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Author Topic: Will malicious investors abuse Bitcoin?  (Read 3895 times)
FireFox31
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May 11, 2011, 02:42:53 AM
 #1

Will malicious investors abuse and manipulate Bitcoin value for their gain and our loss like they do to every other financial system?  Buy in, create a bubble, then sell out before it bursts; just like the Dot Com and Housing bubbles.  The recent spike in the value of Bitcoin has me concerned that this may be happening.

There are "few enough" Bitcoins that a single investment firm could afford to buy large quantities or however they go about creating bubbles.  They may find our "primitive" market tools to be laughably easy to exploit considering their experience with complex real world markets.  Just like the Internet was in 1995, institutional investors may see Bitcoin as promising but poorly understood, thus a fertile medium for generating buzz, inflating value, tricking smaller investors, and ultimately profiting before the bottom falls out.

The Bitcoin community often fears a technical attack on the block chain or total hashing power, but are we considering the economic attack of manipulating value?  What is the opinion of the economics and investing veterans among us?

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tiberiandusk
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May 11, 2011, 02:52:13 AM
 #2

Yes.

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May 11, 2011, 03:17:50 AM
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you could manipulate the value of any market.
through propaganda, direct attacks, hysteria, and making HUGE moves in the market at calculated times.

http://bitcoincharts.com/charts/mtgoxUSD#vztgSzm1g10zm2g25
youll see a direct correlation with volume and price fluctuations right after.

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May 11, 2011, 03:19:20 AM
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Even if there is an atack on bitcoins I think it's core users will stil use it and try to regain it's glory. Also, as long as we decide how much 1 BTC is worth between us it doesn't matter the conversion rate.
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May 11, 2011, 04:47:03 AM
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Even if there is an atack on bitcoins I think it's core users will stil use it and try to regain it's glory. Also, as long as we decide how much 1 BTC is worth between us it doesn't matter the conversion rate.

The core members of the Bitcoin community will buy low and sell high... so they will build up a disproportionally large amount of the total ownership.

One off NP-Hard.
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May 11, 2011, 11:07:01 AM
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It's a free market. You can choose to buy and sell at the market price, or to not buy and sell.

So-called "malicious investors" just give you more opportunities to make your buy/sell/hold decisions.
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May 11, 2011, 11:46:05 AM
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Will malicious investors abuse and manipulate Bitcoin value for their gain and our loss like they do to every other financial system?  Buy in, create a bubble, then sell out before it bursts; just like the Dot Com and Housing bubbles.  The recent spike in the value of Bitcoin has me concerned that this may be happening.

There are "few enough" Bitcoins that a single investment firm could afford to buy large quantities or however they go about creating bubbles.  They may find our "primitive" market tools to be laughably easy to exploit considering their experience with complex real world markets.  Just like the Internet was in 1995, institutional investors may see Bitcoin as promising but poorly understood, thus a fertile medium for generating buzz, inflating value, tricking smaller investors, and ultimately profiting before the bottom falls out.

The Bitcoin community often fears a technical attack on the block chain or total hashing power, but are we considering the economic attack of manipulating value?  What is the opinion of the economics and investing veterans among us?

What you forget is that here in a free market there will be no moral hazard. No one can come in and get people to give them money to gamble with because those people wouldn't care because they would knew that their money was insured by some government agency. Here with Bitcoins if you lose you lose. So people will be way more vary of anyone trying to get them to invest into with them so the investment firms and banks will be under complete scrutiny. Also keep in mind these firms can't just get Bitcoins printed out of thin air to gamble with. They either have to risk their own money or get people to give them theirs.

Now that's not to say it's not going to happen. It might well happen but then those who gambled and lost will actually lose and learn a lesson together with the rest of us and the market will survive and improve.

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May 11, 2011, 11:48:34 AM
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Let's blame Speculators!

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FireFox31
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May 11, 2011, 03:14:20 PM
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youll see a direct correlation with volume and price fluctuations right after.
That is very reassuring.  It's good to see this organic cause for the spike in value.  It would be a stretch for me to conspiracy theorize that institutional investors recently added farms of miners to either cause this spike or to mine their own.

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Even if there is an atack on bitcoins I think it's core users will stil use it and try to regain it's glory.
At some point, the underground "founding community" looses control of their system.  Just like when teenagers finally learned about Twitter and started following Justin Bieber and Lady Gaga in droves, the masses will learn about Bitcoin.  Their actions will outnumber ours and dictate the market and future of Bitcoin.

Quote
So people will be way more vary of anyone trying to get them to invest into with them so the investment firms and banks will be under complete scrutiny.
Quote
Institutional investors can easily convince smaller, citizen investors to buy into ill understood, complex investment vehicles.  Just like sub prime loans, malicious institutions could hype Bitcoin as "the currency of the future; buy in before the world finds out."  And regarding scrutiny, governments and regulatory bodies are painfully slow to learn about and deal with new investment mechanics such as Bitcoin.  This could fly under the radar in hedge funds for a year before regulators understand it.

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May 11, 2011, 05:07:17 PM
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Institutional investors can easily convince smaller, citizen investors to buy into ill understood, complex investment vehicles.  Just like sub prime loans, malicious institutions could hype Bitcoin as "the currency of the future; buy in before the world finds out."  And regarding scrutiny, governments and regulatory bodies are painfully slow to learn about and deal with new investment mechanics such as Bitcoin.  This could fly under the radar in hedge funds for a year before regulators understand it.

lol see that's the problem. For whatever reason you believe that not enough regulation caused the housing bubble. Maybe you should learn the true reason and you can start by listening to this: http://www.youtube.com/watch?v=EgMclXX5msc

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May 11, 2011, 05:42:36 PM
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the only way "malicious" investors can screw people is by exploiting bad systemic rules.  bitcoin will allow markets that have no rules, which will create the purest and most stable financial markets ever seen.
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May 11, 2011, 07:40:39 PM
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the only way "malicious" investors can screw people is by exploiting bad systemic rules.  bitcoin will allow markets that have no rules, which will create the purest and most stable financial markets ever seen.

Bitcoin will allow as many markets with as many different rule sets as people want. The markets with good rule sets will be where people participate. It'll be much better than the monolithic monstrosity we're currently escaping.

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PwrLeveld
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May 11, 2011, 07:42:11 PM
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Honestly, the more I use bitcoin I don't care about wether it is legal. It is just such a good system that it doesn't matter. The system has an answer for every monetary problem that is hapening.
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May 11, 2011, 08:20:06 PM
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I believe it's starting to happen now.
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May 11, 2011, 08:47:17 PM
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I sold then re-bought 400 BTC yesterday... and each time I moved the market about 0.05.  It was fun to see.

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May 14, 2011, 04:21:59 PM
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the only way "malicious" investors can screw people is by exploiting bad systemic rules.  bitcoin will allow markets that have no rules, which will create the purest and most stable financial markets ever seen.

This thread is one big bag of laughs. Smiley

People speak of free will and free markets..have you ever seen how someone who has a sizeable stake in ANYTHING ever reacts to price fluctuations?

Out of every person you have ever met or known, what percentage of them can remain 100% without emotion (anxiety, fear or greed and anything between) when it comes to money?

That percentage is about the % of chance that you can rely on any given market to remain sane or stable..

As for the topic:  I would change it to "Will malicious speculators try to abuse Bitcoin?".
Firstly, investors do not abuse anything, they invest.
Investing is long term and value oriented, speculation is shorter-term and exploitative by it's very nature.

And "try" because lord knows whether you can ever get this whole thing wrapped around a proper exchange and/or interface.
Outside of small-timers(i.e. still moving below 7 digits) nobody is going to come remotely close to something that doesn't even have anything to nudge it around WITH, let alone any real-world recognizeability or liquidity.

What I meant to say is: Little good to corner the market and end up with most BTC if you can't still cash out afterwards. There's a very fine line between successfully exploiting something and getting away with it profitably if the market itself vanishes with it..timing would then be everything.

Ho-Hum.
torbank
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May 18, 2011, 04:24:38 AM
 #17

Will malicious investors abuse and manipulate Bitcoin value for their gain and our loss like they do to every other financial system?  Buy in, create a bubble, then sell out before it bursts; just like the Dot Com and Housing bubbles.  The recent spike in the value of Bitcoin has me concerned that this may be happening.

Was just thinking about this, a few or even one relatively small hedge fund could easily throw it's weight around the market.
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May 18, 2011, 11:27:37 AM
 #18

I believe it's starting to happen now.

It was already happening months ago.  Back then it was much easier for a single player to manipulate the market because it was a fraction of today's size.

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May 18, 2011, 06:52:39 PM
 #19

They have, and will continue to. It doesn't "harm" bitcoin that much this early on though, and later on they will require a hell of a lot more wealth (and be able to keep it quiet: harder with more pairs of eyes and a public blockchain). They'll do their thing, the price will fluctuate, but hopefully only on the same level as gold and forex markets.
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