How To Goose A Market – 2013 Version

It is an interesting game. Is it possible for a market maker with very ample resources to convince the public to buy and hold something which has no intrinsic and only very limited transactional value?

Yes – but it takes some skill… and is hard to sustain.

A small minority is willing to jump on a rapidly accelerating train; another small group is willing to buy after a major fall.  A much larger one is willing to jump on a slowly moving one.

However – and here’s the caveat – that large group of stability-loving investors also moves  slowly. Such investors require time to get on board. The key to creating the broad-based confidence needed to attract them is stability. And yet – this is demotivating to both the first and second groups. So if the third one doesn’t jump on board quickly enough, the DM has a problem.

It seems to me that that’s where the BTC market is today. The primary tool used to goose the market has been Mt. Gox, but now that withdrawals in USD and EUR have been all but suspended, their price support has become increasingly apparent. Over the past week, the nominal price difference between Mt. Gox on the one hand and most of the other USD exchanges on the other (primarily Bitstamp and Btc-e) rose to almost 10%. At the same time, Mt. Gox’s share of reported trading volume has continued to fall. The net result: Despite presumably spending quite a few Mt. Gox dollars and euros, the overall market price level has clearly fallen below the $100 area. And this time there has been no strong rebound. Still, though, prices have not crashed, and that in combination with the differentials still out there bespeaks continued price support. Moreover, this week has brought a new development: the re-appearance of a frequent $2-$3 gap between the Bitstamp and the Btc-e price levels. Bitstamp is almost always higher. Even when considering the difficulty of getting USD to the Btc-e platform, this is still notable given the fact that they were often within 1% of each other during previous weeks. One has to wonder whether Bitstamp is not also attracting some substantial intervention.

At this point it would seem that some substantial movement may well be the only way to muddy the waters enough to keep groups 1 and/or 2 on board.

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