Theory: Exchanges are destroying the price of Bitcoin for personal profit

[jabo38]

I think this could be one of the major contributing factors to why Bitcoin’s price is falling when instead it should be rising.  

1.  The volume is ever increasing.  The amount of people using it are ever increasing.  The amount of shops and places it can be spent is ever increasing.  This should mean the price should also be increasing, but it isn’t.
 
2.  A lot of new money is coming in day by day.   Under normal circumstances this should mean that the price would go up.  And it would if it was a fair and regulated market, or at least a peer to peer market.  But it isn’t regulated and some people aren’t playing fair.  

3. There are major players at work that basically syphon off any new money coming in that should drive up the price, but instead that money just goes into the pockets of the big players.  

4. This is happening through major exchanges that are being controlled by bots and operators of the exchanges having access to the backend of the exchanges.  The tricks are fake volumes, fake buy/sell orders, and being able to sell to themselves at opportune times to get the best deals.  As well as being able to see the behind the scene “trigger buy/sells” and pushing those through in different directions to the exchange operator's advantage.  

In this article, there is an example of one day trader who is syphoning off money on his own, just through smart trades.   http://www.coindesk.com/predicting-bitcoins-next-price-rise/

It states the following: Mercede, who is CEO of Cryptocoin Capital Management (CCM), claims he has made an average return of between 8%–15% per day mostly by buying off Chinese exchanges and selling locally, or vice-versa.

“I can get some crazy returns right now,” said Mercede, who cited a trade this weekend where he purchased 20 BTC at $375 and resold the units at $560 to a client within hours. CCM has been executing similar trades for amounts up to 50 BTC per trade a number of times in September, according to Mercede.

Now this is just one guy using his wit and good business skills to make money.  In theory all that new money coming into bitcoin via him could have been driving the price up, but instead, the price stays the same and the extra money just goes into Mercede’s pocket.  If it was just one guy doing this, it wouldn’t matter, but if it is done by operators controlling large percentages of trades, then it does.
 
Now Mercede doesn’t have backend control of an exchange.  But imagine what he could do if he did.  He could set up bots and fake buy and sell walls, knowing which ones were his and which were actually real, he could really syphon money off of many of the trades involving a lot of the new money.  New money comes in, price of bitcoin stays the same, extra money goes into the pockets of the exchange owner.  

On the flip side, when old money is going out, the exchange owner doesn’t do anything but let the price fall.  So what we have is a scenario where hour by hour and day by day the price will slowly fall.  That is until a huge rush of money comes in and the volume is so high that the real free market overtakes the exchange operator’s abilities to skim off the top and then the price of Bitcoin shoots up.  

For me, watching this process is frustrating.  I first watched bots on Gox like Willie artificially raise the price, and now the market makers and bots are strangling the life out of Bitcoin.  

I think the only way to get around this is to have a real and honest exchange (dare I even say a regulated one).  I am guessing Coinbase and Circle are maybe honest, but in a sea of dishonest exchanges, they can’t support the price of bitcoin that much.  

If my theory is right, it would be easy to notice which ones are the more honest because they might usually be trading a few cents higher than the dishonest exchanges at most times.  They would also be the first ones to move on price spikes and would be the exchanges driving the spikes.  

I would love to see somebody more advanced than myself with math and programs be able to analyze this with real math.

I also think the answer would be a truly decentralized exchange with no centralized operator having backend access to the exchange to manipulate the prices.  When real people trade with each other in a truly decentralized manner, than the real free market can take over.  

[bitllionaire]

I think exchanges and manipulation are provoking this prices because the news and enviroment of bitcoin is not corresponding with price

[Kprawn]

Here.. I was thinking, it was the people not using the exchanges, that are influencing the price the most.

A very interresting "read" to say the least. Well, it seems the weak points in this whole system are the exchanges then. MtGox seems to be the tip of the iceberg.

This will force "governments" to regulate the exchanges even more.

You can also see, why there are so many people, who are not using an exchange for buying and selling. {They simply not trustworthy}

What a pity.... And a real eye opener...

[Q7]

The price is falling because one monster giant mining rig is located somewhere in Asia and is selling every coin that they mine to cover electricity cost and for quick profit. It outweighes demand which is not catching up fast

[franky1]

The price is falling because one monster giant mining rig is located somewhere in Asia and is selling every coin that they mine to cover electricity cost and for quick profit. It outweighes demand which is not catching up fast

NO

look at the exchanges. its not thousands of coins being sold/bought on exchanges. its less that 12k volume moving per day. and out of the 12k movemnt per day only 1% is from actual bank account movements. ther other 99% is daytraders and bots playing with $7 amounts of coin without depositing /withdrawing. and maybe 1 big fish(not a whale) with just 200 coins, creating walls to keep prices at a certain level.

we need to wake up and not be sheeple.. exchanges are on a 99% lockdown keeping prices low because whales are not using exchanges to buy coins. proper trading is done privately at prices of $500+.

kind of funny because i was talking about it last week and now people are suddenly waking up. just a shame you are all relying on these crappy locked down php coded exchanges as your price estimate. you are missing out on where the true value is

[jabo38]

As Franky said, it is being done a lot of times by $5-$10 trades at a time.  But they do this over and over again automatically with bots, so it adds up quickly.

For me a quick and easy sign that I am being played by the exchange is that as soon as I put in a bid, immediately a very small trade will pop up just edging out my.  If I pull out my trade, that bid also disappears automatically.  Some Chinese guy is trying really hard for that 3 cent difference he can make by changing the price, or it is a bot. 

Another thing that has me suspicious, is that I have put my money in the exchange and I am waiting and waiting to buy or sell, I think I have found the right time, and then immediately and automatically after my transaction the market jumps in the other direction.  This is the bots covering themselves.  This has happened so many times to me it isn't even funny. 

This is also another reason I don't day trade.  It is like going to play poker against a dealer that is knowingly stacking cards.  It is just stupid. 

[pitham1]

proper trading is done privately at prices of $500+.

That is a huge price difference. Won't the buyer be tempted to pick up some coins at a cheaper rate, from exchanges?

[jabo38]

proper trading is done privately at prices of $500+.

That is a huge price difference. Won't the buyer be tempted to pick up some coins at a cheaper rate, from exchanges?

I wondered the same thing. Why would somebody want to pay a premium. Coinbase, Circle and others make it so much easier to just buy at market price.

The only exception I guess is somebody that wants to buy like $1,000,000 worth. That might eat up a sell wall and put the price over $500.  But I haven't and couldn't do that so I don't know the way it works. I buy like 1-2 bitcoins at a time.

[franky1]

proper trading is done privately at prices of $500+.

That is a huge price difference. Won't the buyer be tempted to pick up some coins at a cheaper rate, from exchanges?

I wondered the same thing. Why would somebody want to pay a premium. Coinbase, Circle and others make it so much easier to just buy at market price.

The only exception I guess is somebody that wants to buy like $1,000,000 worth. That might eat up a sell wall and put the price over $500.  But I haven't and couldn't do that so I don't know the way it works. I buy like 1-2 bitcoins at a time.

anything over 25bitcoins ($10k) causes issues, for coinbase, bitstamp, btc-e customers. once hitting this point the more coins/fiat you have the more headaches you will get

and to note in 2012-2013.
mtgox was doing 150k coin volume trade a day
btc-e was doing in excess of 70k a day
bitstamp at 60k a day

now, in 2014. most exchanges are just moving 12-15k coins a day

 and of those coins most of it is pure internal movements (day trading) very little are bank account related movements id say only a few hundred coins a day result from bank account movements. where as localbitcoins/otc/private trade/ private investment. accounts for FAR FAR MORE movements involving actual bank account monetary movements.

we need to start basing bitcoins on localbitcoin and otc price averages and drop the crappy exchanges coded in PHP from the 2012 era.. they are dying.. bitcoins isnt.. just the old exchanges are. blame the exchanges over cautionary, misunderstanding of how to implement AMLKYC rules.

so dont blame the AMLKYC law in itself or blame bitcoin. just blame the exchanges crappy implementation of restrictions

[justusranvier]

For me, watching this process is frustrating.  I first watched bots on Gox like Willie artificially raise the price, and now the market makers and bots are strangling the life out of Bitcoin.

Strategy 1:

1. Buy some coins on an exchange.
2. Withdraw those coins from the exchange immediately to a wallet you control.
3. Come back in a year.

Strategy 2:

1. Buy coins on an exchange.
2. Resell those coins on LocalBitcoins for a profit.
3. Send the money you get from 2 back to the exchange and goto 1.
4. Keep your profits in bitcoins, in a wallet under your own control.

If you think the exchanges are corrupt, then get as many coins as you can and hold them safely outside those exchanges' control.

If they are fractional on btc then they'll eventually get squeezed out of existence. Just make sure you get your coins out as soon as possible every time so you're not caught in the squeeze.

[mmortal03]

proper trading is done privately at prices of $500+.

That is a huge price difference. Won't the buyer be tempted to pick up some coins at a cheaper rate, from exchanges?

I wondered the same thing. Why would somebody want to pay a premium. Coinbase, Circle and others make it so much easier to just buy at market price.

The only exception I guess is somebody that wants to buy like $1,000,000 worth. That might eat up a sell wall and put the price over $500.  But I haven't and couldn't do that so I don't know the way it works. I buy like 1-2 bitcoins at a time.

That sounds to me like it'd be a good thing for them to put the price over $500. If we got movement like that, you'd get even more people throwing money at it to try to get aboard the train, and the price could go higher than whatever the whale's average price in was.

[gogxmagog]

Seems to me manipulation will occur in any market where it is able. Where is this often mentioned decentralized exchange? I'm not even sure if I understand how it would work, I'm guessing it will be done with coloured coins or something like ripple.
I think everyone honest would like to have access to a transparent, provably  fair exchange that broadcast the actual market value. I'd use it. The manipulators would hate it. Lol

I'm surprised I can't find anything like that yet. Like I said; ripple and coloured coins, but good luck getting average consumer to be able to Fathom it. Basically the best UI I can figure out is: red button green button and a cash register wav.
I don't like localbitcoin. I don't ever want to leave the house or talk to real live strangers.

 

[jabo38]

For me, watching this process is frustrating.  I first watched bots on Gox like Willie artificially raise the price, and now the market makers and bots are strangling the life out of Bitcoin.

Strategy 1:

1. Buy some coins on an exchange.
2. Withdraw those coins from the exchange immediately to a wallet you control.
3. Come back in a year.

Strategy 2:

1. Buy coins on an exchange.
2. Resell those coins on LocalBitcoins for a profit.
3. Send the money you get from 2 back to the exchange and goto 1.
4. Keep your profits in bitcoins, in a wallet under your own control.

If you think the exchanges are corrupt, then get as many coins as you can and hold them safely outside those exchanges' control.

If they are fractional on btc then they'll eventually get squeezed out of existence. Just make sure you get your coins out as soon as possible every time so you're not caught in the squeeze.

I am definitely Strategy 1.  I usually buy from Coinbase and feel really safe with them, but I am also using Blockchain and Circle.  (better to spread them out)  I know that having a client on my computer is "safer" but I am pretty sure that these three places are really safe. 

I do occasionally venture out into the alt coin world and am forced to use an exchange, but I absolutely hate it.  And yes, I get my money off of them as quickly as possible and would advise everybody else to do the same.  As far as I am concerned exchanges are prone to getting shutdown, getting hacked, or just losing your coins. 

[jabo38]

Where is this often mentioned decentralized exchange?

NXT had a distributed exchange (not decentralized, but still way better).  It was called MGW and was a plugin or something from James that was added onto the NXT client.  It was supporting BTC to NXT.  I think it has gone down now or will in a couple of days.  It is suppose to start back up in a few weeks (I am guessing longer) and will support BTC, LTC, Doge, NXT and maybe a couple of others.  I checked it out and almost used it to buy/sell BTC to NXT but the gaps in the buy/sell wall was big enough that it was still tighter to use one of those sketchy exchanges.  I do believe in the future though if volume pics up it will be much tighter.  I have no doubt that people will still have bots going at it, but NXT charges like 4 cents to make a bid.  I think it should be cheaper, but that would keep most of the bots at bay.  Plus, none of the bots would have backend access on a distributed exchange so they would be flying blind which is far more risky.  I hope NXT lowers the bid fee.  I think .4 cents would be much better and I would gladly pay that knowing that as an anti-spam measure it would be seriously deterring bots.  (disclaimer: I bought an asset that in theory will someday be paid interest earned off of the fees, so yes, I really want to see the NXT distributed exchange up and working. hahaha)

When the MGW is updated a person will be able to trade BTC to Doge or LTC directly.  The only NXT that would be needed would be to pay the bid fee.  So even if somebody hates NXT, it still makes sense to use it as a platform to day trade because the distributive exchange doesn't have full access to your keys and can't steal your coin, plus it will be less capable of being corrupted by bots.  Oh, and I am pretty sure the fees are far less too than any other exchange out there. 

[justusranvier]

I don't ever want to leave the house or talk to real live strangers.

Manipulated orderbooks and/or insolvent exchanges are the least of your problems.

[Q7]

The price is falling because one monster giant mining rig is located somewhere in Asia and is selling every coin that they mine to cover electricity cost and for quick profit. It outweighes demand which is not catching up fast

NO

look at the exchanges. its not thousands of coins being sold/bought on exchanges. its less that 12k volume moving per day. and out of the 12k movemnt per day only 1% is from actual bank account movements. ther other 99% is daytraders and bots playing with $7 amounts of coin without depositing /withdrawing. and maybe 1 big fish(not a whale) with just 200 coins, creating walls to keep prices at a certain level.

we need to wake up and not be sheeple.. exchanges are on a 99% lockdown keeping prices low because whales are not using exchanges to buy coins. proper trading is done privately at prices of $500+.

kind of funny because i was talking about it last week and now people are suddenly waking up. just a shame you are all relying on these crappy locked down php coded exchanges as your price estimate. you are missing out on where the true value is

Yeah it's you again nice talk. Can you prove and trace back all the transaction and tell me they are not coming from the same source? At least i've seen the rig to backup myself.

[tntdgcr]

As Franky said, it is being done a lot of times by $5-$10 trades at a time.  But they do this over and over again automatically with bots, so it adds up quickly.

For me a quick and easy sign that I am being played by the exchange is that as soon as I put in a bid, immediately a very small trade will pop up just edging out my.  If I pull out my trade, that bid also disappears automatically.  Some Chinese guy is trying really hard for that 3 cent difference he can make by changing the price, or it is a bot. 

Another thing that has me suspicious, is that I have put my money in the exchange and I am waiting and waiting to buy or sell, I think I have found the right time, and then immediately and automatically after my transaction the market jumps in the other direction.  This is the bots covering themselves.  This has happened so many times to me it isn't even funny. 

This is also another reason I don't day trade.  It is like going to play poker against a dealer that is knowingly stacking cards.  It is just stupid. 

is it the exchange or is it the HFT. quants ruin most of everything at the any man level.

[jabo38]

is it the exchange or is it the HFT. quants ruin most of everything at the any man level.

I think it is High Frequency Trading being automated by computers, yes.... but what makes it especially worse is that these computers have back end access to the exchange.  They can see when people are depositing a large amount of BTC (that means a person who just sent a lot of BTC to an exchange is getting ready to trade it) and then it can see what exact pages you are viewing (for instance the BTC -> Doge page).  In the time that you click and ask for the page to be loaded, it can have already posted new bids up and so when your page loads there are the bids.  Further more, some exchanges have trigger sells that if a price is higher or lower than a certain amount than a bid will be made automatically.  A computer with backend knowledge can see these triggers that nobody else can see and then can move the market to trigger them if it is in the computers benefit.  It is like playing poker against a dealer that is stacking the deck.  Yes, you can still maybe win, but the odds are against you.  I don't really day trade for this reason and really wouldn't without insider information.  

The bad part about all this to me, is that these exchanges aren't regulated so as far as I know this kind of behavior is 100% legal.