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Author Topic: Pump and Dump: Market Manipulation  (Read 3311 times)
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June 27, 2011, 01:52:46 AM

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?

What's to say that the market will go up after you buy a large order?
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June 27, 2011, 02:04:38 AM

With pump and dump you need momentum buying to make this work. Not just one large buy order.
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June 27, 2011, 02:14:54 AM

If you buy 10K worth, you'll suddenly buy up every coin between you and some new price.  Most of the market will just watch the spread expand and think ""

You'll get some sheep chasing you, but you probably won't start a buying frenzy unless you time it with some real or fabricated "news" that suddenly makes everyone want to buy at any price.

And if you don't do that, you've suddenly got 10K worth of coin that the market's not willing to pay more than 7K for.

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June 27, 2011, 03:34:10 AM

because if you buy them all up and then sell them again you're paying up and down the same scale (or possibly a worse or better scale) so its not really manipulating the market at all... If you buy 10k BTC and then try and sell it high, you'll only sell it high if someone is suddenly willing to buy 10k that high.
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June 27, 2011, 04:40:35 AM

The correct way to do a pump and dump is to progressively buy small amounts of BTC at ever higher prices in a thin market.  That's one of the reasons MtGox often sees silly trades like 0.01BTC at $16.05, 0.01BTC at $16.07, 0.01BTC at $16.10, etc.  It's designed to run a thin market up.  As soon as you have enough followers and there's an increased amount of buy orders, dump a large amount of BTC in one hit.  The outstanding orders are filled before anyone has a chance to react.  MtGox users are relying on the bot programmers to be clever enough to program in all scenarios.  All it takes is one buggy bot with access to a lot of bitcoins to seriously affect the market.

It helps when there's a temporary sense of euphoria in the market too, as seen in the run up to $30/BTC. 

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