4 ms·

For all those posting variants of "It's no different from stocks", this is answered in TFA but even more clearly in the Paulo Santos article linked from it[1].

by fernly 9y ago

For all those posting variants of "It's no different from stocks", this is answered in TFA but even more clearly in the Paulo Santos article linked from it[1]. Editing it down a bit, > ...overwhelmingly, bitcoin is traded on bitcoin exchanges... So here's the thing: Each of these markets does not communicate with the others. [That] ... means that buyers/sellers on each exchange are reliant on bids/asks exclusively from other members trading on the very same exchange. > Now, that doesn't seem all that different from what happens with stocks in countries like the U.S., with all kinds of markets and ECNs, does it? But it really is massively different... because with stocks, a broker can quickly reroute his orders from one exchange to the other. The depositary/custodian of his stockholdings is not the exchange. With bitcoin, it's different. The exchange is also the depositary of one's bitcoin holdings ...[describes the difficulty and delay of moving BTC from one exchange to another, also discussed at length in TFA] ... The result of this highly inefficient market structure is that the same asset (Bitcoin) trades at significantly different prices from exchange to exchange... So with stocks, if you want to buy or sell shares of AAPL, the price will be essentially the same whether you talk to Schwab or to eTrade, and if it isn't the same to within a penny, a script somewhere will take advantage of the difference to make money by buying from one and selling at the other _in seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to the transaction delay and fee. TFA also makes the important point that there is no regulation whatever of bitcoin exchanges, and that also makes them very different from the likes of Schwab. [1] https://seekingalpha.com/article/4130380-bitcoin-series-addendum-market-structure https://seekingalpha.com/article/4130380-bitcoin-series-adde...

beaner 9y ago
Is this meant to be scary though? From my perspective, it's obvious that bitcoin markets aren't as developed as traditional stock / forex markets... but it literally got added to CBOE one week ago. It seems there's nothing categorically preventing it from developing in time. So while this is interesting it doesn't seem particularly important right now.
StanislavPetrov 9y ago
>So with stocks, if you want to buy or sell shares of AAPL, the price will be essentially the same whether you talk to Schwab or to eTrade, and if it isn't the same to within a penny, a script somewhere will take advantage of the difference to make money by buying from one and selling at the other _in seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to the transaction delay and fee. Partially true of the most largest and most liquid stocks and those that are electronically traded. Not true for those trading massive blocks of stock or those trading in 'dark pools'. Also not true for stocks, options, bonds and other financial instruments with low liquidity or those that aren't traded electronically (such as OTC stocks). Also not true in times of financial distress (you know, the times when you really want to sell) when everyone is running for the exits. Anyone who doesn't understand the basics of how markets work (the people this article is aimed at) shouldn't be trading anything.
- davidgerard 9y ago
  > Anyone who doesn't understand the basics of how markets work (the people this article is aimed at) shouldn't be trading anything. (author here) I'll second that. Unfortunately, they are ... I've never personally felt so comfortable with "accredited investor" rules, they feel too much like "only the rich can get richer" - but junk-quality assets like this being marketed to normal people, I can appreciate why this sort of rule exists.
ainiriand 9y ago
In microseconds even, if you speak of the most traded stocks (AAPL). Good analysis by the way.

by fernly 9y ago

beaner 9y ago

Is this meant to be scary though? From my perspective, it's obvious that bitcoin markets aren't as developed as traditional stock / forex markets... but it literally got added to CBOE one week ago. It seems there's nothing categorically preventing it from developing in time. So while this is interesting it doesn't seem particularly important right now.

StanislavPetrov 9y ago

>So with stocks, if you want to buy or sell shares of AAPL, the price will be essentially the same whether you talk to Schwab or to eTrade, and if it isn't the same to within a penny, a script somewhere will take advantage of the difference to make money by buying from one and selling at the other _in seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to the transaction delay and fee. Partially true of the most largest and most liquid stocks and those that are electronically traded. Not true for those trading massive blocks of stock or those trading in 'dark pools'. Also not true for stocks, options, bonds and other financial instruments with low liquidity or those that aren't traded electronically (such as OTC stocks). Also not true in times of financial distress (you know, the times when you really want to sell) when everyone is running for the exits. Anyone who doesn't understand the basics of how markets work (the people this article is aimed at) shouldn't be trading anything.

davidgerard 9y ago
> Anyone who doesn't understand the basics of how markets work (the people this article is aimed at) shouldn't be trading anything. (author here) I'll second that. Unfortunately, they are ... I've never personally felt so comfortable with "accredited investor" rules, they feel too much like "only the rich can get richer" - but junk-quality assets like this being marketed to normal people, I can appreciate why this sort of rule exists.

ainiriand 9y ago

In microseconds even, if you speak of the most traded stocks (AAPL). Good analysis by the way.