A newly published study details how one or two automated trading bots artificially inflated Bitcoin's USD exchange rate through spoof trades, illicitly profiting over $180 million (≈NT$5.5 billion or HK$1.5 billion). This exposes Bitcoin markets as still fragile and highly susceptible to manipulation.
In Bitcoin trading, "trading bots" are computer programs that use specific algorithms and indicators to predict trends and execute trades autonomously. Their performance varies based on the developer's proprietary functions and prioritized metrics.
Inflating Trading Volume
The study identifies two bots—Markus and Willy—that simulated valid Bitcoin transactions to artificially boost exchange trading volumes. This tactic released false market signals, luring other bots and traders into transactions. Crucially, these bots didn’t actually hold the Bitcoin involved in the spoofed trades.
Though the platform where this occurred—Tokyo-based Mt. Gox Bitcoin exchange—shut down in 2014 after a hack, researchers estimate the bots acquired nearly 600,000 Bitcoins (worth ~$180 million) during Mt. Gox’s breach period using similar methods.
Moreover, Bitcoin’s 2013 price surge—from $150 to $1,000 in two months—appears linked to such activities.
👉 How trading bots exploit crypto markets
Market Mechanisms Fail
Three key factors enabled this manipulation:
- Thin liquidity: Despite growing investment, cryptocurrencies remain a shallow market.
- Fragmentation: From 80 cryptocurrencies in 2013 to over 800 today, diversification further divides liquidity.
- Decentralization paradox: While avoiding government oversight is crypto’s core value, small market size makes manipulation easier.
As major financial institutions enter the space and countries like Japan recognize cryptocurrencies as legal tender, preventing artificial price distortion becomes urgent.
FAQ Section
Q: How do trading bots manipulate prices?
A: By placing large fake orders to create false supply/demand signals, then canceling them before execution.
Q: Can this happen on modern exchanges?
A: Yes—though improved monitoring exists, bots evolve with detection methods.
Q: What’s being done to prevent this?
A: Exchanges now use surveillance like spoofing detection algorithms and mandatory trade reporting.
👉 Learn crypto security best practices
References:
- Biggs, J. (2018). Researchers find Bitcoin’s 2013 surge was likely manipulated. Techcrunch.
- Gandeal, N. et al. (2018). Price Manipulation in the Bitcoin Ecosystem. Journal of Monetary Economics.