‘Picasso’ Paints A Manipulated Picture for Bitcoin

On December 24 Bitfinex’ed explained in a Medium post that a trading bot which he dubbed ‘Picasso,’ the Painter on GDAX, was responsible for the price manipulation occurring on the Coinbase and GDAX platforms, and possibly other exchanges too.

‘Picasso,’ which is a clever play on words, could be working alongside ‘Spoofy,’ or be Spoofy, the author claims. But he opted to give the bot on Coinbase a different name due to a different trading strategy that was implemented.

‘Painting the tape’ is a form of market manipulation whereby market players attempt to influence the price of a security by buying and/or selling it among themselves so as to create the appearance of substantial trading activity in the security. Painting the tape is an illegal activity that is prohibited by the Securities and Exchange Commission because it creates an artificial price for a security. The term originated in a bygone era when stock prices were largely transmitted on a “ticker tape.”

The first piece of evidence that is presented is a video of trading activity from GDAX and Bitfinex on December 7. Compared to other exchanges, Coinbase hit a premium on BTC-USD of more than $2,000.

While Coinbase historically has always had a premium over other exchanges, the liquidity is not enough that price discrepancy of that amount could happen organically. Thus, the logical conclusion is that buy orders were placed in by a bot.

Another piece of supporting evidence is that when the volume of Bitfinex plummeted to zero, it coincided with Coinbase going down; this suggests, according to Bitfinex’ed, that the bot is arbitraging transactions between the two exchanges.

The bot’s aggressive strategy was especially highlighted when bitcoin cash was launched on Coinbase, due to the lack of liquidity yet. While the trading strategy brought up bitcoin maybe 20 percent compared to other exchanges, bitcoin cash had fewer orders, less volume, and less traders in general which saw the price spike up to a peak of $9,500, over 200 percent more than other exchanges. Bitfinex’ed stated in the blog post his belief the trading bot was responsible:

“Notice how there is a buy order for 95 Bitcoin Cash at $8500. No human being would have entered this order on GDAX. This was a tape painting bot specifically designed to inflate prices.”

Since then, ‘Spoofy’s’ trades have gone down dramatically, and the same can be expected of ‘Picasso.’ The claims make it make clear that it is not implied the platform themselves are responsible, but that it could just be some trader, and urged Coinbase to investigate the trader responsible for ‘Picasso.’

Bitfinex’ed believes due to the rampant market manipulation that occurs either through trading both like this or investors with wallets deep enough to bend the market to their will (colloquially known as whales) that TA (technical analysis) of charts is a waste of time for cryptocurrencies in general.

Bitfinex’ed expects the bot to work on multiple exchanges, and may simply have changed to strategies that are less profitable, but less detectable as well. With his vigilant recording of videos of orderbooks, it is suggested that any sort of manipuation is easier to identify than using price charts, as the orderbooks are not readily available for specific dates in the past.