Bitcoin is a Scam

Great article here about bitcoin price fixing.

The article points out this valuation using the size of the bitcoin economy and a reasonable monetary velocity is at most $4 per bitcoin.

“: As pointed out by Jon Matonis and others, Automattic’s WordPress bitcoin revenue turned out to be not representative. The BitPay clearinghouse has an annual bitcoin-economy turnover of about 60 million USD equivalent. That changes the ballpark utility valuation of one bitcoin to (60M+22M) / 1.67 / 11.7M = about four US dollars. The revised data still supports the conclusion strongly.]”

$4 per bitcoin! bitcoin trades in the $140s.

(Btw, this math is very similar to what I used several months ago to show bitcoin is too valuable to be used as money. I also came to similar conclusions about what needs to happen to the value of bitcoin if it is to be successful.  )

 But the real meat of this article is where it becomes clear the market is being manipulated.
“In Step 1 of the cycle, the shark squad makes a large buyup, causing prices to skyrocket. Illustrated here, the buyup at 10:00 European time on Thursday September 12, 2013, from USD 135 to 145.9, an instant 8-percent increase. This causes a lot of downward-betting traders to flush out.
In step 2, the shark squad reverses this trend by causing a slow pullback, causing those who bought in greed to sell off in panic as the market has reversed and causing more stop losses to trigger and people to sell to the squad‘s bids. Note that I write causes a pullback – this is not a normal market pullback. Let’s look at the big picture first as displayed by the sitebitcoinwisdom, which displays much more detail than most sites. You can see the pullback over Thursday lunch-to-afternoon (blue box, right half), and there is also a display of the current order book (yellow box) and the recent transactions (red box) which we will look at shortly. Note how the recent transactions in the indicated red box are all red, red, red, indicating a massive selloff – there’s nobody buying at all on cursory inspection, only selling, and a lot of selling.
However, let’s take a closer look at the minute details of the recent transactions in the bottom right corner, displaying time, price, and amount of the last bitcoin transactions:
Do you see a pattern here? All the transactions are for exactly one bitcoin, and the transactions are spaced exactly five seconds apart. This pattern can continue for hours, a claim verifiable by checking the MtGox transaction history. This is not market trading; this is one (1) automated process intended to give the illusion of many different players panic-selling. Furthermore, let’s take a closer look at the order book:

Do you see the numbers below and to the left of the current big red price? That’s the bid order book. That’s the current buy orders. Note how the currently executing buy orders are at 7-8 bitcoin each, placed just 0.0001 (!) bitcoin apart in price, evading detection on most sites. This is coordinated with the selling person. Those buy orders keep replenishing as the sales orders keep ticking one bitcoin per five seconds; they are coordinated. This is one person in the Shark Squad selling to another person in the Shark Squad, to give the illusion of market downward pressure and sell volume.”

This article doesn’t even go into how a vast majority of bitcoin transactions are a sham, and designed to obscure the fact most bitcoins are owned by just a few people.

“By the nature of the system, the ownership history of every bitcoin in existence is public. Ron and Shamir found that a sizeable bulk of the Bitcoin transaction history to date consisted of shell game switcheroos, designed to conceal certain inconvenient facts. And it should surprise no one that, once the fog of deliberate obfuscation clears, we see the following distribution of ownership:

But the most damning fact revealed in the paper is not the extreme top-heaviness of the Bitcoin ownership pyramid, but rather the elaborate lengths to which the hoarders went in order to conceal their existence from “rank and file” users. Think of it! Hundreds of thousands of shill accounts, with vast rivers of wealth moving back and forth – for one purpose only: to deceive. None of it was done by accident.”

A reasonable value of bitcoin is $4, yet it trades $140 The market has tens of thousands of shell accounts trading for no reason. The biggest owners of bitcoin trade between these accounts for no apparent reason. The transaction history shows multiple instances of what would be SEC trading violations.

Yes, Bitcoin is a scam. No matter how useful and inexpensive the secure transaction technology is, the reality of bitcoin is “Scam”.

Comments

  1. Interesting. But, it is hardly surprising since very large markets like gold, silver, steel, copper, electricity, nat gas have been manipulated in the past … and that’s with market regulation and penalties! But 140/4 is off the charts!

    fyi Canada is getting in on the game … maybe to finance all the “hemp” production in British Columbia … ;-} …
    http://business.financialpost.com/2013/09/19/canadian-mint-pushes-ahead-in-murky-world-of-crypto-currency-with-mintchip-project/

  2. And the NYSE, NASDAQ and CBT aren’t all scams? Hell those three are admittedly propped up by the fed and QE.

  3. John Hawkins says:

    …This isn’t taking into account rational expectations at all… Participants in the bitcoin economy obviously expect a high growth rate in the economy turnover.