How can we prevent distortion of the bitcoin exchange rate?


Is there anything within the structure of bitcoin exchanges to prevent bitcoin price distortion with multiple accounts controlled by one person?

I have seen stocks with similar levels of liquidity be manipulated in price with about five accounts. Each buying and selling to and from each other, to get the price to the most favorable place so that one account with much more capital can take advantage of the price distortion, and buy or sell into the new optimism (more volume when price is high because of new market participants). You can read great detail about this in SEC emergency injunction orders, as they go after people that do this (after the fact though). Some stock promoters are the main perpetrators.

The advantage with bitcoins is that it is not regulated by the Securities Act, with the transparency about how to do this detailed by judicial remedies against those that were under the jurisdiction of the Securities Act.

Given that there are so many bitcoin exchanges, would anything such as the technical structure of bitcoin, the exchanges or bitcoin specific market forces prevent someone from doing this with a series of trading accounts, especially across the more illiquid exchanges?


Posted 2013-03-11T06:09:55.273

Reputation: 1 500

I see no point in doing such a thing. – o0'. – 2013-03-11T13:06:55.020

1It doesn't work and if you try it, as many have, you will just lose money. You go to all this effort to push the price up, and everyone else can sell at the higher price just as much as you can. You go to all this effort to push the price down, and everyone else can buy at the lower price just as much as you can. You do all the work and you get just a sliver of the benefit. – David Schwartz – 2013-03-11T16:36:25.933

@DavidSchwartz general such actions would be accompanied with some sort of promotion across various forms of media to influence people's decision, whether optimism or pessimism. This rewards the original agent with increased liquidity to sell into, liquidating their holdings before the other participants know that the promotion has ended – CQM – 2013-03-12T00:07:27.397

1@CQM: Whatever promotion you do, everyone else will see it too. If you push the price up, they can sell too. If you push it down, they can buy too. You gain no special advantage for your effort. – David Schwartz – 2013-03-12T00:42:57.710

@DavidSchwartz a market with the liquidity and market cap of bitcoin is not nearly as efficient as give it credit for – CQM – 2013-03-12T01:22:32.140

@CQM: It doesn't really have to be efficient. It just has to have a short-term "natural price" and it has to be harder to push the price away from the natural price than towards it. (The more the market has these characteristics, the harder it is to manipulate it.) – David Schwartz – 2013-03-13T07:46:41.640



There is no single price for a Bitcoin. There are prices at various exchange markets at any point in time.

Since some exchanges have no requirement that every account has identity verified then there is no way for the exchange to know an account is controlled by another party.

Today's exchanges have no mechnism to prevent what you describe.

Stephen Gornick

Posted 2013-03-11T06:09:55.273

Reputation: 26 454

thanks for bringing up the differences in exchanges. MtGox required me to send an ID to verify my identity, still there was no requirement I think for me to just have 1 account – CQM – 2013-03-11T13:32:57.877

so yeah, this happened :) – CQM – 2013-04-13T16:30:57.087