By Neil Gandal; JT Hamrickb; Tyler Mooreb; Tali Obermana
• Suspicious trades on a Bitcoin currency exchange are linked to rises in the exchange rate.
• A single actor likely drove the USD/BTC exchange rate from $150 to $1000 in 2 months.
• Trading volume on all exchanges increased greatly on days with suspicious activity.
• Unregulated cryptocurrency markets remain vulnerable to manipulation today.
To its proponents, the cryptocurrency Bitcoin offers the potential to disrupt payment systems and traditional currencies. It has also been subject to security breaches and wild price fluctuations. This 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.
By Lior Tabansky