As reported on Thursday, MtGox’s CEO Mark Karpeles had been commenting publicly on GitHub with other members of the bitcoin developer community including Bitcoin Core Develoepr Gregory Maxwell. At that time, it didn’t appear that MtGox had a definite direction for implementing a solution to solve their vulnerability to transaction malleability.
By Friday, the CEO, commenting per his username MagicalTux had made reference to the effect that they were committed to implementing a ‘hash solution’. Based on the solution, a hash code would be attached to every transaction, which if changed would invalidate the transaction; thereby mitigating MtGox’s malleability risk where IDs of processed transactions were being readdressed to different destinations before being confirmed. Karpeles added that the implementation would lead to down time where even deposits would be suspended.
By Saturday, MtGox had issued a statement to customers that in fact they were applying a maintenance update, where there would be a six hour downtime of bitcoin deposits and internal transfers, and was scheduled to take affect at 6PM JST.
Going into the weekend, spreads between prices on MtGox and other exchanges such as Bitstamp and BTC-e had widened to over $200. The decline has been due to a combination of declining liquidity at MtGox, as well as customers willing to sell bitcoins at a sharp discount to convert their funds into fiat. However, the spreads have led to opinion that were MtGox to fix their bitcoin withdrawal problems, while also crediting bitcoins back to customers whose withdrawals are currently stuck, prices could quickly come in line with that of other exchanges.
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Due to this consensus, MtGox appears to have been manipulated by rumors a few hours ago as prices rose from $366 to a high of $534 in minutes at 1:55 GMT this morning. (see chart). Volume was on volumes of over 3800 bitcoins in the five minute time frame.
Explaining the spike higher, traders are pointing towards false rumors being posted on Reddit and other social media channels that triggered the move higher. Those feeding the rumors may have also helped trigger the spike higher by buying and triggering the initial move higher, while simultaneously providing offers to sell at much higher amounts. Last week, a DC Magnates source connected to one of the larger exchanges explained that during last Wednesday and Thursday’s industry wide DDoS attacks, large bids were appearing below $300, which were assumed to be connected to the hackers, who were aiming to take advantage of prices where they to crumble.
Shortly after the spike above $500 though, prices had retreated on MtGox back towards the $350 level where they had been trading before the buying occurred. Recently, the trend had gotten worse, as selling has been picking up, sending prices below $300 to a low of $270, their lowest level on the Exchange since early November.
Following the declines at MtGox, prices are currently trading $350 below that of BTC-e. As a result, the trading action has become a magnet for arbitragers and manipulators. While it remains to be seen if arbitragers will be able to successfully buy at current prices and withdraw the other exchanges, the massive premiums have made the buy at MtGox, and sell elsewhere trade very attractive. However, due to the widening of spreads, it may represent that initial arbitragers that were buyers when MtGox prices dropped $100 below other exchanges, may have given up hope and simply decided to take their losses.