Researchers find that one person caused bitcoin
to spike from $150 to $1,000 in 2013 In 2013, bitcoin was worth just $150 when
suddenly, the price spiked. Within two months, one bitcoin was worth $1,000.
Four researchers from the Tandy School of Computer Science at The University of Tulsa
and the Berglas School of Economics at Tel Aviv University now believe that this spike
was caused by one individual person. In a paper titled “Price Manipulation in the
Bitcoin Ecosystem,” published in the Journal of Monetary Economics, Neil Gandal, JT Hamrick,
Tyler Moore and Tali Oberman describe the ways in which suspicious activity on the Mt.
Gox bitcoin currency exchange impacted the value of the cryptocurrency in 2013.
As reported by TechCrunch, their research calls attention to the potential risk of price
manipulation and fraud withing cryptocurrencies. “If bitcoin wants to be taken seriously it
probably shouldn’t be this easy or legal to manipulate the markets,” writes John Biggs
for the publication. Unlike traditional currencies, bitcoin does
not have a central authority. Instead, cryptography is used to oversee transactions, manage supply
and prevent fraud. Gandal et al. analyzed data that had been anonymously dumped in 2014
after allegations that 650,000 bitcoins had been fraudulently taken.
They found that a majority of the price manipulation happened due to two bots with “??” listed
as the name of the user country. They named these bots “Markus” and “Willy.”
Markus bought and sold bitcoin at seemingly random prices and did not pay transaction
fees. Upon further review, they found reason to believe that Markus was not actually paying
for the bitcoins he was receiving. Markus acquired a total of 335,898 bitcoins and was
active from February 14th, 2013 until September 27th, 2013.
Seven hours after Markus became inactive, Willy appeared as a group of 49 accounts.
Each of these Willy accounts would sequentially purchase $2.5 million worth of bitcoin and
then become inactive. Over this period, the price of bitcoin spiked.
On days in which this suspicious activity occurred, the USD-BTC exchange rate rose by
$20 on average. On the days in which no suspicious activity occurred, the exchange rate saw a
slight decline. By analyzing the identification numbers associated
with Willy’s account the researchers were able to confirm their suspicion that a single
actor was responsible for both bots that, over the course of 2013, had acquired approximately
600,000 bitcoins. “We conclude that the suspicious trading activity
caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate
jumped from around $150 to more than $1,000 in two months,” they write.
“As mainstream finance invests in cryptocurrency assets and as countries take steps toward
legalizing bitcoin as a payment system (as Japan did in April 2017), it is important
to understand how susceptible cryptocurrency markets are to manipulation.”
The potential for manipulation is one reason that Grant Sabatier, founder of Millenial
Money, says that people should not invest in the cryptocurrency — even though it made
him a millionaire. “Even though I’m a bitcoin millionaire, I
don’t recommend that you invest in it today,” he writes for CNBC Make It.
One reason Sabatier is hesitant to suggest others invest is because volatility in the
market makes it difficult to accurately estimate bitcoin’s value.
“Because so many new people are buying it (and so quickly!), it’s impossible to accurately
value,” he says. “When the price of anything fluctuates 20 to 30 percent in one day, it’s
obviously unstable, so you could lose all of your money very quickly.”
“Most people aren’t buying into the value of the technology, they’re buying into the
hype,” he argues. “This is gambling, not investing.”