Research Article: Anomaly detection in Bitcoin market via price return analysis

Date Published: June 20, 2019

Publisher: Public Library of Science

Author(s): Fa-Bin Shi, Xiao-Qian Sun, Jin-Hua Gao, Li Xu, Hua-Wei Shen, Xue-Qi Cheng, Alejandro Raul Hernandez Montoya.


The Bitcoin market becomes the focus of the economic market since its birth, and it has attracted wide attention from both academia and industry. Due to the absence of regulations in the Bitcoin market, it may be easier to bring some kinds of illegal behaviors. Thus, it raises an interesting question: Is there abnormity or illegal behavior in Bitcoin platforms? To answer this question, we investigate the abnormity in five leading Bitcoin platforms. By analyzing the financial index, i.e. the normalized logarithmic price return, we find that the properties of price return in bitFlyer are completely different from others. To find the possible reasons, we find that the abnormal ask price and bid price appear simultaneously in bitFlyer, which may be potentially linked to either price manipulation or money laundering. It verifies our conjecture that there may be abnormity or price manipulation in Bitcoin platforms. Furthermore, our findings in price return could also provide an innovative and effective method to detect the abnormity in Bitcoin platforms.

Partial Text

In the last decade, we have witnessed significant changes in finance, impacting both the academic community and financial profession [1–11]. In 2008, a digital currency called Bitcoin was introduced by Nakamoto [12], and it could be sent from users to users in a peer-to-peer Bitcoin network without intermediaries. Due to the opportunities and potential values it presents, it has received extensive attention from all over the world [13, 14], especially from USA, China, and Japan. At 17 : 00 on October 10, 2018, the price of a Bitcoin reaches 6,558.46 dollars; the 24-hour trading volume of Bitcoin is more than three billion dollars, which is 37 times greater than the daily trading volume of General Electric Company; and the total market capitalization of Bitcoin is more than one hundred billion dollars, which is approximately equal to the market capitalization of General Electric Company.

In this section, we introduce the preparations before the experiment, including the datasets and the definition of price return.

In this section, we analyze the properties of price return, including the fat-tail of the price return distribution, the power-law decay of price return distribution, and the dependence property of price return. These are three key properties for price return, which have been proven to be common in varieties of financial markets. But it may be different when the market lacks of strong regulation. Therefore we use these properties to verify our conjecture.

In this paper, we investigate the properties of price return in five leading Bitcoin platforms, including OKCoin, BTC-e, Coinbase, bitFlyer, and Bitfinex. We find that the price returns in OKCoin, BTC-e, Coinbase, and Bitfinex have similar characteristics, including the fat-tail of the price return distribution, the power-law decay of price return distribution, and the autocorrelations of price return, which are entirely different in bitFlyer.