A paper on Bitcoin shows that prices were likely manipulated

The Mt. Gox collapse is still reverberating.

A newly-published paper argues that the likely cause of the rally to $1200 from $100 in Bitcoin in 2014 was an illusion, likely as Mt. Gox tried to cover up the theft of 650,000 Bitcoin.

The paper, called Price Manipulation in the Bitcoin Ecosystem, can be found here.

The paper was possible because in early 2014, in the midst of theft allegations, the Mt. Gox transaction history was leaked in the form of several large CSV files with 18 million matching buy and sell orders.

What it looks like happened is that buyers thought they were buying Bitcoin, but the accounts were simply being credited with Bitcoin and nothing was actually purchased.

The first theory, initially espoused in a Reddit post shortly after Mt. Gox's collapse, is that hackers stole a huge number of BTC from Mt. Gox in June 2011 and that founder Mark Karpales took extraordinary steps to cover up the loss for several years.

Note that Bitcoin currency exchanges function in many ways like banks. Customers buy and sell bitcoins, but typically maintain balances of both fiat currencies and bitcoins on the exchange without retaining direct access to the currency. For bitcoin, this means that a customer account might reflect a balance of, say 100 BTC, but the customer does not retain access to the private keys that would enable her to spend the bitcoins directly. Instead, the user would have to request the keys to do so, which is analogous to a bank customer withdrawing cash from a local branch. Just as a bank maintains cash reserves that represent a fraction of total deposits, so too could an exchange represent to customers that they have more bitcoin in their accounts than is on hand.

If Mt. Gox was trying to hide the absence of a huge number of BTC from its coffers, it could succeed so long as customers remained confident in the exchange. By offering to buy large numbers of bitcoins, Willy could prop up the trading volume at Mt. Gox and "convert" consumer "bitcoin" balances to fiat money. The ruse could work so long as the users who sold bitcoin had enough confidence to leave the bulk of their fiat balance at Mt. Gox. Consequently, this theory holds that Willy was not trying to profit directly from these .arge purchases, but rather was trying to stave off collapse of the exchange.

Interesting stuff.