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[Valence]

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[Waschtel]

Good question. I think mature platforms and markets avoid this kind of manipulation by having a well thought out trade-matching system. Needless to say, Mt-Gox seems to be really bad at this. I don't know if they've published their system - that in itself would prevent most manipulations, because the market could detect manipulation strategies and counteract: Manipulators always have to fear that they lose more coins in the sell-off part than they gain in the buy-back part, and if traders detect a manipulation strategy, their combined reactions would prevent manipulation.

In a mature market, you would also have something like the SEC auditing Mt-Gox, making sure they themselves don't manipulate the price - right now, they would be in a prime position to do so. If the trading platform manipulates, then all bets are off.

[Matumaru]

Totally agree with your words. I was explaining that in the same way to some potential investors, about the risks and games on BTC trading.

Also, I added a term for it: "Broom effect". You make it break, and after you broom the pieces.

[haploid23]

OP, I've always understood it like how you described it as well. But this manipulator also runs a big risk if not very many people panic sell, rather they just buy up all his order. Then if he buys back in, BTC value will be higher than when he sold it at, assuming he buys back the same amount of coins.

[501]

Yes that is the basic idea behind how it works. However at this point, it baffles me as to why people still panic sell, as if they haven't realized that bitcoin is a volatile investment and 20% fluctuations aren't too uncommon. They just see it drop by $20 and immediately panic sell, then they see it rise back up and immediately panic buy, and this is how most people lose money trying to be traders.

[monsterer]

I think the method you described is extraordinarily risky, because if the price doesn't get moved into a downward trend, then the seller loses a lot of money.

They might actually split their sell into multiple smaller chunks, submitting them at regular intervals so that it appears the price is naturally trending down.

Another way a seller can manipulate the price more safely is by using fake buy walls. If the seller places a huge buy order at a safe distance from the current price (so it doesn't get executed), other participants will come in to place their orders above this wall (which is seen as a huge vote of confidence in a coming up-trend) in order for them to get executed sooner. This can cascade into an upward trend in price with multiple buyers wanting to get in on the action, all without the manipulator actually trading anything.

Then, once the price is high enough, the seller removes the buy wall, and executes a market sell order, which he will then profit from.

Cheers, Paul.