How bots are manipulating cryptocurrency prices

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I'm Sebastian Dobrincuand I'm a software engineer currently working as a freelancer. I'm also an avid product maker who loves building side businesses and crazy projects. Malfunctioning bitcoin trader bot causes extremely high initially built Stock Trading Bot as a personal research project. I was testing the waters to see if modern machine learning approaches can be used to predict and automate selling and buying of assets in today's stock market, at a much more efficient rate.

Currently I am the sole user. Malfunctioning bitcoin trader bot causes extremely high planning to continue working on it with the goal of scaling the bot as much as possible. The idea popped up pretty randomly. I was getting ready to board a flight to SFO and decided to download some podcasts. I felt like trying something new, so I picked a few of the most popular ones from the Finance category. The host brought up the topic of liquidity, which boils down to 3 measures: Essentially when liquidity is high, investors can successfully trade a larger order close to the current price and within a short time span.

Once they began debating whether or not high frequency trading was improving the market by providing liquidity, I switched malfunctioning bitcoin trader bot causes extremely high the Notes app on my phone and started furiously typing some of the main ideas. Prior to this project, my experience with finance in general was pretty malfunctioning bitcoin trader bot causes extremely high. I had a solid understanding of the fundamentals of trading but not much beyond that. The first one is probably the best piece on finance I've ever read.

It literally answers all those questions any curious person who has ever made a trade might ask. On the other hand, John Hull's book gave me a fantastic introduction on mathematical finance from an applied point of view. I highly recommend both if you are just getting started with trading. I believe we've reached a peak in the field of AI.

We now have both powerful machines and enough data to process. With this in mind, my inner engineer got excited at the possibilities of tackling the market with today's advancement in technology. Besides that, I have an addiction for creating fascinating projects and this was no exception. The huge advantage is that you are not necessarily starting with a handicap against the big trading firms. That's because when it comes to stock trading, malfunctioning bitcoin trader bot causes extremely high microseconds could make trades go wrong — such as your bot falling victim of a faster bot's bait offer.

And guess who owns the faster servers and bots? With cryptocurrencies however, these small time increments are not nearly as important. Although I believe it's the golden age to be in the Bitcoin market because it's imperfectI quickly abandoned the idea maybe too quickly? Without boring you with technical details any longer, the solid trading APIs were mostly based on REST, which is not fast enough for what I was aiming for.

For proprietary reasons I will abstain from publicly discussing a lot of details about the technical implementation. Although I get many requests to open-source the project, I believe that disclosing deep details of the models or prediction approach would hurt the advantages that this solutions has over the other existing bots. However, for anyone willing to learn more about that, Malfunctioning bitcoin trader bot causes extremely high would be more than happy to discuss in private, to some extent.

Malfunctioning bitcoin trader bot causes extremely high story short, I ultimately ended up going for the stock market, but not into high frequency trading malfunctioning bitcoin trader bot causes extremely high its real meaning. My bot holds a single position from seconds to minutes sometimes even hourswhich makes it more of an automated trader than a high frequency trader. The reason behind this is that being an individual trader makes it extremely hard to compete with the big guys, as you're lacking perks such as very powerful hardware, advance trained software, and great locations for your servers.

The closer to the stock exchange you are, the faster you receive the information. Large investment servers are literally paying millions to get their servers a few miles closer to the exchanges. Their limitation is 3 requests per second, and this was more than enough for my new strategy. Getting solid historical financial data isn't cheap, and with so many people hitting the providers to scrape and download data, I don't blame them for limiting the offered information.

Intrinio is a good provider for real-time stock quotes at malfunctioning bitcoin trader bot causes extremely high inexpensive prices. However, getting access to more in-depth data would always yield better results.

I built the first prototype in a little under a month. I was working late hours, trying to find time around my daily job as a freelancer. At this point the bot wasn't very smart. It took me about 2 more weeks to feed it malfunctioning bitcoin trader bot causes extremely high data until my error rate was satisfactory, and another 2 weeks to test it before putting it in production.

Summed up, the technical implementation of the current version took about 4 months, with some more improvements along the way. Since I publicly announced itI've been receiving dozens of offers from trading companies. At the moment the system malfunctioning bitcoin trader bot causes extremely high me an edge over other traders.

If I sold it, I'd be giving this advantage to other traders and, subsequently, losing my lead. Although Malfunctioning bitcoin trader bot causes extremely high do not exclude a future buyout, Malfunctioning bitcoin trader bot causes extremely high am presently focusing on improving the product and trying to scale it. One of the things that I plan on doing soon is increasing the capital and therefore putting the bot through more trading volume.

There are tons of improvements I have in mind, especially on adjusting the position-holding time span, as well as solutions to make it more lightweight, facilitating larger volumes. I wasted way too much time trying to apply high frequency trading in Bitcoin. At first the idea sounded great, but I was soon facing a lot of technical issues trying to scale the amount of requests. However, I am not yet convinced that it's impossible to achieve true HFT with cryptocurrencies, so it might be something I come back to in the future.

After drifting away from the idea of HFT due to the technical limitations, I looked into a more analytical approach in automated trading. Most of those concepts couldn't be applied in the Bitcoin market, as it's highly unpredictable, making it hard to shape the models around it.

That's when I decided to stick to the stock market. Another big mistake in the beginning was relying too heavily on models. Instead of trying different approaches in analyzing the data I had, I relied solely on the models for identifying profitable patterns without investing time into other more direct solutions. Models are only simple real world abstractions, and my common sense has saved me more than once. Now this is not by malfunctioning bitcoin trader bot causes extremely high means a reliable metric, and there are many factors that affect it.

The bot has not been tested enough to guarantee that this isn't just a fluke it might as well be. Large investment management companies would do anything to achieve those statistics, and I'm sure I won't keep up that amount of success in upcoming trades. The success so far was also greatly impacted by the favorable market conditions, chosen stocks, and the fact that the bot was running intermittently.

I learned this the painful way. Not too long ago the market went pretty crazy, and I'd be lying if I said that I wasn't expecting some major crashes of the stocks I was trading.

Although my stop-loss saved me from some brutal losses, had I not stepped in at the right time, the bot would've ruined all the profit from the past months. That event really got me thinking, and I decided to stop it running for a few days until I fixed that loophole. This was also a great learning experience for me, and I believe that without going through those ups and downs, I would've never managed to get the algorithm to where it is today.

I have no regrets losing time on Bitcoin, as it gave me a deeper understanding of how cryptocurrency trading works, which might prove useful some day. Probably my biggest single advantage is being a starry-eyed young dreamer. To some extent, this allows me to believe enough to put effort into ideas in that others wouldn't.

That's what motivated me to persevere in finding those "backdoors" in the market. While many people believe individual traders don't stand much of a chance against the well-equipped companies, I am here to prove that with the right implementation there still is plenty of space in the market. Another immensely helpful resource were the public research papers available online. In fact, I got tremendous help from papers published back in I often found that most of them are easily overlooked, although they contain super useful analyses.

Being a workaholic has also contributed a fair amount to this success. I have no issue whatsoever working hours per day. With time, I developed a very productive and consistent lifestyle, managing to get rid of most distractions. This allowed me time to invest in polishing and researching the different strategies for this project.

If you've worked your butt off to build something and give up on launching it, no one will care about it. We live in a very capitalist society where people will judge you based on real results.

No one cares about your initiative and the reasons why you didn't launch. As Sam Altman says, nothing will excuse you for not having a great product. However, not having anything is certainly worse than that. Don't make it perfect from the first version. Test the market first, gather tons of feedback and constantly iterate over your idea.

Although this is not necessarily a customer-focused product yet? Side projects allow you to experiment on crazy ideas without being labeled as crazy. And definitely go for the craziest idea you have in mind.

That's how most of the successful companies started talk Facebook, Uber, AirBnb. Every problem has a solution. You just have to be creative enough to find it. I am currently available for freelance work. You should join the Indie Hackers community!

We're a few thousand founders helping each other build profitable businesses and side projects. Come share what you're working on and get feedback from your peers. Not ready to get started on your product yet?

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The day I first heard about Bitcoin on Reddit, a friend had also called me to tell me about it. Being 22 years old in New York City is a financial struggle.

I sold it all and ditched my plans for a mining rig. My financial situation needed to be stabilized before I could invest in assets based on my philosophical beliefs. Bitcoin stayed in the news over the years. The price went up and down, silk road happened, the legality of it was called into question, exchanges were hacked, and people gained and lost millions of dollars. Ethereum hit the scene with the promise of using the blockchain for more than just currencies.

You could build decentralized apps on top of Ethereum and even new currencies. I wondered if I could take advantage of those swings by buying when the price was low, selling when it was high, and buying back in when the price dipped again. In the same period I shut down my company, Bitfountain , after running it for 5 years.

Bootstrapping my own company gave me an unprecedented amount of freedom. I lived in 4 countries, traveled to many more, and only worked a few hours per day. However, since the company had run its course, I needed a new source of income. I applied for only one job as a software engineer. It was the kind of job people love - high salary, all the Silicon Valley benefits, friendly team, well funded company, challenging engineering problems.

After three rounds of interview they decided not to move forward with me. I did want it. But I also feared losing my freedom. Gone would be the days where I could spontaneously book a flight to India with no return date. Going through the interview process made the possibility of losing my freedom real.

I went into panic mode searching for a way I could make money on my own. At this point I still owned Ethereum and the price was still swinging back and forth.

I signed up for two exchanges: I needed Poloniex as well because there were many cryptocurrencies being traded there Altcoins - cryptocurrerncies that are not BTC.

Those are the first two exchanges that I used. Now I use others since each exchange has pros and cons. A live crypto exchange is intimidating at first glance. There are charts and numbers changing at the speed of sight. I felt overwhelmed but sat through the confusion to try and make sense of what I was looking at. Soon I could see where to place orders to buy and sell, and the charts started to make sense too. As the month went on I spent hours trading.

I made enough to pay my rent, so the possibility of making a living from this was validated. I wanted to formalize my trading knowledge so I could do more than buy low and sell high. There had to be a real strategy to this stuff.

I read as many books as I could on trading stocks and foreign exchange markets. I made a lot of mistakes. But eventually I found my rhythm and strategies. For myself, and most crypto traders, the goal is to increase the amount of Bitcoin we own. For example, right now the price of 1 ETH Ethereum is 0. Another thing I need to make clear is the type of trading I do - day trading. All of my profits are converted back into BTC at the end of each trading day.

Again, even though I buy and sell several Altcoins, at the end of the day my net worth is in Bitcoin. There are three reasons for this:.

I earn more USD when the price of Bitcoin goes up against the dollar. Why was it important to clear this up? Several things were on my mind the first time I had to do this. What if I sell my BTC now and the price shoots up tomorrow? Yes, but your bills will be paid. Sell now so you can pay your rent.

You can always hold out for more, but at the same time you are risking a loss. After a few months I got better at trading. I was earning more Bitcoin than I needed to cover my monthly expenses. At the end of the month I sold only what I needed, and kept the rest of my net worth in Bitcoin.

Around this time in my trading career it was getting to the point where I could have bought a Tesla or put a down payment on a house by selling my Bitcoin. Do you sell your Bitcoin to realize your profit in USD? I can live a nice middle class lifestyle in Los Angeles. Or I can drive a flashy car while I rent a crappy apartment in Los Angeles.

It all comes down to your values. In fact, if i see a chart like this I almost always ignore it:. The wild bull runs are hard to find, hard to time properly, and easy to go in the opposite direction where you lose a lot.

Those gains are only exciting if you understand how far they can get you. Of course the numbers above assume you trade days per year. Not many people are willing to forego vacation and weekends to work as a full time crypto trader, even with numbers like that.

Not only that but I also let my emotions control my trades. For example, I once purchased Stratis after the price dropped massively. My assumption was that on such a sharp decrease in price, it had to rebound eventually.

The price kept diving. I was constantly tuned into that chart waiting for an opportunity to sell back to Bitcoin. Now I have my strategy that I stick to without letting my emotions interfere. I have a set of coins that I like trading so I only look at those charts. I have patterns and indicators that I look for on those charts so I can quickly flip through them. Within minutes I can set my orders, set alerts on my desired entry and exit prices, and walk away from the computer.

As the market cap of crypto increases, be sure that the IRS is going to find out how to get their slice. And they will look into the past. I am not a tax advisor. This is a simple overview of what I keep in mind as I trade. My accountant handles my taxes, and I advise you to get an accountant to do the same. Keep in mind that this is US-centric. You need to double check if this is the case in your country.

The taxable event is when you sell your cryptocurrency for fiat. How much tax you pay depends on how long you were holding the cryptocurrency. Buy crypto with fiat - no tax. Sell crypto for fiat - pay ordinary income tax. Buy crypto with crypto - unclear, but does not seem to be a taxable event. This is where things get foggy.

Consult your advisor, but as far as I know this is a like-kind exchange which is not taxable but must be reported to the IRS. The exchange you use will output all of these transactions so you can hand them to your accountant. The IRS has clarified that a crypto to crypto exchange is not a like-kind exchange.

The profit made from each transaction is taxed. If you are holding a currency for more than a year it is classified as long term capital gains. This is another reason why I like keeping my net worth in Bitcoin. At least not right now. Passive income is great. After you make an initial investment, you mostly sit back and watch the money roll in. Most cryptocurrencies are mined. You invest in a very strong computer and the electricity to run it, and you are rewarded with crypto for contributing to the network as a node that confirms blockchain transactions.

This is an alternative to mining that does not require vast amounts of electricity. The idea is that you stake the cryptocurrency that you own over a wifi connection. That crypto that you stake is used to validate transactions on the blockchain, and you are rewarded more cryptocurrency for putting the currency you own in the pool.