For all you Bitcoin skeptics out there, here is a nice graphic from Jeremy Grantham comparing Bitcoin to other famous bubbles in history:
In other Bitcoin news, I’ve wondered out loud several times how many Bitcoin transactions involve real money compared to other cryptocurrencies (Tether, Ethereum, etc.). I still don’t know, but Tyler Cowen points to a recent paper that suggests plain old fraud was responsible for much of Bitcoin’s rise in 2013. The researchers examined trades on the Mt. Gox exchange conducted by two traders named Markus and Willy:
Markus’ trades raised many warning signals. He never paid transaction fees and reportedly paid seemingly random prices for Bitcoins. Most curiously, we identified many duplicate transactions where the amount paid was changed from an implausibly random price to a price consistent with other transactions that day. At the end, We have concluded that Markus did not actually pay for the Bitcoins he purchased; Rather, his account was credited with fraudulently claimed Bitcoins that were almost certainly not backed by actual coins.
….Unlike Markus, Willy didn’t use a single ID card; Instead, it was a collection of 49 separate accounts, each of which quickly purchased exactly $2.5 million in succession and never sold the acquired Bitcoins. The first Willy account became active… just 7 hours and 25 minutes after Markus became permanently inactive…. Why do we suspect foul play? …Normal accounts for this period had IDs capped at around 650,000, while the users who were the focus of this investigation had IDs in the range 658152-832432. Additionally, multiple reports can be found online of the Mt. Gox trading API going offline for various periods of time during which, with one exception, no trading activity was processed. During this period, the only activity processed followed Willy’s exact buying pattern when he was active: 10-19 Bitcoins purchased every 6-20 minutes.
….Unlike Markus, Willy appears to have interacted with real users. While these users’ accounts were “nominally” credited with fiat currency, Willy didn’t actually pay for the Bitcoins. In total, these unauthorized dealers “acquired” around 600,000 Bitcoins by November 2013. Perhaps unsurprisingly, this is very close to the number of Bitcoins (650,000) that Mt. Gox reportedly lost when the price collapsed in early 2014.
And here is the diagram:
On February 14, 2013, when Markus began trading, Bitcoin was worth less than $30 and showed no real signs of recovery. By the time Willy and Markus were finished, Bitcoin was worth more than $1,000.
Now it is true that after the end of Willy and Markus and the final collapse of Mt. Gox, the Bitcoin price crashed again and remained unchanged for years. So this obviously has nothing to do with the recent Bitcoin bubble that started in 2016. Still, it’s a reminder that cryptocurrencies, blockchain or not, are the Wild West of day trading. Is everything on the rise now? Perhaps. But what evidence does anyone have for this? Shady commodity manipulation is regrettably widespread, even with a range of national regulators keeping an eye on things. How common do you think this is in a market where there are virtually no rules and no regulators at all?
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