The Mt. Gox trial is currently underway at Tokyo District Court. Earlier today, deliberations from the trial revealed that former Mt. Gox CEO Mark Karpeles was indeed operating an algorithm called “Willy Bot” that may have driven up the price of bitcoin.
Karpeles admitted the information before prosecutors in court.
Live rolling coverage is available online thanks to Kolin Burges, a Mt. Gox creditor who created the action website MtGoxProtest.com. Burges has been updating the internet about the trial through a series of tweets.
At its peak, the Willy bot was purportedly handling about 30 to 50% of trades on Mt. Gox, and spent over $100 million buying bitcoins on the exchange. This caused the price of bitcoin to surge over $1000 for the first time in bitcoin’s history in November 2013.
The Bot’s Existence Had Been Rumored Since 2014
Rumors about the bot have persisted since 2014. In 2014, for example, Coindesk discussed how the November 2013 surge in bitcoin’s price and trading volumes may have been “built in part on fraudulent trading activity” traced back to a trading bot dubbed “Willy” by traders.
The name of the bot came from a simple WordPress blog called the “Willy Report”, which published a detailed rundown of trading activity between September and November 2013. This was when bitcoin’s price on Mt. Gox skyrocketed from around $200 to $1236 – an all-time high at the time, by far.
For years, traders were left wondering if the Willy bot was real – or if it was just a symptom of the market. Now, thanks to deliberations from the Mt. Gox trial, we know that the Willy bot was indeed real and active on Mt. Gox. Furthermore, we know it was operated by Mt. Gox itself – not some high-volume trader or institutional investor.
The originally “Willy Report” website, by the way, is still available online. The site is best-known for a post entitled, “The Willy Report: proof of massive fraudulent trading activity at Mt. Gox, and how it has affected the price of Bitcoin.”
How Did Mt. Gox’s Willy Bot Work?
The so-called “Willy bot” was described as more of an “obligation exchange”. During the trial earlier today, Karpeles claimed the bot was running “for the good of the company so not illegal”, explains a tweet published online by Kolin Burges.
The bot reportedly started operating in September 2013. The bot would buy large amounts of bitcoin over a six week span. Reports show that the bot was able to purchase approximately 250,000 bitcoin.
Some reports even show that the Willy bot accounted for 30 to 50% of Mt. Gox’s entire trading volume – which is a significant amount, to say the least. It suggests that someone was carefully manipulating the price of bitcoin on the exchange.
During the last days before the collapse of Mt. Gox, it’s alleged that two algorithms – including Willy and a second algorithm called Markus – purchased around 650,000 bitcoins on Mt. Gox.
The activity of the bot was spotted when someone analyzed all trades that had taken place on Mt. Gox over a certain period of time. Security firms found accounts on Mt. Gox that repeatedly made trades of 10 to 20 bitcoins every 5 minutes. In the course of November alone, Willy-run accounts were responsible for spending $112 million, or 250,000 bitcoin.
One of the clues that Willy was run by Mt. Gox and not an independent trader was that Willy continued operating even after Mt. Gox collapsed. Willy-style trades were spotted in the days after the collapse of Mt. Gox – which was a time when no one else was able to trade, whether by APIs or other methods. Willy’s trading algorithm, however, continued trading as if nothing happened.
Trial Reveals there were Hacks Before the Exchange’s Collapse
Another interesting bit of information revealed during today’s proceedings was that there had been hacks preceding the collapse of the exchange. However, further details about the hacks – like whether or not they were successful – was not made available to the public.
Ultimately, the trading activity of the Willy bot affected Mt. Gox and all of its users. It’s unclear how this will affect the trial moving forward. Stay tuned to Kolin Burges’ Twitter feed for ongoing updates about the Tokyo-based Mt. Gox trial.