Researchers: One Person Drove Bitcoin Price from $150 to $1,000

Researchers: One Person Drove Bitcoin Price from $150 to $1,000

The value of Bitcoin has skyrocketed over the last year, reaching nearly $20,000 several weeks ago before dipping back down. That’s far from the first price spike for Bitcoin — the naturally volatile cryptocurrency has been up and down for its entire existence. Economists recently took a look the spike that first sent Bitcoin over $1,000, finding it was most likely the result of a single person using bots to make a quick buck.

Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman used data from the now-defunct Mt. Gox Bitcoin exchange. That was still the premier place to store and trade Bitcoin back in late 2013 when the value of a single Bitcoin jumped almost 10-fold in a matter of two months. The price crashed back down shortly thereafter, presumably after the person behind the scheme sold off some Bitcoins for a tidy profit.

The researchers found that manipulating the price of Bitcoin was feasible for a single person because the cryptocurrency market was very thin. Small spikes in trading volume over the course of days or weeks could prop up the price, and that’s what the perpetrator did with a pair of shady bots on Mt. Gox, which the researchers named Markus and Willy.

Mt. Gox eventually imploded after hackers made off with as many as 600,000 Bitcoins valued at more than $180 million at the time. When the exchange was compromised, bad actors also managed to run bots like Markus and Willy. They may or may not have been directly connected with the theft — that’s not really addressed in the study. These bots appeared to make valid trades, but they did not actually own the Bitcoin being traded. This artificially boosted the price by as much as 4 percent per day on days with suspicious trades. On days when the bots weren’t active, the price fell slightly.

A graph of BTC price from the same time studied in the paper.
A graph of BTC price from the same time studied in the paper.

Trading volume for Bitcoin is naturally much higher now, so it’s harder for a single person with a few bots to pump up the price with a compromised exchange. However, there are still no safeguards in place due to Bitcoin’s decentralized nature. It’s not the only cryptocurrency out there, though. The researchers note that between 2013 and now, the number of traded cryptocurrencies has ballooned from about 80 to 843. Many of these could still be vulnerable to price manipulation.

The risks associated with cryptocurrency haven’t stopped people from trading it. Even in the wake of recent drops in value, the Bitcoin faithful remain certain of its usefulness.

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