Bitcoin's Vast Overvaluation Appears Partially Caused By (Usually) Illegal Price-Fixing

Bitcoin is soaring again. On examining the market size and market share for bitcoin, the valuation is unwarranted by several orders of magnitude comparing to its mere utility value. On closer inspection, illegal price-fixing is going on – illegal in most parts of the world, anyway.

As of this writing, one bitcoin is trading for 142 US Dollars. Readers of this blog will remember that I estimated the endgame value of one bitcoin, if the currency succeeds, to be between 100,000 and 1,000,000 US Dollars. That estimation still holds.

However, today’s valuation is equally off the charts. Most people, when discussing bitcoin’s value, still seems to just look at its trading price when determining its value. As I estimated today, that’s not where bitcoin’s value comes from. It is a transactional currency. As such, its value is – or can be estimated to – its market share of transactional currencies, multiplied by the size of that market (about 75 trillion US dollars).

As I was able to document what’s normally illegal trading practices, I tried to quantify their impact on the exchange rate by dividing the price into utility value, speculation value, and price-fixing value. That turned out to be a mistake, horribly imprecise, unnecessary, and irrelevant. Ignore the napkin ballpark calculations below and focus on the documented price-fixing further below instead; that’s the news brought to the table here.

Over the past weeks, I have estimated this number again – but rather than estimating the endgame market share, I have tried to dig up the actual numbers today, to see what the actual size of Bitcoin’s transactional currency market is. This value leads us to a tangible value of the bitcoin money supply, and we can use this value to see if there is a discrepancy against bitcoin’s exchange rate. (There is, by more than two orders of magnitude.)

Drugs, gambling, and… not much more

In calculating the value of a transactional money supply, the concept of money velocity is crucial to understand. It’s how often a money unit changes hands. The more often it does, the smaller the total money supply needs to be.

For example, most readers here probably – like me – spend all their paycheck in the month they get it, or close enough to “all” for all intents and purposes. This means, that if we each make 3,000 euros in a monthly paycheck, every one of those euros changes hands 12 times per year; they are on a one-month lockdown cycle. Let’s assume we’re 20 people in the economy. That means that the money supply can be 20×3,000, or 60,000 euros in total. Yet, the total yearly production and revenue in the economy is 12x20x3,000, or 720,000 euros. With this, I wanted to demonstrate how the size of the money supply is related to revenue/production by the factor of velocity.

Let’s look at gambling. If you buy a scratch-off lottery ticket one month and win 10 euros, you probably spend those 10 euros that month without thinking more about it. Likewise, if you lose 10 euros on such a ticket and they go to somebody else, you don’t care. Money in gambling – at least instant gambling – is not in a lockdown cycle and does not contribute to the minimum size of the money supply.

This becomes important as we look at the different economies making up bitcoin today. There are about 11.7 million bitcoin in circulation today. Out of these, a staggering 2 million bitcoin are gambled every year on the SatoshiDice site alone, and another, PrimeDice, 1.5 million.

To put these numbers in perspective, if translated to the global economy, it would mean that people bet the entire production of the USA at one single betting site, and the entire production of Europe on another.

But as we have seen, these numbers do not contribute to the money supply pool in any meaningful way in a functioning economy. They are not funds in lockdown, or at least not for more than a few minutes. For all intents and purposes, the velocity of internet-based gambling money is infinite, or at least so much larger than other funds that it can be discarded.

That leaves us with drugs, read Silk Road, and for lack of a better word, normal products and services. A recent estimate says that Silk Road has two million USD in monthly turnover. This is real money that contributes to the money supply. A fair estimate could assume a two-month lockdown on such funds.

What about normal products and services? To get a ballpark understanding, I contacted Automattic (the parent company of WordPress) and asked politely if they could share how much revenue they have received in bitcoin, being one of the highest-visibility brands ever to accept bitcoin. The answer came quickly – “a couple of hundred dollars worth, so far”. If the highest-visibility brand accepting bitcoin has had less than two bitcoin in revenue in total, then for all intents and purposes, there is currently no measurable bitcoin economy outside of drugs and gambling.

This gives us enough data to calculate the value of the money pool, and derive the value of one bitcoin from there. If Silk Road has 22 million USD in annual sales, let’s be very generous to err on the safe side, and divide that by the United States’ money velocity, which is 1.67 on average instead of the 6 estimated above.

This generous estimation gives us a total bitcoin money supply value of 13 million USD.


The observant will note that this estimation of bitcoin’s total money supply value, while obviously a ballpark number, is less than two magnitudes smaller than the bitcoin money supply’s current valuation of 142 USD x 11.7M bitcoin = 1.66 billion USD.

Dividing this value with the bitcoin supply to get the current value of one bitcoin, this means that the current value of one bitcoin, as backed by exchange of products and services in its role as a transactional currency, is roughly one US dollar and twelve US cents. And that’s still a generous estimate.

Oops, again.

It’s not hard to see why I use the words “vast overvaluation”, seeing how one bitcoin is currently trading at 142 USD. So how did we get here? Part speculation on future value, obviously, but there is something else going on too here. More interestingly, when looking very closely at the market for the past two months, there is ample and obvious evidence of price fixing.

[UPDATE: As pointed out, these back-of-napkin calculations did not take into account bitcoin-mining equipment sold for bitcoin, which can be debated if it’s really an external economy, but regardless, the overall observation of a major discrepancy still stands.]

[UPDATE 2: As pointed out by Jon Matonis and others, Automattic’s WordPress bitcoin revenue turned out to be not representative. The BitPay clearinghouse has an annual bitcoin-economy turnover of about 60 million USD equivalent. That changes the ballpark utility valuation of one bitcoin to (60M+22M) / 1.67 / 11.7M = about four US dollars. The revised data still supports the conclusion strongly.]

[UPDATE 3: A lot of people have claimed that this calculation only takes into account bitcoin’s value as a transactional currency, and not its use as a store of value. It does factor in the store-of-value value, but perhaps that wasn’t clear from the article. You’ll notice that the money supply value is calculated as total production divided by average USD velocity, assuming that USD velocity is a ballpark benchmark for all a currency’s uses, including as a store of value.]

Enter the tape-painting “Shark Squad”

In securities trading, the expression painting the tape is used for any trading activity that is intended to manipulate the trading statistics (price, volume, other metrics) rather than to execute a trade. It is highly illegal, jail-time illegal, in all civilized parts of the world. The expression comes from the ancient price ticker tape, and how it could be “painted” with false data.

I’m going to illustrate how this Shark Squad has operated recently to fix the price in luring other traders of their money and hiking the price. (While luring other traders of their money is part of the game, there are legal and illegal ways to do so. Insider trading, for example, is one of the better-known illegal ones – our legal framework generally fights hard to create a level playing field for all traders.) The squad is a small team of collaborating traders.

In Step 1 of the cycle, the shark squad makes a large buyup, causing prices to skyrocket. Illustrated here, the buyup at 10:00 European time on Thursday September 12, 2013, from USD 135 to 145.9, an instant 8-percent increase. This causes a lot of downward-betting traders to flush out.

shark squad step 1

In step 2, the shark squad reverses this trend by causing a slow pullback, causing those who bought in greed to sell off in panic as the market has reversed and causing more stop losses to trigger and people to sell to the squad‘s bids. Note that I write causes a pullback – this is not a normal market pullback. Let’s look at the big picture first as displayed by the site bitcoinwisdom, which displays much more detail than most sites. You can see the pullback over Thursday lunch-to-afternoon (blue box, right half), and there is also a display of the current order book (yellow box) and the recent transactions (red box) which we will look at shortly. Note how the recent transactions in the indicated red box are all red, red, red, indicating a massive selloff – there’s nobody buying at all on cursory inspection, only selling, and a lot of selling.


However, let’s take a closer look at the minute details of the recent transactions in the bottom right corner, displaying time, price, and amount of the last bitcoin transactions:


Do you see a pattern here? All the transactions are for exactly one bitcoin, and the transactions are spaced exactly five seconds apart. This pattern can continue for hours, a claim verifiable by checking the MtGox transaction history. This is not market trading; this is one (1) automated process intended to give the illusion of many different players panic-selling. Furthermore, let’s take a closer look at the order book:


Do you see the numbers below and to the left of the current big red price? That’s the bid order book. That’s the current buy orders. Note how the currently executing buy orders are at 7-8 bitcoin each, placed just 0.0001 (!) bitcoin apart in price, evading detection on most sites. This is coordinated with the selling person. Those buy orders keep replenishing as the sales orders keep ticking one bitcoin per five seconds; they are coordinated. This is one person in the Shark Squad selling to another person in the Shark Squad, to give the illusion of market downward pressure and sell volume.

Both of these activities – splitting an order to give the illusion of many trades, and trading within a group to give the appearance of increased volume and a certain market direction – are considered painting the tape and highly illegal. (I’m going to stop writing “usually illegal” now, as it’s illegal in practically all countries where you can read this.)

So, how can I state with certainty that the seller and buyer are conspiring? Based on only this screenshot, the evidence could be improved, but having watched the market at this level for some two months and seen how these kind of buy and sell orders follow each other very closely, it’s obvious there is talking and coordinating within a team dedicated to fabricating a market impression. Normally, you would need to see how they moved in lockstep to identify this cooperation, but it’s particularly visible in this snapshot. (Besides, the visible order-splitting is enough to constitute tape-painting entirely on its own.)

Here’s the kicker, then: we have observed that the buy orders being executed – the ones with 7, 7, 7, 7, 7, 8, 8, etc. bitcoin at the moment at a price of 137.64xyz – belong to this shark squad. What happens when a trader sees the (false) image of a massive selloff going on, and sells in panic? Well, he’s selling his bitcoin into those buy orders to the shark squad, at the price they have set. Here, the price is 137.64. So the obvious question is, what happens next? Well, a fabricated price hike, of course, tricking other traders to buy those same bitcoin at higher prices from the coordinated shark squad. We’ll be returning to when and how that happens in step 4.

In Step 3, the shark squad puts up an enormous bidwall – so large it’s effectively a lid on the market – and lure other traders to sell into it, intending to sell the bought bitcoin at a higher price after the next fabricated hike. There is plenty of fake trading going on into these bidwalls as visible in step 2. We can also see that this lure is effective – look at the transaction history of bitcoin around these walls, and you can easily find trades of hundreds of coins amid the fake trading. Or perhaps it’s the shark squad selling to itself again with the transactions in the hundreds. Hard to know – most likely a mix of in-group trading and others being lured to sell. In any case, unsuspecting traders are selling into the shark squad‘s bidwalls. These lurewalls are easily identifiable in the close-up market history, as well as when they were removed:


In Step 4, finally, the price is hiked to new highs and the shark squad begins offloading its booty at higher prices, and the cycle repeats with them trading in-between themselves to give the appearance of market activity. That price hike happened at 15:25 Thursday, European time, up to 145 USD for this cycle, as also visible in the image above.

This cycle has repeated very visibly at least five times in the past weeks, and likely since much earlier in a variant version:


This – this illegal activity – is very troubling for the bitcoin ecosystem.

A final note on legality

I have written “illegal trading activity” all over this article. For many bitcoin enthusiasts, the bitcoin market’s unenforceability of governmental rules is a feature, not a bug. This is a truly free market, with all the good and bad that comes with it. Also, it is hard to really know if this shark squad is located in a civilized country or some warlord place like Somalia without any functioning legal system at all. Maybe they’re on international waters. Maybe in Low Earth Orbit. There’s no way to know what jurisdiction, if any, they operate under. Therefore, the word “illegal” is kind of meaningless as applied to sanctions.

But for the most part, activities such as these are illegal for a reason – that we as a society have considered them to be cheating of some kind, a breaking of the social contract. This is what concerns me. Bitcoin is a fantastic technology with an enormous potential for disruption of old incumbents I dream of dropkicking out of existence.

Bitcoin must survive.

That’s why I’m concerned over the irony of the net generation, which has spawned a number of anti-Wall-Street movements and sentiments, to see people in this generation intuitively picking up trading practices that carry on every bit of foul legacy that offline traders have practiced before the net generation. It seems the more things change, the more they stay the same.

Rick Falkvinge

Rick is the founder of the first Pirate Party and a low-altitude motorcycle pilot. He lives on Alexanderplatz in Berlin, Germany, roasts his own coffee, and as of right now (2019-2020) is taking a little break.


  1. Happ MacDonald

    Uhh… Rick..?

    Why are you quoting prices off of MtGox. NOBODY prices based on gox any more. Not coinbase, bitcoinstore, gyft, nobody.

    Bitstamp is primary price indicator these days, son, and Bitstamp has been 110-130 for a month. Also, every other high volume exchange except for Gox follows bitstamp.

    Gox is only high valued because their “version” of USD which nobody can withdraw is *low* valued.

  2. Nivel

    So the usual day-traders with their badly written bots are ripped off. I don’t care at all. I see no problem for anyone using bitcoin except for greedy little daytraders.

    1. Rune K. Svendsen

      Exactly. It’s called “speculation”. Claiming that certain patterns of buying and selling should be illegal is senseless. Who are you to decide whether someone can move the market by placing orders a certain way?

      We have buyers and sellers in a market. If one speculator is able to fool other speculators into making him money, this is between them and them only. I have no right to stop these two parties from trading with each other. Nor do I have a right to determine which price they should exchange bitcoins at, or how they are allowed to place their orders.

      Saying that this wrong because it’s “illegal for a reason” is like arguing that drug use is wrong because it’s “illegal for a reason”. If you have valid arguments against this practice, present them. But relying on the law to deduce right and wrong will lead you to strange conclusions.

      Saying that the market price that results from some speculator buying and selling in a certain pattern is not the “real” market price – or that it “should” be different – is meaningless.

      Also, stop quoting the Mt. Gox USD price. Mt. Gox does not maintain a BTCUSD spot market, as withdrawals in USD are heavily delayed or non-existant. This is reflected in the 15% spread between the BTCUSD quote on Mt. Gox and Bitstamp.

    2. SomeGuy

      So, according to your logic is;

      Small-time traders which struggle for earning money for food deserves to lose their money due to manipulation.

      And stinking rich sharks manipulating the market for the sole intention of getting even more stinking rich by stealing other peoples money, is OK.

      So, basically you HATE poor people who tries to earn for a living by trading pocket-money, while you LOVE stinking rich sharks which ruins poor peoples lives.

      Great view you got on the world. You sound like a very logic thinking guy. I’m sure there’s many others equally impressed by your logic here.

      Somehow I suspect this mentality will eventually back-fire in your face some day.

      1. Rune K. Svendsen

        You have an odd understand of what constitutes theft. No one is stealing anything. Theft is wrong, clearly. But if you are a speculator and you lose money you should probably stop speculating. If you believe you are operating in a manipulated market, it would make sense to stop participating. No one is forcing you to trade bitcoins in a market you think is being manipulated.

        Believing that you deserve protection because you are less wealthy than others is the mentality that will get you in trouble.

        1. SomeGuy

          No, I definitely do not need protection. I quadrupled my money myself. As a fairly seasoned trader, it was quite easy to spot and tag along on the fake waves.

          However, believing you can do manipulation of the market without getting thrown in jail in some countries, if discovered; will definitely get YOU, Rune Svendsen; in serious trouble with local authorities.

          Rune Svendsen sounds Danish or Swedish to me? You should be careful then. As far as i understand; the laws in the nordic countries, market-manipulation is punished by multiple years in jail plus a quite nicely sized fine if/when discovered. So good luck to you. You may need it.

      2. ItsDom

        I agree with you on a certain moral level, it’s definitely facilitating the rich getting richer at the cost of the less educated smaller traders.

        However, a couple of counter arguments:

        Trading is a skill and a game in some sense that it requires skill. In any activity requiring skill, there are going to be those who are skilled, and those that have no skills. Inevitably, the one with less skill is going to lose. If you remove the element of skill, trading into gambling (e.g. pure luck/chance, which a lot would already argue that’s what it is) and that removes incentive and reward and therefore reduces trading, which is a bad thing.

        Then there’s the libertarian argument: if someone wants to use their money and ‘skill’ to play the market like above, then why shouldn’t they be able to? The unskilled trader is probably going to lose money regardless of if the market is played. And nobody is forcing the people losing out to trade, buy, or sell – it’s their responsibility to read the market and make a decision.

        There’s no real right or wrong answer to if people should or shouldn’t be able to play the market like this with Bitcoin, because Bitcoin is a different concept with different ideal and motivation to the markets where such behaviour is classed as illegal. It purely comes down to an individuals moral, political and ideological beliefs.

        The joy of Bitcoin is that if someone wants to try prevent this, they’re free to setup their own exchange and watch trades and implement algorithms to catch and stop this sort of trading on that exchange. If people support this idea, then eventually the exchange will grow with ‘legitimate’ users and those exchanges that don’t prevent it will just become sharks attacking each other then it works out for everyone.

      3. Nivel

        Trading bitcoin is not an honest field of occupation. People who are starving should go and work in a real job. Relying on bitcoin speculation as a means to get your food on the table is like these creeps that play online poker all night long to survive. Bitcoin day trading is as good a gambling. If you have spare money, go ahead and daytrade bitcoin or go bet it on some horses.

        1. SomeGuy

          “These creeps that play poker”?

          Almost sounds like you have had some bad experiences with poker-players? Did the “creeps” try touch you at a no-no spot on your body? Dressing a little less slutty when you go out may help keep these “creeps” you talk about at a better distance. You go, girl! LOL

          Anyways, so basically you are telling me you are arguing bullshit just for the sake of arguing bullshit.

        2. UWP

          Whats wrong with poker? But I’d rather speculate on Bitcoin than horses. At least with Bitcoin its been pretty much a sure bet these days.

      4. Crypto-DayTrader

        Please understand that even better sharks are the ones writing the rules to “protect” the poor little fish. By the time a “shark” has ascended up the food chain high enough to affect how a law is written … his only concern is how best to eat the mid-sized sharks … if a little fish like you becomes an annoyance, then that big shark will eat you too. He has no concern for “protecting” the poor little fishes of the see.

        The “FREE” market is the only fair solution. Everyone must either learn to swim in the “FREE” market, or get out of the pool. When we make life more complicated than that, no matter how good our intentions are, we simply enable the biggest sharks to have easy access to the biggest bites.

      5. VB


  3. Dennis

    What is this MtGox you speak of?
    Let the Sharkies play their stupid game, forget MtGox.

    Use localbitcoins, for example, where the price has completely decoupled from MtGox in the last few weeks, ranging from bitstamp to – derived pricing.

  4. Justus Ranvier

    I’d be more worried about exchange behavior if they were going to be a permanent fixture in a future Bitcoin world instead of a temporary transitional technology.

  5. dom

    Rick go and take a couple econ classes. Yes the equipment counts, yes even trading and investors count at least according to guys like a Hayek, I read somewhere SR does a lot more than 2M, people getting paid for services, etc.

    You cannot just pull 3 websites out of your ass and premise your entire argument on this….

  6. NewLiberty

    The back of the napkin calculation of the transactional value of Bitcoin considers only a few merchants.
    BitPay and Coinbase alone have thousands of others, and additionally consider that there may be some that don’t use these services?

    This would be like deciding the only place to look at how much transactional value there is in dollar is by looking at McDonalds and WalMart and then concluding that the entirety of commerce equals that sum and ignoring the hundreds of thousands of other businesses.

    The methodology for the underlying assumptions is deeply suspect.

    There are many other good points in this article, but it got off to a horrible start.

    1. Rick Falkvinge

      The methodology for the underlying assumptions is deeply suspect.

      Agreed. It was a mistake trying to find an explanation of my documentation for rigged trading when that was the news in itself, not an explanation for it.

  7. Jonas

    The reasoning how trade velocity is what gives money its value is alluded to in this article but never explained. In fact it is but one model out of many that economists can use to study why the economy works. I see no reason at all to believe this would be the model to understand bitcoin.

    Let me produce a trivial counterexample: I believe bitcoin has a future. Cryptocurrencies will play an important role in the future and bitcoin is currently where it’s all at (and I really mean all at). I believe one bitcoin could easily buy a car in just a few years. That’s why I bought my bitcoin now, when it’s cheap.

    So most of its value is in its future expected value right now. That may be hard to grasp and difficuly to quantity, but it’s real. Very real, for anyone who wants to use them.

  8. RS

    One has to be really dumb to attempt to create the illusion of a panic sell by 1.0000 sells spaced 5 seconds apart. Seriously. This is not attempting to fool you into seeing a panic sell. This algorithm is simply attempting to sell without causing an instant massive price drop.

  9. Kevin Andross

    This article demonstrates why your are a politician, and not an entrepreneur. You do not understand Bitcoin’s true nature, are not able to make predictions of future use like an entrepreneur can and believe in what the herd does. There is nothing wrong in this inherently, but your position to violently control people through democracy makes people like you a threat to Bitcoin users.

    1. Rick Falkvinge

      This article demonstrates why your are a politician, and not an entrepreneur.

      For the time being, at least. I founded my first company at 16 for legal reasons – I wasn’t formally allowed to run my own company before that, or I would have at 14.


  10. Dan

    No. The value of an asset is the future value discounted by its risk-adjusted return rate back to the present. All finance is based on this concept. I recommend reading a college level finance text book, specifically the chapter on net present value.

  11. Channing

    I think it’s more likely the current price is based on speculation. There are a lot of smart people out there like Rick, that know that Bitcoin will be worth a lot more in the future.

  12. Mats Henricson

    “It is a transactional currency”

    I’m a bit tired of hearing this, over and over again. With Bitcoin you can do things that were completely impossible before, like coloured coins, smart property, etc etc etc. We’re just at the beginning of realizing the potential. Some are speculating in this future by buying Bitcoins. The current price may have no other cause than this.

  13. Fabio Ferrari

    In my opinion the use of the velocity of money from a inflationary fiat money is a bad choice.
    Considering a inverted approach for your equation and believing that the actual market price is correct, I could estimate a velocity for bitcoin:
    v = (60M+22M) / 142 / 11.7M = 0.05.
    I’m wondering if the velocity of money for gold could be similar to that.

    1. Warlock

      Agree, velocity of bitcoins should be more like the velocity of gold, not fiat currency.

  14. phys

    “velocity” is a really really really bad misnomer!

    We talk about the rate at which a unit of money changes hands. If this quantity could be described as a “velocity” or a speed ( ) it would need to have units of Distance/Time. We can forget the “Distance” part, if we are talking about speed of change, but we cannot forget the 1/Time part.

    This means that dividing Money/Velocity one would end up with a quantity that has units of Money * Time which is no longer Money.

    I would rather call this “money velocity” thing something more appropriate like “liquidity rate”…

  15. Jean-Pierre Rupp

    This is one of the poorest articles I’ve seen on this page. So far this same Falkvinge has convinced me that legal doesn’t mean the same as moral. Therefore the argument that this practice is “illegal for a reason” raises eyebrows. What is it Falkvinge?

    One point seems to get lost among the noise: these speculators, even while “painting the tape”, are not intimately involved with the government and its power structures. They are risking their own money by doing this, and their own money alone. Speculation in the short term is a dirty zero-sum kind of game. Let the gamblers gamble on it if they so wish, but let’s not make the government come to the rescue if they lose money on it.

    On another point: gold is not a transactional currency these days, and its value doesn’t stem mostly from its use as such. Bitcoin shares many of gold’s money qualities, so it’s reasonable to expect that its purchasing power stems significantly from its use as store of value, not only for its transactional volume.

    1. donjoe

      You have to excuse deluded right-wing “libertarians” like Rick – it just takes them a lot more time and more real-world examples until they understand the value of laws and state-like organizations (which is to implement and protect the social majority’s values).

      The real conclusion here, that he can’t allow himself to reach because he’s too much in love with Bitcoin, is that Bitcoin sucks balls as a currency and is mostly useful only as a store of value and object of speculation/gambling. A proper digital currency that was meant to be circulated rather than hoarded would have the properties of something like Freicoin or of Paul Grignon’s “Digital Coin”. Bitcoin is certainly not the long-term workable system its fanboiz try to make it out to be.


    Rick, I’m sorry to have to out you like this, but it is painfully obvious that YOU are the Shark Squad in it’s entirety.

    Here’s the evidence:

    1) First you post an article claiming that the target value of bitcoin is $1,000,000 to prop up traders’ over-valuation of the future value of the coin. You do this to jack the market price up after you heavily invest in bitcoins.

    2) You then sell off all of your coins at the height of the bitcoin bubble, causing bitcoin to crash.

    3) Now that you see bitcoin again gaining value, you want to buy in at a low price, so you write this article to cause bitcoin owners to panic sell their coins into your greedy hands.

    4) Next week you will write another article on why the increase in bitcoin value is justified and why traders are actually undervaluing it. (Mark my words. I will be following your posts to prove this).

    5) You ignored the entirety of the bitcoin economy in your analysis. You went with the smallest-volume market with a big name that you could think of (WordPress). If you were serious, you would have used BitPay as the obvious first choice. But there are hundreds of other e-commerce sites that accept bitcoin. You can find a small fraction of them here:

    6) You took a purely innocent trading scheme (selling small amounts of bitcoin at regular intervals) and tried to claim (with absolutely no evidence) that it was a malicious attempt to alter the market. In fact this is a common strategy to AVOID changing the market price. If you want to cause the market price to drop, you sell off a large amount all at once. This causes a large price drop and causes panic in the market. Selling small amounts gradually, at a set price, stabilizes the market.

    Now that we know who the scam artist is (YOU), how do you expect people to keep reading this trash?

    1. Crypto-DayTrader

      Can’t help but to agree with you … c’mon Rick … we have higher expectations from you! Let’s write about what people should be doing … like going around to small businesses in our own areas and showing them how to set up accounts with BitPay or similar service. Let’s create logos “We Accept Bitcoin Here” and show our friends how to install a bitcoin wallet on their smart phone and how easy it is to pay for stuff with bitcoin. Then we can even show them how to get free bitcoins at

      1. Warlock

        This is where my mind has been the last couple weeks. Going into business helping local businesses setup for using bitcoins. I don’t think it will make much money the first couple years, but down the road it could be very lucrative with me being the leader in the local economy.

    2. Rick Falkvinge

      Rick, I’m sorry to have to out you like this, but it is painfully obvious that YOU are the Shark Squad in it’s entirety.

      I am many things, but dumb is not one of them. If I had decided that this activity was a good idea, it would go directly against my interest to write about it.

  17. Bitcoiner123213


    Have you also noticed that when the APIs go down, for example after a DDOS, the trading comes to a complete halt? I suspect over 90% of the trades are by bots.

  18. Casual Reader

    Worthwhile essay. Thanks for posting it. Some observations:

    1) Increasing legal acceptance and regulation entails increasing public accountability and prosecution of fraud. Now that BitCoin is officially recognized in Germany, it is also subject to German law. This unfortunately does not extend to other jurisdictions outside of Europe.

    2) The price fixing at is so obvious that it can be suspected from a superficial review of market data at, but thank you for the detailed analysis. There is a difference between trading engines like and other (OTC) markets like

    3) However, is ahead of its time in that it offers real time trading for international markets. It is conceivable that special safeguards are necessary to avert disaster in such a volatile environment with relatively little liquidity, e.g. limits to cash withdrawals.

    4) I accidentally caused a spike recently by buying in large volume but learned from it by estimating the spike, i.e. the demand elasticity of BTC. It seems to me that price is not only influenced by velocity, gross production, and manipulation but also by its demand elasticity.

    5) Just for the sake of an argument: Use a spike of $1 per volume of $10,000, so that’s a short-term demand elasticity of about 0.01 percent. Of course, because the market is small and there is relatively little liquidity. An influx of, say, $1MM would mean a spike of $100.

    Have appreciated your outspoken advocacy. Would like to discuss these topics more.

  19. Mcgravier

    Makeing a shark squad isnt magical way to cheat other investors out of their money. Creating shuch scheme involves a HUGE risks, and Im not talking about FBI knocking into your house.

    1. Shark squad mastermind isnt the only powerful player in that game. Their scheme can be instntly broken by some whale cashing out just before them. There are people with >100 000 BTC in their posession.

    2. Market itself is unpredictable, it is quite possible that when shark squad will pump BTC to certain price, it will reach resistance – next buyoff may or may not be swallowed by market without price change. This would result in severe looses for shark squad.

    3. No matter what sharks, whales, or just plain mob will do with price, they can only jeopardize wealth storage aspect of bitcoin (not that it had any sginificant in the first place) – it wont in any way damage capability of faciliating transactions at nearly no cost – current strenght of that protocol.

  20. Neal Gafter

    It has already been well established that the MtGox exchange market is failing in any number of ways. The bitcoin community no longer looks to that market for guidance. I suggest you look on bitstamp for more realistic market activity.

    Your analysis fails to take into account the (speculative) use of bitcoin as a store of value. If one can conclude anything from your analysis, it is that the speculative uses of bitcoin are greater than the transactional uses. But that does not imply a mispriced market. I suggest you research what the typical division is between these uses for precious metals and currency, and apply that same allocation to the expected use for bitcoin. Then what number do you come up with? $500? $1,000?

  21. Dr X

    I’m not convinced on the valuation, I think it may be a little simplistic.

    As recounted by other people earlier, bitcoin is not a conventional currency.

    In the same way that it’s impossible to value gold by treating it as a standard metal. If you were to do this, you would also conclude that the current gold price is hugely overvalued – at $1,200 – compared to its utility.

    I am willing to listen to arguements that bitcoin is overvalued – I suspect you might be right – but the methodology is not correct.

    As pointed out by someone, there are many merchants outside of WordPress that are using it. It is used alot for buying precious metals, for example.

    Nice work on the trading though. For sure, there is a lot of manipulation going on and it is completely illegal. However, I think it’s only a matter of time before the SEC steps in to regulate it – like other markets.

    Trading can be regulated, because the exchanges are regulated. So I don’t agree with your argument that it is globalized and cannot be regulated.

    I would add that these are poor arguments you put forward here in your valuation. Your article needs research. However, good job on investigating the day trading. That is very useful and something that hasn’t been articulated before.

  22. Longship

    You are wrong Rick. Sadly this post is really bad for your average, which is very high.

    Valuation. Sensible theory would say the current price is the subjective risk free cash “equivalent” of the probability distribution of the future value, of bitcoin. (Look it up) Your argument, is using the (or a) quantative theory of money, but that would set lower bound on the valuation in the *future* depending on the transaction volume and velocity of a *future* economy, which is then fed back into the probability distribution.

    Manipulation. No proofs are presented that would prove any manipulation, regardless if this material was is bitcoin trades or even stock trades in a regulated market. There are lots of mechanical looking trades everywhere today, and that does not constitute manipulation. Any market transactions, legit or not, will move prices compared to if they had not been executed. This implies there is no way to say, prove or believe there is manipulation.

  23. Raptorak

    Great article, but I wanted to point out a typo too:

    “If you by a scratch-off” — “by” should be “buy” here.


  24. Anarcoin

    Please don’t pass laws to stop crap like this. Legit the exchanges deal with it. If you suspect somthing sketchy on an exchange then use a different one. yes I know with arbing it smooths it out across the exchanges but who cares, if you speculate then thats the game you play.
    I want the state to have as little to do with our anarchic currency as possible

  25. qwerty

    Author is cospirological moron. All data from the exchanges are open and every one can see the history of prices and volume. Only a complete idiot can think of many many deals by 1BTC as not “one (1) automated process” and interprert them as “many different players panic-selling.”

  26. Lasse Birk Olesen

    It doesn’t make sense to apply velocity of money to Bitcoin like that. Try applying it to gold or collectable stamps or pieces of art and you’ll find them overvalued too.

  27. gurra


    The real issue as I see it is, why should we bother with crypto currencies if NSA has backdoors everywhere? They’d just be like a Fed – no wait, they’d be much more powerful than that. Nothing has a meaning anymore if NSA can do what is claimed. No meaning to put effort into ones work either : whatever you do is done on an online computer these days and they can take it from you if they want.

  28. kilo

    Well, well, well wellcome to the world of CAPITALISM.

  29. davidgdg

    Actually I would have thought that the bitcoin exchange market is relatively unsusceptible to manipulation as the degree of leverage is tiny compared to most other financial markets.

  30. davidgdg

    Of course Rick is right that the bitcoin economy is relatively small compared to the total value of all bitcoins. But what follows from that? The market cap of most small growing companies tends to be large compared to revues. This does not necessarily mean they are “over-valued”. What it means is the holders of bitcoin (or shares) expect the bitcoin economy (or the relevant company) to grow substantially. Only time will tell if they are right.

  31. mg

    You claim market manipulation, but what you consider proof goes only as far as suspicion. If these market moves are due to a group such as ‘the shark squad’ as you claim, it doesn’t look like you’ve run the numbers to show how such a participant would actually profit from this activity. If a participant causes the spike by lifting all those offers they need to sell at an average price greater than the average buy price, and along the way they are paying a non-trivial commission rate, which especially comes into play if they are trading with themselves (through multiple accounts etc) as you suggest.

    Simply layering orders, or splitting, is not illegal on any exchange I know of, I wonder where you get the idea that it is. On liquid markets market-makers will usually layer orders to get queue priority. Just saying it’s a common activity i.e. not illegal, though doesn’t apply here as the ticksize is ridiculously small for the amount of liquidity present. Also large positions that are being worked on markets will almost always be split up into smaller orders, i.e. nothing good comes from informing the market that you need to buy, and presenting a fat bid. It’s usually a strategy to employ when you don’t want to push the market against you.

    Trading with yourself is usually against exchange rules, though in this case we can’t know whether it’s really happening.

    That someone’s periodically executing sell orders after these spikes, is also not abnormal. Many execution algos usually include some kind of time functionality. For example: if a participant had a large long position that they wanted to liquidate, algorithmically selling after a large up spike at a steady rate, allowing time for bids to build up such that the participant can sell into them, seems like a prudent strategy.

    Taken together, that the bid layering and periodic selling is happening at the same time is also not abnormal, it’s likely just two different execution algos. If it is a participant trading with themselves, it looks like they’d be spending quite a bit of money on commissions/fees which makes whatever you think they’re trying to achieve with the manipulation less viable.

    Judging from the information presented and my knowledge about market micro-structure, it looks like you’re a tad too paranoid. ‘Manipulation’ is a cry heard often in the markets, and proved rarely. Financial exchanges deal with such complaints all the time and even with the higher quality market data they have (stemming from order ownership information) they cannot discern manipulation most of the time.

  32. michelmx

    It would be nice if the exchanges adapt to the bitcoin spirit. Bitcoin derives its appeal from being open source, public, decentralized and therefore self-regulatory!
    Yet, we allow those exchanges to be black boxes. When the authorities knock on gox’ door they would disclose all in a heartbeat, so why not make it public from the start?
    On the main stream exchanges big players have to disclose their trades to the SEC. So, in the btc spirit, let’s implement a real time open source version of public disclosure on the bitcoin exchanges. In line with the blockchain it would still allow us to be anonymous but manipulations as described in the article above would either be debunked or confirmed but in any case it would quickly be a thing of the past.
    With this in place there would be a chance of the btc price cratering to your calculated level. But I am convinced that you wildly underestimate the protection from the raid state and store of value function bitcoin clearly has. It’s like you are basing the price of gold on its industrial use and treating gold’s other values as a side note.

  33. 28nm

    Never heard of stock market? HFT?
    what’s the big deal?

  34. bitcoinmania

    Also, the website amagimetals does about 1 million dollars worth of business trading bitcoins for gold/silver each month and its growing rapidly. Most big miners know that there is a tax loop hole in the usa where if you purchase certain types of gold/silver, they dont give you a 1099b (i think it is) so, as long as it goes right from bitcoin to gold/silver, there isnt a capital gains tax.

    Its a great loophole if your a miner and want to keep your tax liability to a minimum.

  35. JosuaKylie

    First of all I very much appreciate sound recherches about the darker sides of the lucent bitcoin-world. This article give some good ideas of intrinsic risks jumping into the bitcoin economy.

    However – i can’t share your conclusions.

    Since all times laws and law enforcement against fraudulent practices in the “conventional economy” proved to be the less efficient, the higher the organisational level of the actors was they had to deal with. So all that considerable legal effort finally resulted in less more than a fig-leaf, in reality just catching small crooks (which of course is still important).

    Basically, any individual can manipulate any free market almost at his will just by trading, supposed he is wealthy enough to finance that action. Fortunately such constellations have been and are still extremely rare – however the ongoing concentration of economic power and wealth will continue to push forward in that direction.

    So it should not be really a surprise, that a bitcoin-economy – despite all its orginalities – mints some of the characteristics obviously inherent to free market economy. Of course there are still some birth-defects with crypto-currencies. One of the most prominent is the current role of exchanges, which being just trusted parties definitely break the system-coherence. You addressed some side-effects of that correctly but the instrument to overcome this are rather laws than some progress in coinsystems which might facilitate a coherent exchange-functionality.

    Then – looking at your calculations of BTC value I feel urged to establish a different aspect. A well-known fact is, that all current financial artefacts like futures, derivatives, securizations etc. sum up to a total of something about 600.000 of Millions (!) of US$. That is more than times 10 of all GDP and about times 20 of all governmental debt worldwide.

    And still most of the people holding these papers believe in making profits with them (and do so…). Similar might apply to many of those who buy a couple of BTC today. Recognizing its increasing scarcity by design they simply expect a significantly higher price when they are going to sell them one day – perhaps in 5 or 10 years or so, eventually having done absolutely nothing with them inbetween.

    Assumed an ongoing economical dessemination of BTC that seems a quite reasonable expectation, which might well render more profit than any current endowment policy for example.

    In my eyes the future value of BTC is as unforeseeable as the structure of its underlaying economy. It should be kept in mind, that to certain extent the same applies to our existent financial system, which still is far from salvage. Whatsoever i’m very sure that both processes – emerging free crypto currencies and the future of the current financial system – will develop deep mutual interdependencies.

  36. bitcoiner

    Rick, i think you went a bit too far to prove a point. The point being that bitcoin (may) very well be heavily overvalued.

    No doubt that the “sustainable” (for lack of a better term) transactions to marketcap (that is any goods, services that isn’t booze or gambling) has a low ratio.

    But, i don’t see any “unethical” trading going on, unethical (or as its coined in the article illegal) would be if one of the major exchanges gave unfair advantage to one group of traders over the others. So long as everybody gets the same information, at the same time, and we all have the same trading tools (unlike walltstreet) we are all playing on the same level.

    Speculation is a voluntary game.

  37. Falkvinge Fan

    I’ve admired every word you’ve written up until this article. Really dismayed and shocked to see Falkvinge write an article like this with such terrible ideas and logic. Bitcoin has x10 more than 5 times in 4 years. Any short term discussions on price at the moment are dumb. Rick for your own sake pull this article.

  38. dexX7

    I wish people would use “morally incorrect” instead of “illegal”. Seems minor, but implies a whole different mindset.

  39. Danny

    Rick, I like your articles, except this one. I have just two words as couter-arguments: “free market”. You don’t like it, don’t play. “Illegal price fixing”, “unfair”, “immoral”. I’m sorry, but that’s just silly.

  40. lumpy

    Very interesting topic, but I’m not thoroughly convinced.
    (1) If people choose to buy high and sell low, this is their responsibility. They don’t need to be protected from themselves, it’s better that they learn to do something else instead.
    (2) I agree with the above comments that small volume automated trades are intended to move large quantities while trying to maintain price stability. It’s the opposite of tricking people into panic.
    (3) Walls tend to drive the price away from themselves, not tempt people like magnets. This is actually an effective tactic, but again it’s the opposite.

    If (3) and (2) aren’t understood then (1) may apply!

  41. skies

    It’s bots and algo’s buying and selling, I fail to see what is wrong with this. In a truly free unregulated market this is ok. Computerized bots and algorithms are also to be allowed to participate in a market just like everyone else. Their actions in the market is not less worth from humans.

  42. Autolykos

    I don’t see the problem, or why this should be outlawed. It should definitely be analyzed and published, but that will do already. If what these “sharks” are doing is sufficiently predictable (and “noticeable pattern” implies “predictable”), it won’t be long until someone else with more money and/or brains comes along and plays them. Once enough people do (and if there’s money in it, they will), the market will be indistinguishable from random noise and everything is back to normal again.
    Until that’s the case it may be advisable to “bunch” all orders together and only resolve them every hour or so, to make this stuff average out better (and make these “tricks” so slow that there’s minimal profit and much higher risk in disrupting the market).

  43. Kazu

    IMHO, the section explaining the manipulation was informative, but the section calculating what the value of Bitcoin “should” be is BS. Currencies not sponsored by a government don’t just pop up and go in some sort of mechanized manner. Logically, there is no way in which a currency that is being adopted in a slow and constant manner will ever remain priced even remotely proportionally to its adoption since, should it ever begin to be priced as such, investors/speculators will bid it up more in anticipation of the next wave of adopters.

  44. cpt.charisma

    I have an alternate explanation for the activities your observe:

    1. Someone places a large order at spot price. This could be a novice buyer or someone buying Bitcoin on behalf of a local/cash buyer. This person doesn’t care if he moves the market, because either his buyer is paying a markup on the final sale price or he doesn’t really know what he’s doing. I know a couple of people who do both of these things.

    2. Bitpay, other payment processors and independant merchants run trading bots to instantly convert BTC to USD for their customers. They see a large price spike and begin slowly saling btc to capture a proffit on the difference between they price they owe their customers (merchants) and the sudden spike.

  45. zawy

    Bitcoins are a resource-limited asset. Speculation to sell the asset at a later date for a profit is normal. It benefits those who make the right guess. It is not an ideal situation because these bets do not benefit society unless the speculation causes an increase in its adoption (assuming its adoption is good for society) or stabilizes its price (I’m sure price stability in terms of a basket of commodities is best). We need a cryptocurrency system that tracks local baskets of commodities and labor and automates exchange conversion between those baskets. I would like to include labor in the conversion so that money does not automatically gravitate towards the most miserable working conditions and thereby increase miserable human populations at the expense of wealthy countries. But it also needs happy, peaceful, and sustainable indexes. I’m just dreaming because of the complexity in creating the indexes. But it would be nice if money would immediately stop going to countries that turn violent, breed too much, or burn too much fossil fuel per happiness level. Violence, breeding, misery, and fuel burning all make money more valuable in these countries which gives them more power to decrease the quality of life for everyone in a free trade system. This is why life 100 years of nearly free energy and unbelievable technological development have improved the quality of life by a factor of 5 instead of 50. No one by now should be unhappy, without the love of their life, poor, or working more than they want at jobs they don’t love.

  46. blink

    Who actually believes the NSA would release SHA-256 into the wild without a backdoor and think double hashing is all it takes to get around it? As someone else said regarding choosing square roots of very small prime numbers, “This only fuels my suspicion – picking constants that are deliberately non-random numbers with interesting potential mathematical properties?”

    The rigging never ends.

  47. Captain Obvious

    Bitcoin is lame. Only a matter of time until someone (a company most likely) comes along and uses the open source code to create a new currency (that doesnt come with a mysterious few owning over 25% of all coins that will ever be created) that is marketed to the masses through an actual campaign rather than through the rambling of a bunch of hoarders and market manipulators.

    The masses that are required for the long term success wont by in due to its murky past.

  48. […] aan handlangers, waarmee koersstijging of – daling kan worden geforceerd. Het heeft er de schijn van dat dit in de tweede helft van 2013 met enige regelmaat gebeurde, terwijl het ten tijde van de […]

  49. […] story about the velocity of Bitcoin came when Rick Falkvinge, founder of the Pirate Party, wrote an article claiming that the value of Bitcoin was artificially inflated to a hundred times or more of its true […]

  50. […] story about the velocity of Bitcoin came when Rick Falkvinge, founder of the Pirate Party, wrote an article claiming that the value of Bitcoin was artificially inflated to a hundred times or more of its […]

  51. Johannes

    Who is the Shark Squad? Probably the same Shark Squad that manipulates the traditional stock/commodity/currency/ world. You don’t have to look to Somalia, or the moon, to find the same Cabal manipulation. I think that Bitcoin is a great idea in theory, but its weakness is the same as that of all items whose value is derived from trading, and not from market supply. If bitcoin price in USD was determined by the total number dollars in circulation divided by the total number of bitcoins in circulation, now we would actually have a dependable currency. The problem is, that such a system does not exist in any currency or commodity, including Bitcoin.

  52. Jesse

    You seem to indicate a ‘shark squad’ conspiracy in your article, but the fact is, it’s incredibly easy to be your own counterparty with bitcoin. A single entity could paint the tape, likely easier, than a coordinated group, provided they had the capital. When you consider that over half of all bitcoins reside in under 1000 wallet address, the likelihood of your theory becomes all the more realistic.

  53. […] 2.) Bitcoin’s Vast Overvaluation seems to be caused by usually illegal price fixing… […]

  54. 非法的价格操纵造成比特币的价值泡沫 | CoinIf

    […] 原文地址:… […]

  55. Amaltea

    142 USD overpriced??? You Sir are a f^*cking moron, no doubt about that.

  56. Les propagandes de l’innovation – 4

    […] mettent en avant les pratiques frauduleuses de “price fixing” courantes autour du BitCoin et le fait que les Bitcoins circuleraient beaucoup trop au regard […]

  57. […] an earlier study (september 2013), Rick Falkvinge had studied spending […]

  58. […] an earlier study (september 2013), Rick Falkvinge had studied spending […]

  59. […] an earlier study (september 2013), Rick Falkvinge had studied spending […]


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