Mt.Gox fighting Bitcoin price manipulation

As Mt.Gox is by far the largest Bitcoin exchange the USD price listed on the site is the unofficial Bitcoin price.  With such market concentration Mt.Gox is the obvious first choice for any attempt at market manipulation.

Anyone following Bitcoin will be well aware of the constant DDoS attacks that the exchange has been subject to, but ComputerWorld is reporting that Bitcoin’s Mt.Gox price is also being influenced traders who use the sites trading software to submit large quantities of trades for very small fractions of bitcoins.

Via CompuerWorld

“Miscreants are also trying to manipulate the virtual currency’s price by using Mt. Gox’s API (application programming interface) to submit trades for very small fractions of bitcoins. It is possible to watch real-time trades on Mt. Gox through services such as Clark Moody’s website, which shows Mt. Gox’s order book, or the prices at which people want to either sell or buy bitcoins.”

“During heated trading, it is possible to see a rapid influx of very small quantities of bitcoin on both the buy and the sell side. A sell order for .0111 of a bitcoin, for example, would represent US$1.33 if one bitcoin is trading for $120.”

“It doesn’t appear that buying or selling a $1.33 slice of a bitcoin would be very practical given the small economy so far for bitcoin services, although the market is growing. But entering lots of small sell orders, for example, can give the impression that bitcoin’s price is falling even if it doesn’t represent the broader market sentiment. Traders can submit more than one transaction using Mt. Gox’s API.”

To counter this apparent misuse of its trading system Mt.Gox is limiting the number of small transaction that a trader can submit and capping small transaction during high volume trading. The limits will allow “some small trades but automatically limit the trades depending on the needs of its trading engine.”

The exchange is also working on a new trading engine that will be run separately from its customer website which will make trading less susceptible to slow downs during DDoS attacks.

A statement on the exchange’s Facebook page during a Monday DDoS attack said “We’re very much looking forward to implementing a much stronger solution very soon and will make an announcement to that effect once it’s in place.”


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