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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

 

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  • Jan Machynka

    I would like to see it more often … 😀

  • Anonymous

    Fortunately there’s little in the way of margined trading where positions were automatically liquidated and the concept of trading stops aren’t really offered anywhere either.   So as a result the only ones to lose from this were the responsible party (parties) themselves.

    It would be good if there were methods to short bitcoin though.  That can help volatility as shorts buy to lock in gains during deep selloffs.

  • Spekualtius

    What makes you think this was a bot malfunction?
    Volatility of this kind is not new.
    Any proof?

  • Guest

    Wish had some spare $ when it was happening 😉

  • Alphonse Bidoya

    nice update, thanks.