000 limitation kicked in.

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luv2drnkbr
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June 26, 2011, 02:01:58 PM
 #4

Remember that bitcoin crash a few weeks ago; one of my buddies was part responsible for that.  We did it with those Linden dollars from that game a while back."

Now here's the bigger kicker.  The guy who I was talking to is exceedingly smart, like genius level smart, and I believe him 100%

This same story is repeated on various forums, in various scenarios and situations, it's always 100% bullshit.

Always some spotty teen claiming "he" caused a market crash, hacked the servers or created a tornado. His lapdog friend running to forums like a faithful little brother & repeating everything he said with enthusiastic vapidness.

The crash was caused by one Mt. Gox account being compromised, and not your friend dumping a bunch of Linden dollars from Second Life.
That account was used to fill all open buy orders which means some were sold even at a token 0.01BTC price. He then attempted to cash out a ton of BTC but the $1,000 limitation kicked in.

My friend and his friends are all -- well I don't want to go into too much detail, but they're adults and very smart.  And like I said, I am 100% sure that if this guy says it's true, then it's true.

Also, I'm talking about the dip of going from $30 to $12 a few weeks ago, not this recent mtgox debacle.

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June 26, 2011, 02:03:11 PM
 #5

Thinly traded markets are easily manipulated.

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June 26, 2011, 02:06:01 PM
 #6

This is a well documented phenomena in markets. Well studied by economists. Fear and greed is the trick. What happens if you cause panic. How do you cause panic? Sell a shitload of btc, like a lot. Once people see the price drop 10$ in an hour they will panic and sell. All of this artificially induced selling is what I call the fear discount. On the other side if you want to create an artificial boom simply buy up lots of btc very quickly. The price will rise very fast and when people see this they will think, "holy crap, I better buy now before I miss this rally." Well, once you've finished buying then the price will continue to rise because of people buying into the rally. This increase in price is what i call the greed premium.

If you look at any market, its all greed and fear.

The best time to buy is when here is fear in the market (ie. the sky is falling!!!!!) and the best time to sell is when there is greed in the market.

The solution to this problem is speculators, the more speculators with even amounts of buying or selling power will make it more difficult to cause one speculator to rise or drop the market. Speculators are good for the market! They aren't bad!

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June 26, 2011, 02:09:27 PM
 #7

Thinly traded markets are easily manipulated.

Above all else, BTC supporters need to remember the above.  The game of pumping and dumping thin markets is as old as the stock market itself.  The same tricks have been employed countless times to lure the suckers in and then dump stock before anyone else can.  The run up to $30 was a classic example.  No logical market behaves that way regardless of wishful thinking about difficulty driving BTC's price to the moon.

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June 26, 2011, 02:35:03 PM
 #8

The only conceivable way to profit by selling a lot is if you didn't have to sell much and you also held a short position on a stock. If somehow by you selling a bunch, panic ensued in the small unprovoked lowering in price and in-turn caused the price to go down even further, you could profit considerably. This are, however, no short positions available on BTC.

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June 26, 2011, 02:53:47 PM
 #9

1. Bitcoin is not a fiat currency.

2. The only way you can profit from doing what you propose is by playing with psicological factors, like creating panic and make that other people sell along you, so you dont have to masively sell. This is why we had so many trolls trying to create panic here in the forums. But this is a very dangerous game because you never know how the people is going to react, the psicology is always different, so you can end up loosing big time. Its quite risky.
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June 26, 2011, 03:16:05 PM
 #10

It went to $32 on speculation, it fell back to a more reasonable price on fear.

The difference between this and say, the US form of "capitalism" (more appropriately called corporatism) is that when people are greedy and speculative the regulators look the other way, but when people are fearful, banks get bailed out. There is nothing to bail out Bitcoin when people get fearful, so it falls appropriately and stabilizes accordingly.

This is a good thing. What's happening to government-printed fiat currencies is not.

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June 26, 2011, 03:48:35 PM
 #11

Lets say you have 10 bitcoins and the market is VERY shallow.  You cause a panic by selling 5 of them. 

1 for 9
1 for 8
1 for 7
1 for 6
1 for 5

filling up a bunch of people's buy orders.  You now have 9+8+7+6+5=35 USD and the market is sitting at 5.  You now have funds to purchase 7 bitcoins back at the current market price 35/5=7.  You have gained 2 BTC for doing nothing.

This is a GROSS simplification, but you get the idea.

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June 26, 2011, 03:52:48 PM
 #12

killer2021 you are correct. "fear discount" is a neat term Smiley and very true.
small emotional markets (like bitcoin) are very easy to manipulate.
big markets (like FOREX)... not so easy. Soros made a billion in a day betting it's not practically possible, not even when the Bank of England was the manipulator  Grin
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June 26, 2011, 03:55:50 PM
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muyoso, I would add to your scenario a few scary posts on this forum about how BTC price will crash, etc.
also, maybe a few friends can trade in the same manner, and post in the same manner  Grin
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June 26, 2011, 04:01:28 PM
 #14

Lets say you have 10 bitcoins and the market is VERY shallow.  You cause a panic by selling 5 of them.  

1 for 9
1 for 8
1 for 7
1 for 6
1 for 5

filling up a bunch of people's buy orders.  You now have 9+8+7+6+5=35 USD and the market is sitting at 5.  You now have funds to purchase 7 bitcoins back at the current market price 35/5=7.  You have gained 2 BTC for doing nothing.

This is a GROSS simplification, but you get the idea.

But you are asuming that there will be people willing to sell at 5. If those people were there before the price would have gone down already. Lets actualize your example:

You have 10 bitcoins. You sell 5 of them:

1 for 9
1 for 8
1 for 7
1 for 6
1 for 5

Filling up a bunch of people's buy orders. You now have 35USD and the market is sitting at 5, meaning that the last transaction was at 5. Now you start to buy and someone due to the "panic" is willing to sell at 7, the rest only at 9. So you buy 1 bitcoin at 7, leaving you with 28USD then you buy at 9. With 28 USD you can only buy 3 bitcoins and are left 1 USD.

So you started with 10 bitcoins, and end up with 9 bitcoins and 1 USD. You lost.

As I said the only way to win in this situation is to create a panic, play with the psicology of the people and make them sell. But this is risky because if people dont buy the panic you are the one losing money.
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June 26, 2011, 04:29:30 PM
 #15

Any word on when it'll be open for trade?
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June 26, 2011, 04:37:09 PM
 #16

It went to $32 on speculation, it fell back to a more reasonable price on fear.

I'm wondering why is 32$ not reasonable and 17$ is.

To me, either bitcoin will be a failure in the coming years and 17$ is still completely unreasonable, either bitcoin will become really popular and anything below 1000$ is nothing at all.

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June 26, 2011, 05:14:27 PM
 #17

Remember that bitcoin crash a few weeks ago; one of my buddies was part responsible for that.  We did it with those Linden dollars from that game a while back."

Now here's the bigger kicker.  The guy who I was talking to is exceedingly smart, like genius level smart, and I believe him 100%

This same story is repeated on various forums, in various scenarios and situations, it's always 100% bullshit.

Always some spotty teen claiming "he" caused a market crash, hacked the servers or created a tornado. His lapdog friend running to forums like a faithful little brother & repeating everything he said with enthusiastic vapidness.

The crash was caused by one Mt. Gox account being compromised, and not your friend dumping a bunch of Linden dollars from Second Life.
That account was used to fill all open buy orders which means some were sold even at a token 0.01BTC price. He then attempted to cash out a ton of BTC but the $1,000 limitation kicked in.

My friend and his friends are all -- well I don't want to go into too much detail, but they're adults and very smart.  And like I said, I am 100% sure that if this guy says it's true, then it's true.

Also, I'm talking about the dip of going from $30 to $12 a few weeks ago, not this recent mtgox debacle.

Oh, well then, now I have good reason to believe you.
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June 26, 2011, 05:24:35 PM
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I don't want to go into too much detail, but they're adults and very smart.

My apologies then. That explains everything.
(My 11th birthday is just coming up so I didn't expect any adults to be using Bitcoin,
I'm just mining to buy Lindens for a pet Pikachu in Second Life)

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hugolp
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June 26, 2011, 05:30:41 PM
 #19

I don't want to go into too much detail, but they're adults and very smart.

My apologies then. That explains everything.
(My 11th birthday is just coming up so I didn't expect any adults to be using Bitcoin,
I'm just mining to buy Lindens for a pet Pikachu in Second Life)

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June 27, 2011, 01:07:58 AM
 #20

Excuse me if this question is naive, but with such a small market what prevents someone from buying 10k worth of bitcoin, letting that be a view-able trade causing the price to increase, then dumping it when the market goes up a bit? Rinse and repeat you are manipulating the market with a large amount of cash and making a ton of money.

What other market manipulation tactics are we susceptible to with such a small market? What kind of voluntary oversight can we enact to discourage these tactics?
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