Hey notme, thanks for clear explanation, I didn't realize this. Quite unbelieveable this is allowed to go on! Do you have some links with more details? That really eases my worries about HFT and BTC, it will really be down on exchanges to make sure this does not happen, and if they don't their customers can move elsewhere.
No need to fear bots. HFT in traditional markets has two components that make it nasty:
1. Algorithms are allowed to place orders with no intention to allow them to fill. In fact, if an order comes in that would fill them, they are given time to pull the order. As a human, it is illegal to place an order without the intention to allow it to fill. This is possible because of:
2. Algorithms have direct access to the actual orderbook, whereas retail traders only have access to a order queue. These orders will eventually hit the market, but the algorithms get to peak at them ahead of time and even make trades before they hit.
I don't yet see either of these problems in bitcoin. Nobody but the exchanges has access to orders before they hit the book, and any order placed is capital at risk. Playing both sides is what traditional human market makers have done for centuries and is certainly not without risk (consider what happens when the market trends in one direction). However, it is these players that provide the liquidity you so clearly desire.
BTW
#Day 2, and it's not looking pretty.
"Dive! Take cover! Or, at least, hold on to your pants in the scramble. The Chinese bubble has just burst. It looks like the world is going to have egg on its face and elsewhere as Chinese banks are scrambling to get the hands on cash."
http://www.zerohedge.com/contributed/2013-06-21/chinese-banks-ready-go-bust