Manipulation of the Bitcoin market: an agent-based study

Abstract

Fraudulent actions of a trader or a group of traders can cause substantial disturbance to the market, both directly influencing the price of an asset or indirectly by misinforming other market participants. Such behavior can be a source of systemic risk and increasing distrust for the market participants, consequences that call for viable countermeasures. Building on the foundations provided by the extant literature, this study aims to design an agent-based market model capable of reproducing the behavior of the Bitcoin market during the time of an alleged Bitcoin price manipulation that occurred between 2017 and early 2018. The model includes the mechanisms of a limit order book market and several agents associated with different trading strategies, including a fraudulent agent, initialized from empirical data and who performs market manipulation. The model is validated with respect to the Bitcoin price as well as the amount of Bitcoins obtained by the fraudulent agent and the traded volume. Simulation results provide a satisfactory fit to historical data. Several price dips and volume anomalies are explained by the actions of the fraudulent trader, completing the known body of evidence extracted from blockchain activity. The model suggests that the presence of the fraudulent agent was essential to obtain Bitcoin price development in the given time period; without this agent, it would have been very unlikely that the price had reached the heights as it did in late 2017. The insights gained from the model, especially the connection between liquidity and manipulation efficiency, unfold a discussion on how to prevent illicit behavior.

Volatility contagion between cryptocurrencies, gold and stock markets pre-and-during COVID-19: evidence using DCC-GARCH and cascade-correlation network

“…Cryptocurrencies are controversial, with some policymakers and scholars regarding them as a disruptive technology with both benefits and drawbacks; this study contributes to the ongoing debate about their role in the global financial system. While cryptocurrencies have the potential to revolutionize payment systems and foster innovation, they also pose risks to national security, financial stability, and consumer protection, as documented in previous research (Fratrič et al 2022;Guesmi et al 2019;Haykir and Yagli 2022;Özdemir 2022;Qarni and Gulzar 2021;Shahzad et al 2021;Sruthi and Shijin 2020). This study examines the dynamics of volatility contagion between cryptocurrencies and traditional financial assets such as gold and stock indices to shed light on interdependencies and transmission channels among these markets and guide investment strategies and policy interventions.…”

A fuzzy BWM and MARCOS integrated framework with Heronian function for evaluating cryptocurrency exchanges: a case study of Türkiye

“…Investors want to buy or sell very quickly on these exchanges. Therefore, the platform should be easy to use (Fratrič et al 2022). For crypto exchanges to be highly competitive, they must be preferred by many investors (Kou et al 2021;Jain et al 2022;Desai et al 2021).…”

Bitcoin Price Manipulation Regulation from a Game Perspective

“…The first two types of price manipulation is more applicable to the securities stock market, and Xiang [9] similarly developed a behavioral bias model for stock price manipulation in China. Nevertheless, the transaction-based manipulation as the most typical manipulation method, based on trading strategies and price mechanisms to execute manipulation, is most applicable to the analysis of price manipulation in the Bitcoin market [10,11] .…”

“…Introducing some of the validated parameters from previous studies [9,23] , we make the following assumptions on some of the variables: (1) The number of representative deviation coefficient ;…”