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The South Korean Finance Minister said that a ban on cryptocurrency was a viable option. Warren Buffet said âI can say almost with certainty that cryptocurrencies will come to a bad endâ. Statements like these were enough to send the whole cryptocurrency market into free fall.
You probably remember that in December Bitcoinâs value reached the dizzying heights of $21000. The rise in those two months got the whole world talking about it, and weâre not just talking about the financial world, but literally everyone.
Politicians, housewives, engineers, taxi drivers, you name it; Every knew the word.
And chatter about Bitcoin or any of the other cryptocurrencies still continue. In fact itâs more than just chatter, Goldman Sachs is going to open its cryptocurrency trading desk in just a few months time. The fact that politicians are seriously talking about regulation makes the whole thing feel a lot more official. About a year ago and prior to that, the whole market appeared to be very shady to a lot of people, and there wasnât much understanding of how any of it worked. Now every third person has an opinion, but that can only be a good thing.
The last two days saw an increase in google searches for suicide related terms.
On Reddit, the r/bitcoin page posted a list of suicide hotline numbers in the US. Those two statements we mentioned earlier, along with a number of rumours about potential government activity relating to cryptoâs, were enough to set off a kind of domino effect on the cryptocurrency market.
Bitcoin fell by 20%, Ethereum (the second biggest cryptocurrency) fell by 25%, and Ripple (the third) fell by 40%. These kinds of crashes are large enough that people who are invested heavily in them could have well ended up losing such a large portion of their wealth that may have genuinely contemplated taking their own lives, but thatâs too grim a topic for an article like this.
What weâre interested in discussing is the nature of cryptocurrencies in general. Just the other day, a paper was published in the âJournal of Monetary Economicsâ which raised more than a few eyebrows. What the researchers found was that back in 2013, it is quite likely that ONE person managed to drive the price of bitcoin from a mere $150 all the way up to $1000, in just two months time.
âThis paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired. During both periods, the USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity. Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely 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.â
The researchers also found that one of the main reasons as to why fraudulent trading could occur was due to the fact that individual crypto markets were so thin. In 2013 the number of cryptoâs in existence was around 80, and today that figure has gone up to 843, and most of these markets are quite thin and therefore are subject to price manipulation.
The manipulation is said to have had happened primarily via two bots, Markus and Willy. These bots were performing valid trades, but did not actually own any of the bitcoin that they were trading. What happened on the Mt. Gox exchange was that these bots were performing fake trades (due to the lack of ownership), and in that way managed steal millions of dollars. All the while manipulating the price as well.
What this article throws light on is the fact that cryptocurrencies are dangerously susceptible to manipulation. Be it in the form of a statement from an influential politician/investor, or in the form of fraudulent activity (that you can do nothing about) by a bot trading on one of the markets. Weâre not quite sure where bitcoin or any of the other cryptoâs are heading, in fact we never really have been, nor has anyone been able to make a reliable prediction; and all that essentially does is that it reinforces the core opinion of this article.
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Bitcoin Crash and Vulnerability was originally published in Wonkery by Minance on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.