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The "Mt Gox Order Book Depth" chart at the bottom of the page at http://bitcoinx.com/charts/ currently looks like this:

chart from bitcoinx.com

Since mid May the red line on the chart ("Ask sum") has a strong decreasing trend, whereas the blue line ("Bid sum") has stayed steady.

What the implications of this?

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There has been a rally in price of 10% or more since May, and there is constant supply of new bitcoins entering the market, so some of the cash from the order book has since moved into bitcoins.

But no doubt, a thicker order book (reflecting lots of buying interest) lessens the risk of a selloff.

When Mt. Gox's BTC/USD represented 80% or more of the trading volume for all currencies at all bitcoin exchanges it was vulnerable to manipulation during times when there wasn't a thick order book.

Because it takes a length of time to move funds into the exchange (from hours for a wire transfer to several days for Dwolla, for instance) an aggressive seller can profit from manipulation. The method is to sell heavily into a small order book, and then put in bids there at the lower level to buy back coins at from "weak hands" who fear a further selloff and sell into those bids. By the time additional USD funds arrive at the exchange from other buyers, the manipulator might have been able to buy back the entire number of coins sold but at a lower price.

Now that the BTC/USD market at Mt. Gox has dropped to a threshold near the 50% mark (of all currencies traded on all markets), a manipulator no longer has a vice-like grip on all bitcoin markets by controlling just the BTC/USD at Mt. Gox.

Instead of the Mt. Gox BTC/USD market leading the price moves, it now sometimes lags. Thus during a selloff, trading markets at other exchanges might have some order depth at higher levels and thus the manipulator doesn't get to buy back as many bitcoins because the sellers go elsewhere to get a better price.

  • I'm not sure this answers the question very well. My understanding is that it shows a decreasing trend of the depth of sell orders, which can mean the demand is outstripping supply and the price is more likely to rise. Admittedly, this could be manipulated by someone with a large holding, but the price has risen substantially fairly soon after I posted this question. – Highly Irregular Jun 21 '12 at 19:10
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    Ya, sorry for putting too many words to basically say: Lots of Bitcoins have moved away from Mt. Gox (because withdrawing the proceeds after you've sold them has become such a hassle) so don't read to too much into the lower level until you have combined numbers that show all the exchanges. – Stephen Gornick Jun 23 '12 at 0:52

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