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Using Benford’s Law to Detect Bitcoin Manipulation

statmodeling.stat.columbia.edu

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Re: Using Benford’s Law to Detect Bitcoin Manipulation

#91

Post by arcticbull »

coolestguy wrote: post #84
arcticbull wrote: post #80

I mean, we need only remember that in late 2016 two wash trading bots at Coinbase accounted for 99% of all global trading volume in Litecoin. (Likely Charlie Lee, btw) [1] And that Tether continues to exist after this devastating NYAG settlement. [2] It's clearly manipulated. And it's manipulated because its roughly speaking globally unregulated, and tracks globally via cross-exchange arbitrage bots. If the author fo…

Why is what tether did (held 76% of its reserves in cash and cash equivalents and other short-term deposits and commercial paper as of the end of March, as opposed to 100% backed) any different to fractional reserve banking? The minuscule fine ($18M) shows that the AG didn't even really think it was a big deal.

For the same reason when the police abduct someone and throw them into a small room it’s called an arrest but when you do it, it’s called kidnapping. I wouldn’t read too much into the magnitude of the fine they’re just one state. They also forced them to stop doing business in, or with anyone connected to New York.

They were fined because at one point they had a tiny fraction of the money they said they did, and at a different point they had all of their money in Stuart Hoegners personal bank account at BMO, comingled with his lunch money lol. Among many many many other frauds.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#92

Post by HWR_14 »

Animats wrote: post #75

Huh? The NYSE looks that way because of a stock market rule that if the price falls below US$1 for 30 days, it becomes a "penny stock" and will be de-listed. There's also a tradition that when a stock gets well over $100, it splits. (Berkshire Hathaway refuses to go along with this, but everybody else does.) So issuers tend to split and reverse split to stay in the traditional trading range. Commodity prices and fore…

> There's also a tradition that when a stock gets well over $100, it splits.

Typically in doing analyses like this, you use "split-adjusted" prices. That is, you use the total value of a single (or 100 or whatever) shares as of the start date and follow all the split/reverse split rules to determine the new value.

Being delisted as a penny stock may as well be going to zero - that rounding error won't produce these results.

In fact, this is about exponential growth, not an accounting artifact, and applies to many areas.

> Commodity prices and foreign exchange rates don't behave like that. They don't split or reverse split. Also, their price is different depending on which currency you view it in.

But they still produce similar artifacts. I mean, if you list everything in 1/3rds of a dollar, it should follow the same pattern.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#93

Post by HWR_14 »

CrazyStat wrote: post #38
mumblemumble wrote: post #23

Earlier quoted context omitted.

The author at statsmodeling.stat.columbia.edu is the person who wrote several of the books on things like this. I don't think he can be finger-wagged away quite so easily as that. There's a huge difference between this and the election one, which is that this one is working with data that satisfies the key statistical assumptions needed to properly apply Benford's Law, and the QAnon elections rigged claims didn't. (O…

The time series spanning 3 orders of magnitude over a course if years is not sufficient condition for Benford's law to apply. As a trivial example, a stock whose price started at $1 and increased by $1 every day for 30 years would span 4 orders of magnitude over that time period, but would not follow Benford's law. A formal justification for applying Benford's law to a time series like that would depend on some kind…

> A formal justification for applying Benford's law to a time series like that would depend on some kind of ergodicity argument

I don't think Benford's law relies on ergodicity at all. I thought it applied to all cases of exponential growth.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#94

Post by HWR_14 »

UncleMeat wrote: post #36
mrfredward wrote: post #32

Benfords law is used to find evidence that the numbers came from a person, not a measurement or mathematical process, right? So anyone who knows what a limit order is should not be surprised to find evidence that humans are involved in picking the prices, right? It should be obvious that violating Benfords law isn't evidence of fraud or manipulation or even fomo, just evidence that the price is impacted by the people…

Benfords law is a perfect example of something that is cool and compelling and then gets applied inappropriately all over the place by people who don’t know better. Voting, for example.

> Benfords law is a perfect example of something that is cool and compelling and then gets applied inappropriately all over the place by people who don’t know better.

Yes, but an Ivy-League educated Professor of Economics who created Yale's first course on the stock market under the mentorship of a nobel prize winner (for his work on the stock market) and whose research specialty is statistics and financial markets should be able to use Benford's law correctly.

That this analysis was then repeated by Columbia is also pretty strong credibility.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#95

Post by coolestguy »

arcticbull wrote: post #91
coolestguy wrote: post #84

Earlier quoted context omitted.

Why is what tether did (held 76% of its reserves in cash and cash equivalents and other short-term deposits and commercial paper as of the end of March, as opposed to 100% backed) any different to fractional reserve banking? The minuscule fine ($18M) shows that the AG didn't even really think it was a big deal.

For the same reason when the police abduct someone and throw them into a small room it’s called an arrest but when you do it, it’s called kidnapping. I wouldn’t read too much into the magnitude of the fine they’re just one state. They also forced them to stop doing business in, or with anyone connected to New York. They were fined because at one point they had a tiny fraction of the money they said they did, and at a…

The police are a government entity - banks are unelected private companies.

The fine was tiny, it's a nominal slap on the wrist.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#96

Post by arcticbull »

coolestguy wrote: post #95
arcticbull wrote: post #91

Earlier quoted context omitted.

For the same reason when the police abduct someone and throw them into a small room it’s called an arrest but when you do it, it’s called kidnapping. I wouldn’t read too much into the magnitude of the fine they’re just one state. They also forced them to stop doing business in, or with anyone connected to New York. They were fined because at one point they had a tiny fraction of the money they said they did, and at a…

The police are a government entity - banks are unelected private companies. The fine was tiny, it's a nominal slap on the wrist.

> The police are a government entity - banks are unelected private companies.

My point was to do with charter. The difference between the two situations is one is legal and one is illegal because it's an activity carved out for a specific group. Private or government is not a meaningful distinction. For instance, doctors are private-sector individuals but performing medicine is their exclusive charter. If you offer back-room plastic surgery you're going to prison.

Fractional reserve banking is how money is created and destroyed. It's created by retail banks (when loans are originated) on behalf of the federal reserve which is chartered to do so by congress. The federal reserve manages the money supply in part through these private banks, under their supervision and charter, to maintain low, consistent inflation and maximum employment. While protecting the deposited assets via the FDIC.

When a private individual hits print and synthesizes 60 billion ersatz dollars for their own benefit or the benefit of a small group of entities, it's quite likely to be a crime of one sort or another. Seems like we'll know for sure sooner rather than later.

> The fine was tiny, it's a nominal slap on the wrist.

It was IMO a trial balloon for a federal suit - the one their executive team got target letters for, announced today. I've maintained this the whole time, and it was also the consensus among attorneys on crypto twitter. This is how the justice system operates under these circumstances. The wheels of justice turn slow.

The NYAG settlement is a scathing indictment of fraud and garbage business practices. Honestly there's not a single thing redeeming Tether or its leadership team.

It's pretty clear at this point you're trying to defend the indefensible and it's time to ask yourself why.

Would you react the same way if this settlement was between Wells Fargo and the NYAG? If not, why are you holding Tether to a different standard?

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