Bitcoin Makes Tulips Look Cheap

For all you bitcoin skeptics out there, here’s a lovely chart from Jeremy Grantham that compares bitcoin to other famous bubbles in history:

In other bitcoin news, I’ve wondered aloud several times about how many bitcoin trades involve real money vs. other cryptocurrencies (tether, ethereum, etc.). I still don’t know, but Tyler Cowen points to a recent paper suggesting that plain old fraud was responsible for quite a bit of bitcoin’s rise in 2013. The researchers investigated trades on the Mt. Gox exchange made by two traders identified as Markus and Willy:

Markus’s trades raised many red flags. He never paid transaction fees and reportedly paid seemingly random prices for bitcoins. Most curious of all, we identified many duplicate transactions in which the amount paid was changed from an implausibly random price to one that was consistent with other trades that day. In the end, we have concluded that Markus did not actually pay for the bitcoins he acquired; rather, his account was fraudulently credited with claimed bitcoins that almost certainly were not backed by real coins.

….Unlike Markus, Willy did not use a single ID; instead, it was a collection of 49 separate accounts that each rapidly bought exactly 2.5 million USD in sequential order and never sold the acquired bitcoin. The first Willy account became active… a mere 7 hours and 25 minutes after Markus became permanently inactive…. Why do we suspect foul play?… Normal accounts for this time period had IDs that capped around 650000 where the users at the center of this research had IDs in the range of 658152-832432. Furthermore, several reports can be found online of the Mt. Gox trading API going offline for various periods of time in which no trading activity was being processed with one exception….During this time period the only activity being processed followed the exact buying pattern of Willy when he was active: 10-19 bitcoins purchased every 6-20 minutes.

….Unlike, Markus, it appears that Willy was interacting with real users. While accounts of these users were “nominally” credited with Fiat currency, Willy did not actually pay for the bitcoins. Hence, together, these unauthorized traders “acquired” around 600,000 bitcoins by November 2013. Perhaps unsurprisingly, this is very close to the number of bitcoins (650,000) that Mt. Gox claimed to have lost when it folded in early 2014.

And here’s the chart:

On February 14, 2013, when Markus started trading, bitcoin was worth less than $30 and showed no real signs of taking off. By the time Willy and Markus were done, bitcoin was worth more than $1,000.

Now, it’s true that after Willy and Markus were finished and Mt. Gox finally folded, the price of bitcoin crashed back to earth and stayed flat for years. So obviously this has nothing to do with bitcoin’s latest bubble, which took off in 2016. Still, it’s a reminder that, blockchain or not, cryptocurrencies are the wild west of daytrading. Is everything now on the up and up? Maybe. But what evidence does anyone have for that? Shady commodity manipulation is regrettably common even with a whole bunch of national regulators keeping an eye on things. How common do you think it is in a market where there are almost literally no rules and no regulatory bodies at all?

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate