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Bitcoin: Exhaustion Bottom?

April 11th, 2013
in econ_news, syndication

Econintersect:  Has Bitcoin seen selling exhaustion this morning (11 April 2013)?  The chart below (after the Read more >> break) might indicate such is the case, but trading on the largest exchange has just been halted for 12 hours because of trading volume that the private exchange has been unable to handle.

bitcoin-flag-2013-april-10

[Full chart (without the flag markers) available after the Read more >> jump.]

Follow up:

The possibility of an exhaustion bottom is indicated by the 10 am (Tokyo time) tall red candle with approximately 10-times-average hourly volume, followed by a green candle with double average volume.

bitcoinpricechart2013April11-noon

The possible follow-through will not be known because Mt. Gox, which handles 80% of the global trades for bitcoins, halted operations Thursday morning (New York time) for a 12-hour shutdown to allow the market to "cool down".

Mt. Gox issued the following statement via Facebook at 11:54:41 pm (10 April, NY time):

Hi everyone, just a quick update on the situation and what happened last night.

First of all we would like to reassure you but no we were not last night victim of a DDoS but instead victim of our own success!

Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!

To give you an idea of how impressive things were here are some numbers that we would love to share with you guys:
- The number of trades executed triple in the last 24hrs.
- The number of new account opened went from 60k for March alone to 75k new account created for the first few days of April! We now have roughly 20,000 new accounts created each day.
Due to these facts we have been busy working on improving things since last week and our team has been working around the clock to improve Mt.Gox to catch up with the demand. We will continue to release several updates today and in the coming few days to improve our system overall performance.

Also please note that we may have to close the exchange for two hours in the next 12 to 24 hrs to add several new servers to our system.

Thank you for your understanding and continuous support!

The warning of a two hour closure preceeded the closing for 12 hours shortly thereafter, apparently because the 10 am hour extraordinary volume on Thursday morning:

Market Cooldown for 12 hours - Mt. Gox Support posted this on Apr 11 23:23

Orders will not be accepted for the moment as we need to upgrade our database to accommodate the trading volume.  However, you may still cancel your pending and open orders.  Trading will resume at 11.00 am JST.  Our apologies for the inconvenience caused and thank you for your patience while we work to resolve this issue.

Trading in Bitcoins has been problematic in April.  On 03 April a combination of real and rumored hacker activities produced a "flash crash" in bitcoins of about 20% in just a few hours.  Losses were quickly recoverd and bitcoin moved higher.

Another "flash crash" happened yesterday (one week after the first) and nearly 24 hours later a recovery has not occurred, as indicated by the chart above. This crash encompassed a loss of more than 60% in about six hours time.

American Banker suggests that the market for bitcoins may have been manipulated.  American Banker had this to say about Mt. Gox, the operator of the world's largest bitcoin exchange:

Mt. Gox said last week it had been hit with distributed denial of service attacks by hackers. The exchange, which is based in Japan, could not be reached for comment Wednesday.

"Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can," the company said.

Some exchanges have carried on as usual. Tradehill, an exchange based in San Francisco, said it had processed about $1 million worth of the currency Wednesday without disruption.

The second-largest bitcoin exchange, BitStamp, based in Slovenia, could not be reached for comment. Tradehill Chief Executive Jered Kenner said his company worked with BitStamp on Wednesday and it "seemed fine."

"Bitcoin can survive with or without formal exchanges, but when you have just one exchange that handles the majority of the transfers, like Mt. Gox now, that concentrates the risk," said Kenner. "This just emphases the need for more exchanges."

Trading has continued on some of the smaller exchanges and the bitcoin has continued to decline.  Tradehill reports at 1:27 pm NY time $95.92 asked, $88.00 bid.  Another exchange, ICBIT, is reporting repeated outages today.

One of the appeals of Bitcoin is the freedom from regulation and the absence of government interference.  Bitcoin traders are finding that absence of regulation may have some downside as well as all the attributed advantages.

Sources:

  • Mt. Gox communications linked within the article.








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