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Trading Bot Runs Amok on MtGox

Several weeks ago, there was a large one-day spike in Bitcoin’s price volatility, as a series of sudden sell-offs sent the MtGox price oscillating within a range of $7.3 to $9.5, an event which pirateat40, operator of the Bitcoin Savings & Trust high-yield investment scheme, eagerly took credit for at the time. Now, it appears that there has been a less dramatic, but much more sudden, spike in volatility on MtGox, jerking the price between $12.64 to $13.84 over the course of twenty minutes. Volume spiked from an average of 14 BTC per minute to a high of over 1000 BTC per minute, and the top price of $13.84 that the volatility brought provided the Bitcoin price charts with a new high, the likes of which it has not seen since July 31 last year.

In the world of traditional finance, trading bot malfunctions are nothing new. Two weeks ago, a malfunction in a trading algorithm operated by Knight Capital cost the company $440 million, losing the company nearly four years of revenue and sending the stock price crashing down by 75%. In the world of Bitcoin, it may be impossible to tell who was responsible for this shock, or how much money they lost; it is also impossible to tell how many lucky traders managed to earn back some of the bot’s losses for themselves by arbitraging its temporary insanity.

It’s worth pointing out that both the allegedly Pirate-related spike and this one took place the day after a sudden upward spike in the Bitcoin price, potentially suggesting that the same bot, with the same weakness, was responsible for both of them. But regardless of who was responsible, in both cases, the markets have proven themselves to be self-correcting, and ordinary users were mostly left untouched. The price left the volatility spike at the same value of $13.50 at which it came, and when Bitcoin holders in the US began to wake up two hours later, the the markets had already resumed their regular motions and no lasting changes had taken place.

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Some image elements used under CC BY 2.0, by pasukaru76

 

BTC: 1FxkfJQLJTXpW6QmxGT6oF43ZH959ns8Cq

LTC: LaBhvWiAP7msku6w8QSQ5G7omVWMF3uxJC

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Vitalik Buterin is a co-founder of Bitcoin Magazine who has been involved in the Bitcoin community since 2011, and has contributed to Bitcoin both as a writer and the developer of a fork of bitcoinjs-lib, pybitcointools and multisig.info, as well as one of the developers behind Egora. Now, Vitalik's primary job is as the main developer of Ethereum, a project which intends to create a next-generation smart contract and decentralized application platform that allows people to create any kind of decentralized application on top of a blockchain that can be imagined.

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