[2018-10-03] Bitcoin Price Manipulated by Cryptocurrency Trading Bots: WSJ

[varana95]

Bots that manipulate bitcoin price are not new, and they aren’t going away, according to The Wall Street Journal. The problem continues to draw regulatory scrutiny, as it was cited by the Securities and Exchange Commission (SEC) when it rejected several bitcoin ETF applications in August.

Andy Bromberg, president and co-founder of CoinList, which issues tokens, told the WSJ that the bots are rampant marketwide, at least at the present time.

Stefan Qin, the managing partner at cryptocurrency hedge fund Virgil Capital, uses its own bots to battle “enemy” bots on dozens of cryptocurrency exchanges worldwide. His company has built error handing functions to identify activities that are potentially illegal, referencing the crypto sector as the “Wild West of Crypto.”

How One Bot Manipulates The Market

Virgil, which specializes in arbitrage, suffered a “harassing bot” earlier this year that targeted certain ether trades, Qin told the publication, causing losses.

Virgil was checking prices every minute looking for arbitrage opportunities with cryptocurrency prices. The hostile bot would post and order to sell ether at a price lower than what other sellers were offering, prompting Virgil to try to make a buy. Right before Virgil completed the purchase, the bot would cancel its sell order. As a result, Virgil posted buy orders that never got executed, which increased the price on other exchanges, according to Qin.

This practice of faking orders and then canceling them is known as “spoofing,” the purpose of which is to create the impression that supply or demand for an asset is higher than it actually is. U.S. futures and stock markets outlawed the practice in 2010, but there have long been allegations that it is taking place in the cryptocurrency markets....

Source - https://www.ccn.com/bitcoin-price-manipulated-by-cryptocurrency-trading-bots-wsj/

[Betwrong]

Everyone knows about manipulations taking place in the market and it's a part of the game to not be fooled by them. From my point of view, forbidding such practices by law is not effective, apart from being in discord with the idea of free market. I like the words by Kjetil Eilersten, developer of Quatloo Trader. If everyone manipulates, no one manipulates, he said. That's how you deal with problems in the free market, you engage in combat instead of asking the government to outlaw your opponents.

[1Referee]

The article is clearly looking to exaggerate what's going on for sensation purposes, but it's definitely true that bots are dominating the crypto market, and that more than ever before.

What interests me the most is whether or not the operators of these bots are granted crucial insider data from the exchange, allowing them to front run people's orders and perhaps even know about large deposits and withdrawals. In an industry this unregulated and gray it would really surprise me if this isn't happening.

And then we have another tier of insider manipulation, which comes from exchanges operating bots themselves. BitMex has an internal market making desk running that trades to profit, and why wouldn't other exchanges abuse their position to do the same?

[Kemarit]

What interests me the most is whether or not the operators of these bots are granted crucial insider data from the exchange, allowing them to front run people's orders and perhaps even know about large deposits and withdrawals. In an industry this unregulated and gray it would really surprise me if this isn't happening.

Funny you mentioned about insider information because I have a theory that this bots is being run by someone from inside to put large orders and wait for the market to panic, easy manipulation. It was not easily spotted last year because of the dramatic rise, but since we are in a bearish trend, a simply jump can easily be seen so I'm also not surprise if this is happening right now. Bot and crypto trading are a perfect pair, with no government regulation.

[squatter]

The article is clearly looking to exaggerate what's going on for sensation purposes, but it's definitely true that bots are dominating the crypto market, and that more than ever before.

Algorithmic trading has become increasingly prevalent, but is it really "dominating" the market? Bots might affect the spread and cause slight aberrations, but I still believe organic market forces are overwhelmingly the driving factor for price.

I've always thought the effects of spoofing were overstated. But it's impossible to know just how effective it is (if at all) given that markets are composed of endless variables.

Everyone knows about manipulations taking place in the market and it's a part of the game to not be fooled by them. From my point of view, forbidding such practices by law is not effective, apart from being in discord with the idea of free market. I like the words by Kjetil Eilersten, developer of Quatloo Trader. If everyone manipulates, no one manipulates, he said. That's how you deal with problems in the free market, you engage in combat instead of asking the government to outlaw your opponents.

Indeed, it's part of the game. I appreciate the wild west attitude.

Spoofing happens everyday across world markets anyway. This is from earlier this year: CFTC Files Eight Anti-Spoofing Enforcement Actions against Three Banks (Deutsche Bank, HSBC & UBS) & Six Individuals

[Osamede]

The trading bots are not the problem (if they are even effective) but the fact that there are less number of big time players is the problem. If we had many whales, it will be difficult for the prices to be manipulated  at any given time. Instead of a single person owning 500k btc, things will be better if 10 persons own 50k.

[Kakmakr]

I think the most successful bot must be the "Willybot" used by Mark Karpeles back in the day, when Mt. Gox was still operating in full force. 

These bots can create havoc if they are not kept in check by the regulators and the exchange operators. I think this is why Wall Street and the SEC is pushing for more oversight <surveillance software> to be used on these Bitcoin exchanges.

Price manipulation is the main excuse used by the SEC for not approving these Bitcoin Futures, so it should get some attention. 

[deisik]

Everyone knows about manipulations taking place in the market and it's a part of the game to not be fooled by them. From my point of view, forbidding such practices by law is not effective, apart from being in discord with the idea of free market. I like the words by Kjetil Eilersten, developer of Quatloo Trader. If everyone manipulates, no one manipulates, he said. That's how you deal with problems in the free market, you engage in combat instead of asking the government to outlaw your opponents.

The problem is not with manipulation as such

I'm curious if that dude, Kjetil Eilersten, understands that you are able to manipulate the market specifically because you have resources to do that, financial, administrative, technical, and so on, while others have not. Claiming that everyone should be manipulating to avoid manipulation is equal to saying that everyone should have equal conditions, first and foremost, financial ones. But anyone with a half functioning brain understands that it is impossible and even delusional. Still, there are dudes who put it somewhat differently, and presto! It no longer looks like a stupid idea

[buwaytress]

Evidence, but shaky. You would find the same manipulations in exotic markets in forex. Bots do what people would do if they could perform at the same speed, and to think whales or "the few" are behind their computers using bots to manipulate the market? It's going to be another Bitcoin trope.

Price manipulation is the main excuse used by the SEC for not approving these Bitcoin Futures, so it should get some attention. 

And the SEC knows that proving that these markets are not susceptible to price manipulation is virtually impossible (even though, realistically, manipulation of such a huge and liquid market gets more impossible itself with every passing day). Since they know, they will always have that veto. And any of those scores of people hoping for SEC approval, also know that.

It's essentially a no-go zone for as long as that excuse is valid for use.

[1Referee]

Algorithmic trading has become increasingly prevalent, but is it really "dominating" the market? Bots might affect the spread and cause slight aberrations, but I still believe organic market forces are overwhelmingly the driving factor for price.

It may be the bear market that made the 'organic market forces' less relevant at this point in time, but is there anything organic about current market?

All I see is very predictable and calculated algorithmic moves within safe ranges where bots have far too much respect for TA, which is unseen. The unpredictability is out of the market to a larger extent, and that's the direct result of lacking market activity from Freddy and Timmy that usually turn this market into a complete (very much unpredictable) roller coaster.

I'm glad to have platforms as Bitmex allowing you to settle contracts with BTC and directly pay out in BTC as well, what more can you wish for during these times with how easy to exploit the market is? I'm long, expecting a boost to above $7000 this month and from there it will likely move up even higher with how October historically has always been one of the best months to go long, and that's exactly what motivated me to go big this time.

[squatter]

Algorithmic trading has become increasingly prevalent, but is it really "dominating" the market? Bots might affect the spread and cause slight aberrations, but I still believe organic market forces are overwhelmingly the driving factor for price.

It may be the bear market that made the 'organic market forces' less relevant at this point in time, but is there anything organic about current market?

All I see is very predictable and calculated algorithmic moves within safe ranges where bots have far too much respect for TA, which is unseen. The unpredictability is out of the market to a larger extent, and that's the direct result of lacking market activity from Freddy and Timmy that usually turn this market into a complete (very much unpredictable) roller coaster.

If Freddy and Timmy have left the market, that tells us something about the underlying market forces. It means less supply from losing investors and also less demand from mainstream investors looking to get rich quick. Markets stay range-bound most of the time -- it's equilibrium. Why would you assume it's not organic? The existence of bots doesn't imply anything "inorganic" or manipulative either. I think of bots as liquidity providers, just like any manual traders.

A range-bound market is the natural state of things until either supply or demand pushes the market into a new trend. People say markets only trend 20% of the time, which sounds about right. The rest of the time, there is no overwhelming factor to push price outside of these "safe ranges."

[deisik]

Algorithmic trading has become increasingly prevalent, but is it really "dominating" the market? Bots might affect the spread and cause slight aberrations, but I still believe organic market forces are overwhelmingly the driving factor for price.

It may be the bear market that made the 'organic market forces' less relevant at this point in time, but is there anything organic about current market?

All I see is very predictable and calculated algorithmic moves within safe ranges where bots have far too much respect for TA, which is unseen. The unpredictability is out of the market to a larger extent, and that's the direct result of lacking market activity from Freddy and Timmy that usually turn this market into a complete (very much unpredictable) roller coaster.

If Freddy and Timmy have left the market, that tells us something about the underlying market forces. It means less supply from losing investors and also less demand from mainstream investors looking to get rich quick. Markets stay range-bound most of the time -- it's equilibrium

No, I don't think it's possible. I mean ordinary people losing their interest and leaving the market for good. I don't know how true the claim is, but I heard that the most of casinos income comes from ordinary working guys (like your grandpa and grandma in their youth) gambling now and then, not from compulsive gamblers. Of course, it is questionable if crypto is like a casino (though opinions vary), but if these people left the scene completely, the prices wouldn't be sustainable as manipulors would soon leave crypto too. The bottom line is that Bitcoin at 6k+ is not something to sneeze at even if it crashed 3 times from last December highs. Basically, these highs themselves were a crash played in reverse, so to speak, and we are back to where we started at (actually, a lot better than that)

I'd rather say it is the latter who abandoned crypto, and good riddance to them

[audaciousbeing]

When people are fond of giving excuses they will always look for one and the moment they could not find, they are left with ridiculous ones to dish out. And that is exactly what is happening here. There is no one else to blame now than the bots who work is purely on what is coded into it and designed to work the way its being built. Now we have stopped blaming the whales, government, saboteurs, miners and now bots that cannot defend themselves. It seems people who engage in this kind of journalism won't stop to amaze us.

Every sector of the economy where thing are being traded, bot is being used even on the stock exchange, forex exchange market, crypto trading market or commodity market where you can set a stop limit, place an order or buy. Its all the function of bots that is being programmed by the person its expected to increase the value of her investment.

[LeGaulois]

Google "dark fiber in the USA" "high trading frequency". It is used to in the stock markets, wall street and so. It is not something hidden. Banks are well known to spend million dollars to develop algorithms for the financial market.
Still, I don't see people complaining about it

[hatshepsut93]

Google "dark fiber in the USA" "high trading frequency". It is used to in the stock markets, wall street and so. It is not something hidden. Banks are well known to spend million dollars to develop algorithms for the financial market.
Still, I don't see people complaining about it

Right, this article looks like some common clickbait piece, trading bots have been around for decades, but suddenly it's a big deal in Bitcoin. People are trying so hard to find an explanation for Bitcoin's price volatility, they try to blame it all on some whales and manipulators, but the simple explanation that the market is volatile because the tech is still very young and experimental. Similar price patterns happen with anything new.

[deisik]

When people are fond of giving excuses they will always look for one and the moment they could not find, they are left with ridiculous ones to dish out. And that is exactly what is happening here. There is no one else to blame now than the bots who work is purely on what is coded into it and designed to work the way its being built. Now we have stopped blaming the whales, government, saboteurs, miners and now bots that cannot defend themselves. It seems people who engage in this kind of journalism won't stop to amaze us.

Every sector of the economy where thing are being traded, bot is being used even on the stock exchange, forex exchange market, crypto trading market or commodity market where you can set a stop limit, place an order or buy. Its all the function of bots that is being programmed by the person its expected to increase the value of her investment.

Things seem to be more complicated than that

While in general I definitely agree with your point of view, especially about the part where helpless and hapless bots can't defend themselves and about irretrievably lame journalism looking for flashy headlines, controversies, and accusations, I still can't agree that bots are as innocent and innocuous as you make them appear to be. They may be in other areas where speculation is not so engulfing and encompassing (but even in these areas HFT trading is made into a main villain for severe price swings), however, with crypto, algorithmic trading kills all human which is still left there, and as there's not much anyway, such automatic trading may be killing the market after all as there is not much else beyond speculation

[squatter]

I still can't agree that bots are as innocent and innocuous as you make them appear to be. They may be in other areas where speculation is not so engulfing and encompassing (but even in these areas HFT trading is made into a main villain for severe price swings), however, with crypto, algorithmic trading kills all human which is still left there, and as there's not much anyway, such automatic trading may be killing the market after all as there is not much else beyond speculation

You realize that trading algorithms are run by humans, right? Humans need to constantly tweak bot parameters to adjust them to market conditions. That's why I never bothered with bots and do everything manually. Running bots is not just a "set it and forget it" endeavor, and they aren't always profitable.

Speculation is virtually the only thing that matters for price. How is algo trading any different than manual trading in this respect? We're all speculators here. How does algorithmic trading "kill all human traders?"

Losing traders are always trying to blame their losses on someone else. If it's not the "manipulative whales" it's the "manipulative HFT algos."

[Betwrong]

Everyone knows about manipulations taking place in the market and it's a part of the game to not be fooled by them. From my point of view, forbidding such practices by law is not effective, apart from being in discord with the idea of free market. I like the words by Kjetil Eilersten, developer of Quatloo Trader. If everyone manipulates, no one manipulates, he said. That's how you deal with problems in the free market, you engage in combat instead of asking the government to outlaw your opponents.

The problem is not with manipulation as such

I'm curious if that dude, Kjetil Eilersten, understands that you are able to manipulate the market specifically because you have resources to do that, financial, administrative, technical, and so on, while others have not. Claiming that everyone should be manipulating to avoid manipulation is equal to saying that everyone should have equal conditions, first and foremost, financial ones. But anyone with a half functioning brain understands that it is impossible and even delusional. Still, there are dudes who put it somewhat differently, and presto! It no longer looks like a stupid idea

It's obvious that conditions are not equal and those possessing higher amounts have advantage over traders with much smaller balances. But I think Kjetil Eilersten means that there are ways to combat that. For example, you can combine your forces with other traders. You can agree on some private chat to program your bots for buying as much as possible if the price goes 10% down. Thus a manipulator who dumped big amount in order to lower the price would achieve nothing and you with your friends would buy coins at low price. Of course, it's probably oversimplified and in reality there are many nuances to it. But I'm sure traders can deal with it by themselves without asking government for help.

[deisik]

Are you serious, bro?

Telegram channels you mentioned are most often used to trick people into trades that will cost them dear. It has become an imperative here to remind people to stay away from these groups at all costs as they are used exclusively for emptying the pockets of their guileless participants. Basically, you are suggesting to fight fire with fire, i.e. to respond to an attack by using a similar approach, a counterattack. This will only double the amount of market manipulation, not eradicate it. Apart from that, organizing such "conspiracies" to overtake more covert manipulators would itself count as a downright market manipulation, and once caught you may end up having to pay serious penalties or even get in jail in certain jurisdictions. Obviously, this is not applicable to cryptocurrency markets which are mostly unregulated but you get the point

[ghermghuda]

Well I don't think this is any jew news. They're out of news. Anyways price manipulation by bots may not be a problem (personal view) so far as it cam generate income to Everton fairly