How about this:
Say Gox had liquidity issues. Gox suspends BTC withdrawals for period and creates unease in the market. Since they now don't have to hold BTC to cover withdrawal requests, they are free to sell them for $.
When people start worrying, Gox releases a statement pointing the finger the Bitcoin protocol, but is not very informative (they could have said that the issue is known since 2011, their wallets are not coded to handle it correctly and pointed to independent the resources/articles that would have calmed sellers). Gox expects a flash crash with a swift recovery as people realize their statement is misleading and that the problem is far from catastrophic.
So when investors panic sell, thinking the BTC protocol compromised, the price drops & Gox buys. They now have much more BTC - enough to cover all withdrawal requests (and any losses incurred due to the "transaction malleability" issue).
If one were to examine Gox's own BTC movements on the blockchain, I wonder if could you see them taking advantage of the flash crash...
Thanks for the clear explanation, it certainly sounds plausible if the company was having liquidity problems. It also reeks of blatant market manipulation and you are right about the blockchain being possibly revealing of this. I've no doubt that external trading is going on at some point here, any company would as part of it's risk mitigation strategy but the question would be what was the timing of their actions in all this. Is anyone aware of suspicious activity on the blockchain to suggest this may have happened?
