To the Moon: A History of Bitcoin Price Manipulation

Abstract

Bitcoin’s price volatility is often attributed to speculative mania. Unmolested prices have been shown to exhibit an expected, natural distribution characterized by Benford’s law. Deviations from this distribution indicate an anomaly, and typically that anomaly is caused by some type of fraud. For bitcoin, the entire period of daily closing prices from July 2010 through May 2020 was analyzed. Analyses for calendar years 2011-2019 was also conducted. We can say with near 100% confidence that bitcoin’s price has been fraudulently manipulated at some point in its lifespan since 2010. We can say with 95% confidence that bitcoin was manipulated in 2013; 95% confidence that bitcoin was manipulated in 2018; and 98% confidence that bitcoin was manipulated in 2019.

This article also documents a narrative history of the events preceding and surrounding each suspected manipulation. The aim is to raise the level of awareness such that future illicit behavior in the bitcoin marketplace is more easily identified and mitigated, either through market forces or regulatory oversight.

This is the first application of Benford’s law to bitcoin, and serves as empirical proof that speculative mania is a poor explanation for bitcoin’s volatility. Substantial mitigation of bitcoin price manipulation, and hence volatility, could increase bitcoin’s value by about 40%. Lastly, these findings imply that both technical and fundamental approaches to value bitcoin over the suspect periods are likely meaningless because bitcoin’s price did not reflect equally motivated buyers and sellers.

Keywords: Bitcoin, Cryptocurrency, Valuation, Benford’s Law, Fraud, Manipulation, Economics, Volatility, Forensic Accounting

JEL Classification: C46, G11, G12, G14, G29, G41, K14, K24, K42, M42