Report Suggests MtGox Fraud Led to $1200 Bitcoin Price

Updated: May 26, 2014 at 1:45 am CET.

MtGox Rigged

The chart pointing out artificial price floors on MtGox via The Bitcoin Channel.

It turns out that the extreme rise in the bitcoin price near the end of the 2013 may not have had much to do with China, Silk Road, or government hearings in the United States. Although those three factors are often cited as the reason the price skyrocketed to over $1000 near the end of the year, a new report suggests that there was some price manipulation going on behind the scenes at MtGox. Although the report falls short of placing guilt upon Mark Karpeles or anyone else at MtGox, fraud is definitely an accusation that has been on the minds of many individuals in the Bitcoin community over the past few months. The report includes a large amount of evidence based on publicly available data related to trading patterns on the MtGox platform over the course of 2013.

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MtGox Trading Bots Manipulate the Price

The basis of the claims of price manipulation in the “Willy Report” revolved around the activities of two trading bots: Willy and Markus. These bots were actually noticed by many avid Bitcoin traders back in 2013, and the suspicious activity related to the bots was discussed on various Bitcoin forums. The activity of these bots were actually rather obvious to people who were watching the charts and live trades take place during the day, and it was clear that someone was either attempting to manipulate the bitcoin price or simply take an extremely large position in the cryptocurrency. In total, the report estimates that roughly $112 million was used to purchase around 270,000 bitcoins through the use of trading bots. The vast majority of this activity took place in November, which is when the bitcoin price went from around $200 to over $1000.

Tying the Bots Back to MtGox

While many bitcoin speculators understood the existence of these trading bots during the bitcoin price rise, recently released details shed some light on who may have been behind all of that extra liquidity in the bitcoin market. A large number of different facts surrounding the trades made by Willy and Markus point to an inside job by MtGox, and it’s at least possible that these trades were manufactured with no real money changing hands. Some of the most damning claims in the report point out that Markus never had to pay any fees on his trades, and neither of the trading bots had a country code attached to their accounts. Perhaps the most amazing point made in the report is the fact that Markus’s user ID was actually changed to 634 in one version of the trading logs. When looking at a leaked account list from 2011, user ID 634 is actually attached to the name “MagicalTux“, which is the online alias of MtGox CEO Mark Karpeles. It’s also rather interesting to note that Markus and Willy were able to continue trading during those frequent MtGox downtimes when everyone else was stuck looking at a stalled trading engine. Some suspicious trading activity that was also pointed out by the Bitcoin Channel at the time is also mentioned in the report.

Can We Trust Centralized Exchanges?

This is not the first time that claims of fake trading data have been thrown at a Bitcoin exchange, but this possible fraud by MtGox would definitely have had an extremely large impact on the bitcoin price over the course of 2013. The impact could have been large enough to be the very basis for the boom, bust, consolidation, and repeat cycle that so many bitcoiners have come to know and understand over the years. BTC China CEO Bobby Lee has taken shots at other Chinese Bitcoin exchanges for possibly faking trading data, which points to the need for honest, transparent exchanges more than ever. After all, how is anyone supposed to know the real price of bitcoin if the data being used to create that price is completely fabricated?

About The Author

Kyle is a freelance Bitcoin writer and the Marketing Director for Bitcloud. His work has been featured on Business Insider, VICE Motherboard, Let's Talk Bitcoin, and RT's Keiser Report . You can follow him on Twitter (@kyletorpey) or send him an email.