Bitcoin Price Volatility Returns Alongside Exchange Problems

By
Gordon Hall
February 6, 2014

As recently reported elsewhere on CryptoCoinsNews, price action has become “interesting” again after a long period of congestion.

A possible explanation is that large traders are (re)positioning ahead of the re-opening of Chinese banks tomorrow.

A recent hourly chart shows Bitcoin price volatility increasing as price pushes at the lower Bollinger Band.

Although I don’t believe them to be the sole drivers of the uptick in Bitcoin price volatilty, problems with a couple of cryptocurrency exchanges have occurred during this period of expanding price movement.

Mt. Gox

This issue of slow or failed withdrawals from Gox has been brewing for some time. Mt. Gox have released an official statement, asking for patience and promising further updates.

The problems with Mt. Gox withdrawals are well-known, especially in the wake of the Swedish Pirate Party’s Rick Falkvinge publically expressing his Gox-related disgruntlement.

The greater focus placed on ongoing Mt. Gox situation by Mr. Falkvinge’s legitimate concerns may well be affecting prices there.

Bitfinex

As the Gox woes are well-known and likely factored-in by market participants, I would point to a recent “hiccup” in the operations of the Bitfinex exchange as a possible catalyst to the sell-off on Bitstamp.

About 8 hours ago (02:45 GMT) on the Bitfinex IRC channel, several users reported incorrect Profit / Loss numbers in their account balances.

Around this time, a $10k bid for BTC at 0 volume appeared on their exchange, alongside an ask at $500 again at 0 volume. Both orders were well out the market, which was then trading around $800 on Bitstamp / BTC-e.

The bugged Bitfinex order book – a catalyst for volatility? (thanks to user Pagan on the BitcoinTalk thread for this screengrab)

When I logged into Bitfinex around 07:00 GMT this morning, I noticed these peculiar orders. I also saw via the Bitfinex USD Liquidity Stats page that margin traders had borrowed at rates as high as 1%; expensive money over a couple of days.

Similar problems were occuring on the Litecoin exchange side:

Bitfinex Litecoin market depth this morning, also screwy. (thanks again to Pagan)

Following discussion in IRC, TradingView and the official Bitfinex thread on BitcoinTalk, a rather unsettling story began to emerge. Apparently someone found a vulnerability in the Bitfinex code which allowed them to enter erroneous trades into the market and then take advantage of  the subsequent mispricing through margin trading. The exact circumstances remain unclear, but trading was twice halted on the exchange.

xiando, a Bitfinex trader from their IRC channel, offers this summary of events:

Someone found a way to place a 0.00000000001 BTC order at 10.000 USD. this caused everyone’s margin balance to become insane and also their P/L figures. People then used this huge margin balance to do wild trades. I am guessing someone had two accounts and used one to run loosing trades to fund the other with profits, which were then withdrawn.

As of approximately an hour ago, trade has resumed and prices appear normal, in-line with Bitstamp (whose orders are mingled into the Bitfinex order book).

Bitfinex team member Giancarlo has issued this official response on the Bitfinex Announcement page and their BitcoinTalk thread:

Dear Customers

the situation is under control.
No money or coins are missing and the problem was due to some malicious trader trying to play with the LTC ticker price in order to take advantage on us.
We are now reversing all transactions that took place on our platform during the time when all got messy (approx 7 a.m. GMT).

Very few transactions (for a total of 2,000 btc) actually took place on Bitstamp, only limited to the BTC/USD pair (Bitstamp doesn’t trade LTC) and they actually took place at a price that was around 750 usd, so no big deal.
We enabled the trading engine for a few minutes and then switched it off again to avoid those rats (sorry I cannot think of a better word in this moment) to shuffle things even more and to make our work more difficult.
We keep an eye on the price and we can always enable it in the next minutes whilst we reverse trades that took advantage of the abnormality should the price get volatile.

The whole operation will not take anyway more than one hour.

Thanks a lot for your understanding and we deeply apologize for the inconvenience

Giancarlo
Bitfinex Team

It appears at this point that Bitfinex have the situation in hand and will reverse the offending trades and make good any customer losses (and most likely, profits) related to this issue.

I have a Bitfinex transaction pending and loan outstanding, so hopefully everything will be resolved satisfactorily. As I joked on Trading View earlier, this situation combined with my Vertcoins stuck in Cryptsy limbo, made this a baaad morning to quit heroin. ;)

Anyway, looking at the daily chart, it seems Bitcoin is still within a reasonable range. A $50 price swing over an hour or so, while minor in comparison to some previous moves, is a reminder to Bitcoin traders not to become complacent.

Bitcoin price volatility on the daily chart is relatively unremarkable.

Last modified (UTC): April 20, 2014 18:31

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