1) If you know how to nuke the bitcoin system for profit, are you doing so? It's not clear to me that you personally would be able to corner and squeeze as easily as you think, because I believe most bitcoins are held by a small group of people with a long term interest in a viable bitcoin economy.
2) HFT is usually justified by its practitioners as improving the stability and liquidity of the market, but here you characterize it as a fundamentally predatory tool if applied to bitcoin. What do you think about it in general?
That actually makes the actions of a serious predatory trader even more dangerous, since the total pool of available bitcoins is smaller due to the number of people just sitting on their bitcoins. In fact, it could be worse, especially if the trader causes the market to drop, which could make the investors bail out of the market, lowering the price of bitcoins even further. The trader then buys up the bitcoins for a song and a dance.
Now, if people weren't hoarding bitcoins, it would be much less of a problem. If the majority of the currency was liquid and actually flowing, it's much harder to corner the market on it.
Re: 2:
This isn't necessarily HFT-specific. HFT is constrained by a lot of rules-both regulatory and exchange-specific-that attempt to stop this kind of damage(for example, NASDAQ has the right to void any trade chain that takes place if they deem it necessary), as well as a massive amount of competition from other players in the market. With Bitcoins, there aren't any of these rules, either on the exchange level or regulatory. There is not anything to stop a trader, either using HFT algorithms or just manually executing the trades, from applying these techniques.
1) I am not because of what you said - it's tough, more so from a data architecture standpoint (set up the accounts, data scrapes, etc.). Also, at 8 million USD 30-day dollar volume on MtGox, I'm not sure if there's enough depth yet to make it worth it (still toying with the idea, though).
A currency's value isn't a function of how much of it is outstanding but how much is transacted in it. If "most bitcoins are held by...people" holding on speculation, they contribute to holding its value down (don't think of stocks with dividends, think of fx). They also make the market smaller and less liquid.
2) The quote cycling HF market making algos use to discover prices disappears in a liquid market. If done in penny stocks, on the other hand, it would scare the hell out of everyone when a market order executes against a discovery bid way out on Pluto.
When these slips happen the HF guys get hurt - that's why they pull their servers causing the liquidity cuts they're criticised for. Thus, they work to predict when that kind of slip-up will happen. I'm reversing the logic and saying I'll force the slip-up and take advantage of the volatility right after, something with uncertain pay-off in liquid markets (you burn yourself in spawning the unstable equilibria) but more definite pay-off in illiquid ones.
Note that I wouldn't recommend trading Bitcoins at a high frequency for the same reason that HFs don't mess with penny stocks. The pay-off is too low compared with the infrastructure investment required. I'd probably also blow my cover with the exchanges.
1) If you know how to nuke the bitcoin system for profit, are you doing so? It's not clear to me that you personally would be able to corner and squeeze as easily as you think, because I believe most bitcoins are held by a small group of people with a long term interest in a viable bitcoin economy.
2) HFT is usually justified by its practitioners as improving the stability and liquidity of the market, but here you characterize it as a fundamentally predatory tool if applied to bitcoin. What do you think about it in general?