The last time I posted a news story about a Bitcoin sell-off, most participants here didn't believe me, because the sell-off wasn't apparent in the ticker they follow.[1] Now I keep a closer eye on that ticker, to see how much lag there is in trading after market-changing news is announced. Bitcoin is still very volatile, and it's not clear who can succeed in timing the market. "Markets can remain irrational a lot longer than you and I can remain solvent"[2] is still good investment advice.
I think the issue is not that the exchanges charge too much, or that the prices aren't different between the exchanges (they are, sometimes vastly so from what I've seen). The problem as I would see it, is that you can't extract your funds in USD or another fiat currency quickly enough... so you might be waiting 48 hours and by that time the exchanges likely will have leveled off the difference.
It's hard to get USD and such in and out of certain exchanges. Exchanges with easy deposits and difficult withdrawals will have higher prices usually. Moving the bitcoins isn't ever a big deal.
I've read a pretty lucid (for a change) analysis of this over at /r/bitcoinmarkets
The gist of it was that BTCChina's long game was to kill all competition (by being first, and zero fees), wait for the surge of new users to taper off (market saturation?), and start charging a fee once they've monopolized the market.
The OP further speculated that they must've interpreted the change of regulatory climate as disastrous, expect a major exodus, and have implemented trading fees to get at least some profit off the activity.
The new fee structure seems more regulatory related. They did it overnight without warning, and right after the reported closed-door meeting. OKCoin the second largest CNY exchange followed suit and started charging fees. This would have been a great opportunity to capture market share if btcchina had made the decision without outside influence.
Lots of black money in their market cannot be easily/quickly cashed out now anyway.
The fees were about to come. The timing is a bit puzzling but really it's been a while already since the announcements (in BTC time-scale a few weeks is a lot of time).
Interesting... In a correctly working market wouldn't the end result be that competitors prefer to lower their fees too and then offer other guarantees (security, etc.) in order to keep clients and to bring in new clients?
Or is the bitcoin exchange market a "winner takes all" market?
And if they "win" and start charging a fee, wouldn't it immediately open a new opportunity for someone to come up with a platform with lower fees?
(honestly asking... Btw I'm european and I'm on Bitstamp for trading Bitcoins)
I assume you'll see other countries' follow China's lead. There's no reason for a government not to.
I fear this might be dire to the Bitcoin economy. Skirting wealth flight laws WAS Bitcoin's killer feature. All of the other Bitcoin use cases I know of are incremental in nature (ie, 2.5% savings on e-commerce transactions).
The open question is if enough of a hype-market was built to keep the other use cases alive. In the case of e-commerce, I assume a rational merchant only accepted Bitcoin because of 1) viral marketing channel 2) speculative hoarding.
The speculation MIGHT work out if the underlying Bitcoin economy was powered by the transaction volume and value of international wealth movement. Running forward it'll be from e-commerce and store of wealth, and I'm skeptical if that'll be enough.
"All of the other Bitcoin use cases I know of are incremental in nature"
I don't think most people are aware of some of the crazy things Bitcoin could enable. Bitcoin is programmable money in a much deeper way than PayPal/Stripe/whatever APIs are "programmable money". It's a global distributed ledger with a scripting language [1] for performing a wide variety of transactions [2][3] with zero or minimal counterparty risk.
However, it's certainly possible we're shooting ourselves in the foot by growing too quickly and unleashing the wrath of banks and governments before any killer applications are built, but if these ideas are compelling enough they'll survive in some form.
Great sources, in the middle of the YouTube video now. Though I've always had this question about "Bitcoin as a protocol":
Isn't the viability of the distributed ledger predicated on the value of Bitcoin? Workers verify transactions because they get paid in something that they value. If the value of Bitcoin drops (say: government regulation), then the incentive to mine/verify goes away?
Assuming that happens and the miners go away, wouldn't the ledger be open to malicious attack?
Yes, that could be a problem. In an efficient market the total mining costs for the network (and thus the cost to achieve 51% of mining power) will tend to be slightly less than the value received from block rewards and fees. It's also the main reason I don't foresee alt-coins proliferating. People will prefer the most secure network.
What wealth flight laws do countries with freely tradable currencies have? AFAIK I could move a million dollars from my bank account to a bank account in England with no issues.
The US does have an expatriation tax[1] that is of concern for many. There was also a dramatic increase to the tax proposed as a result of Eduardo Saverin's expatriation before the Facebook IPO. Even though he hadn't been living or working in the US for some time prior, the US imposes taxes on all moneys a citizen earns, regardless of where they are living, or where that money was earned.
Beyond that, expatriation from the US is at an all-time high[3], and the rumor is that it's related to the adoption of Obama's progressive taxation schema.
That, the "Buffet Rule", the reduction on charitable donations, the increase on capital gains, and his proposed "Grand Bargain", which lowers rates, but eliminates enough loopholes that it is at least expected to raise the effective tax rate for corporations.
As I don't net more than $1 million a year, I hadn't followed it very closely, but I admit that I'm a little surprised. For some reason I thought it had most certainly passed and been enacted.
Well, I expect the IRS would want to make sure you were properly declaring that and paying the relevant taxes on it. No idea how it happens in practice, but given the interests of the parties involved, I'm pretty sure it does.
Sometimes a precipitous event happens and we can say that event was for certain the cause of something going up or down on price.
Most of the time I think there are just too many variables to so confidently point to one as the cause.
So when I hear on the radio that the Dow went down because of xyz I just chuckle. If we were really so good at pinpointing cause and effect in the markets, the people doing so would shut up and make money.
While I generally agree with what you've said here I don't think it applies as much to bitcoin. The DJIA is huge and there are many, many, many factors that can affect it's movement. Bitcoin is tiny in comparison with a very illiquid (is that a word?) market. I think many people had attributed the huge runup in price to activity in China so it is no surprise that bad news in China would have this effect.
Basically I think it is reasonable to assume that this news is the reason for the decline.
Liquidity != Volatility. There are many cases when it's hard to turn BTC into $US/Danish Pastries/Gold Bars; this makes it illiquid. Try getting your money out of MT Gox.
>If we were really so good at pinpointing cause and effect in the markets, the people doing so would shut up and make money.
It's far easier to find causes than to predict details. For example, you know the numbers on some companies are going to be released at exactly 2:00pm, and then at 2:00pm related stocks move twice as much as they had in the previous week. You can't profit off of "80% chance of moving strongly up or down at this specific time", but you can make highly accurate claims about causes.
> You can't profit off of "80% chance of moving strongly up or down at this specific time"
Sure you can, you buy a set of options which pay off if it moves high or low enough. The reason you can't, in practice, profit is that such opportunities will tend to have already been priced into the cost of those options. But not because there's no such thing as a strategy to profit off of volatility!
The confusing thing to me is why the price of a bitcoin went DOWN on btcChina (compared to other exchanges) MtGox, which has had a long history of problems with bank transfers, actually carries a btc price premium (because fiat currency on MtGox isn't very liquid, you have to pay more fiat to buy a bitcoin there) so this whole situation is just confusing.
I think the most likely reason why BTCChina prices have reached parity with other exchanges is simply that the recent selloff has actually temporarily improved RMB liquidity in BTCChina accounts, since folks are stashing RMBs in their BTCChina accounts as they wait to jump back into the market.
...so despite the new Chinese government rules that should lower RMB liquidity, the markets seem to say that BTCChina RMB liquidity is actually pretty good for the time being.
Because the report about the Chinese exchanges being cut off appears to have been complete BS. There never was any problem but the false news caused a panic sell by people who didn't bother to think it through logically.
Can someone confirm or better explain how Mt Gox's relatively longer amount of time to process USD withdrawal requests is causing there to be a premium over other exchanges quoted USD/BTC?
This is how I understand it: people already have dollar denominated accounts with Mt Gox, either by selling BTC on Mt Gox or depositing money there. They want to get these dollars out, but since it takes so long for Mt Gox to process these transactions and complete the requests, people are buying BTC on Mt Gox and transferring them to other exchanges that can process the withdrawals in a quicker fashion. This is in exchange for a discount on the USD/BTC rate they will get, i.e. they will lose the premium offered by Mt Gox so that a dollar denominated withdrawal request will happen more quickly on another exchange. The net result is a higher demand for Mt Gox BTC offers, and the premium results.
The answer is simpler than that. The issue has nothing to do with Bitcoins.
This is an issue with USD (as dollar bills in your pocket or in a bank account) and MTGXUSD (as dollar units in a Mt Gox account). MTGXUSD are worth less than USD because of two factors; one is potential regulatory issues, and the other is that you are buying future dollars, which are cheaper than right now dollars.
Because MTGXUSD are cheaper than USD, you need more of them to buy BTC, and thus the price differential.
I understand it as buying on Mt Gox is a premium over the other exchanges because of safety. BTC-e is based in Bulgaria, won't release their company information, and could close doors at any time and disappear with everyones BTC- so it trades at a lower price there because of the extra risk.
Mt Gox is based in Japan, and very public about operations.
I'm going a bit off topic here, but one of the major weaknesses I see of Bitcoin are the exchanges. For the currency to survive, in the way it was intended, I think there needs to exist a decentralized exchange as secure as Bitcoin itself. If someone wants to work on this, shoot me an email.
Many people invest dollars into Bitcoin because they believe it will increase in dollar value.
If they exchange their Bitcoins for dollars at Mt Gox, they know they will have to wait to get the dollars. They believe that, while they are waiting, the value of Bitcoin will probably rise. So they demand the expected future value of their Bitcoins, not the present value.
It amuses me when people say: "This isn't actually bad news." and, yet, Bitcoin drops 20-30-40% in just hours. Imagine what really bads news can do to it then! I secretly hope all investors and especially the amateurs who are professional only at panicking to leave the market so that we can focus on Bitcoin as a payment technology and not an investment tool. Let's be honest - most people are greedy. Most of us, too. Let's not mix greed with technology evangelism! Many will lose their hard-earned reputation by making baseless statements that Bitcoin will be tens of thousands soon while secretly hoping that somehow their small message will reach the wide audience and everybody will start buying!
People forget that for as long as we have more than one government in the world, they will be met at the feeding table in equal order, which is to say that we must never forget that the very mechanism by which we consider ourselves customers, consumers, individuals being serviced: so too are governments allowed this right.
And corporations now, as well.
So, if we are to look at this situation honestly the only real conclusion to be made is that this is an act of legitimization on the part of the Chinese law-makers, and we can all just stop pretending that .btc are not here to stay, and be used, and .. compete on the global money markets.
What I really can only say, in the rush of it all, is that I hope we can finally end the hegemony of the Petro-dollar, and all those invested in its persistence .. for it has been a very vile instrument, and the time has come. Crypto-currency has the stage.
there's the little detail that the government of the country you live in does get a bit more preference, if only by the fact that they can come to your house with guns.
You would need a lot of coins but the way i think it would work is this:
Use mtgox since for the most part other exchanges follow gox.
1. Using half (or more) of your coins, sell out all the high bids you can at once. this will grow the gap between asks and bids.
2. at the same time, create an ask wall using the remainder of your coins at a penny above the highest bid you couldn't sell to. This will ensure that no transactions occur at a higher price than your artifically-created low.
3. auto-traders that haven't adjusted will eat away at this ask wall to some degree, which will make the buy and sell price basically identical.
4. Since all of the indicators look consistently bad, automated traders will adjust to this lower price, lowering their asks to below your wall to try to exit quickly. This is also when a lot of panicky weak hands will exit.
5. This is when you want to DoS the exchange. It's important to do this AFTER the price has adjusted, so that the outage creates more confusion and hysteria, but there is an overwhelming sense of a crash. If you can deface a site to report a wallet compromise, that's even better.
At this point, people should be desperate to get out at any price.
Buy a huge percentage of existing bitcoins and then sell each bitcoin for cheaper than you bought it for and cheaper than your previous sale. Given the entire currency is worth in the billions, nobody would do this, and there's nothing to gain from doing it.
Leak a rumor that there has been a fundamental vulnerability in it's crypto implementation and/or a fundamental problem in it's protocol that allows anyone to steal anyone else's funds and/or trivially mine bitcoins.
It'd have to look like a legitimate rumor, but this would work because speculators tend to easily spook (at least in other markets) and no one wants some anonymous internet person stealing all of their money.
I've wondered... if the price of a BTC differs from one currency/exchange to the next, what stops you from buying at the cheap and selling at the expensive one?
I used to do this back in early 2012. I stopped because the spread became lower than the cost of trading + forex fees and because I got nervous when MtGox took 4 weeks to wire me nearly $10,000 that I couldn't really afford to lose.
Counterparty risk is huge in the BTC world unfortunately.
I think fees on the exchanges, different currencies(fee for trading to the corresponding currency) and time(it can take weeks until you can start to trade on a site) are the major obstacles.
The time to transfer btc from one exchange to another is almost an hour. This makes arbitrage quite risky as the price is quite volatile over that time period.
The simplest version of this is to purchase bitcoins on the "cheapest" exchange, and sell them on localbitcoins for MtGox prices. Only problem here is that if you're in the US, it takes 2-5 days to get your coins, so you'd have to have a decent stash/revolving money flow.
It was pretty much guaranteed to fall since I just bought some right before that. Next time I plan on buying any, I'll let you know, so you can plan accordingly.
It's my understanding that this was all the result of someone who managed to post a fake message on the Chinese equivalent of Twitter. The problem with all the news out of China about Bitcoin is that it isn't in English so unless you speak the language it is hard to evaluate it's truthiness and instead are forced to rely on second hand sources.
My Chinese girlfriend bought Bitcoins and she heard the news on the radio, while driving to work.
She wasn't too concerned. Surprisingly she seems to really understand the disruptive nature of cryptocurrency.
She is a fashion designer, by the way, and I never really explained Bitcoin to her - she just bought in.
Disclaimer: She used to be some kind of Age of Empires II master nerd back in the days. Trust me - I never saw anybody playing that game like her. I was humbled...
[1] http://bitcointicker.co/
[2] https://en.wikiquote.org/wiki/John_Maynard_Keynes#Attributed