Comment by sillysaurus2 | Hacker News Reader

Comment by sillysaurus2 | Hacker News Reader

One interesting aspect of this whole ordeal is the fact that, thus far, exchanges' prices have depended on each other. That is, a huge sell order on Bitstamp will more or less immediately affect the price on BTC-E, MtGox, etc. (The exception seems to be Coinbase, which seems to use some kind of exponential weighted averaging, but even Coinbase will get dragged down if the price drop is dramatic enough.)

If people lose all confidence in Gox, but still retain faith in other exchanges, then that means we're going to witness MtGox's price drop while the other exchanges' prices rise. However, this becomes an economic opportunity for anyone who wants to do arbitrage between exchanges. Therefore it seems like the prices won't ever diverge too much.

The conclusion, it seems, is that no matter how bad one exchange is, it will simply drag the overall price of Bitcoin down across all exchanges rather than suffer punishment as an individual company. The fact that arbitrage is doable seems to give MtGox some insulation from consumer outrage.

This poses a question: Is it true that as long as an exchange keeps functioning, then it's "here to stay" no matter how badly they behave? Is there any way that an exchange could go out of business from nothing more than consumers losing faith that one exchange?

The exception seems to be Coinbase

Coinbase isn't an exchange. They are a dealer. When you buy or sell on Coinbase your are interacting directly with Coinbase. You trade with them at their discretion. There is even some jargon about Coinbase being able to "cancel or reverse potentially high-risk buys or sells of bitcoin", though it isn't clear what high-risk means from the context. See section 3 of their user agreement.

https://coinbase.com/legal/user_agreement

I'd have to say Coinbase is pretty bad too. From personal experience, a couple months ago, almost every time i've bought at a low, they've canceled the transaction because it was deemed to be "high-risk."

Prior to that, i'd buy some coins and they'd wait until the price dropped quite a bit to "complete the transaction." And i'd contact them again and again and it would take them a week to get back to me as the transaction was pending.

You can't do arbitrage on Mt Gox though because you can't get any money out. That's the whole reason the price discrepancy exists.

You can as long as the arbitrage doesn't always go one way, but you have to tie up additional funds.

Why can't you get the money out via a Japanese bank account? They claim to send funds to those within a few days.

Is is supposed to be easy to get a Japanese bank account if you've, say, never been to Japan, and don't speak Japanese? Honest question...

No, you need some level of residency. Maybe it could be worked around by incorporating in Japan and getting a business bank account. I think Gox can do withdrawals to Polish banks too, but unsure.

Arbitrage if they're willing to take the additional risk. Which, if priced in correctly at MTGOX, will even itself out.

Correct. Hence the higher USD price of BTC on MtGox. The extra price represents the opportunity cost of having to wait 3 months to withdraw fiat. Simply said: ''I'll only sell my BTC on Gox if i get more than on Bitstamp - because ill have to wait a long time to get access to those dollars''.

Gox will lose market share. While prices may remain the same across exchanges, the volume will decrease significantly for Gox. For an exchange to go out of business, you don't need the price on that exchange to go down. It will just lose customers and that's it.

> Is it true that as long as an exchange keeps functioning, then it's "here to stay" no matter how badly they behave?

No, and that's evident by the fact that Mt.Gox has been losing market share steadily since their withdrawal problems started. People are leaving Mt.Gox but at a very slow rate because there is a limit of outgoing transfers like 100-200K EUR/day so at most they lose something like 6M worth of deposits every month. If they solve the withdrawal problems right now I'm pretty sure people will forget about all the issues over the years and will happily trade at MtGox again. But if the problems continue for 1 more year, I think Gox will be pretty much dead.

Interesting. Would one gamble with arbitrage knowing that they might not get their money, though?

Realistically, Mt. Gox have said they won't allow withdrawals indefinitely. They know that fixing this issue — known since 2011 — is going to take time. It's already been 3 years with no fix.

This is their get out of jail free card, giving them as much time as possible to work on whatever they need to do to get things back to normal... if they even want to.

For serious arbitrageurs the divergence happened a while ago -- dollars and GoxBucks are not the same.

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