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Bitcoin Price Repeatedly Manipulated?

November 2, 2020 • Posted in Currency Trading

Benford’s law states that the probability of the value of the first digit in many naturally occurring samples of numbers, including asset prices, varies inversely with digit magnitude. For example, the number 1 (9) appears as the leading digit about 30% (less than 5%) of the time. For asset prices, deviations from this law typically indicate some kind of fraud. In his September 2020 paper entitled “To the Moon: A History of Bitcoin Price Manipulation”, Timothy Peterson applies Benford’s law to daily bitcoin prices over a long sample and by calendar year to identify price manipulations. He requires that each bin [0 through 9] in the price distribution histogram have at least eight observations. If this condition is not met for the first digit, he relies on the second digit. If not for the first and second digits, he relies on the third digit. To rule out speculative mania as the cause of unusual price activity, he uses daily ratios of price to three fundamental network size and activity metrics: (1) active addresses, (2) non-zero balance addresses and (3) transaction counts. Using daily closing Bitcoin price and activity data during July 2010 through May 2020, he finds that: (more…)

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