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So .... where does an exchange get all the bitcoin they hold?

by village-idiot 7y ago

jstanley 7y ago
...from the customers
- village-idiot 7y ago
  I’m sure many do come from customers. But the idea that exchanges never buy bitcoin from each other to maintain their stocks seems quite a fantastical claim to me.
  - Scirra_Tom 7y ago
    When I go onto an exchange to buy a Bitcoin, someone on the other end is selling it. To sell it, they have to deposit it on the exchange. I don't see why an exchange would buy from other exchanges unless they saw arbitrage opportunities. If they did see arbitrage opportunities they are engaging in risk (there is timing risk for example) and I'm not even sure they could legally do this as deposits should be ringfenced.
    - village-idiot 7y ago
      Because unlike other exchanges, they actually hold onto the inventory that’s being exchanged. That’s exactly what the hot and cold wallets are, inventory that can be irrevocably lost. This fact exposes them to theft and something akin to a bank run, where withdrawals can exceed deposits, something that can never happen on the NYSE because it doesn’t hold inventory.
      - jstanley 7y ago
        None of that has anything to do with the notion that exchanges buy bitcoin off each other.
        village-idiot 7y ago
        Yes, because the bit about exchanges buying from each other wasn’t the main point, it’s just the bit you focused on.
- bouncycastle 7y ago
  He's kinda right. Many exchanges use other exchanges to provide liquidity on their exchange, either directly or through users who perform arbitrage. That's how bitfinex started for example, they partnered with Bistamp and used their book to fill in theirs. Nowadays, it can happen with DEX'es on the protocol level too - eg, Kyber Network taps into the liquidity provided by Uniswap (hey, keyber is a liquidity network after all. Disclosure: don't own any Kyber tokens)
  - jstanley 7y ago
    The claim under dispute is: > the exchange effectively has a position in the market too, unlike traditional exchanges like the NYSE. They have to buy bitcoin from other exchanges Exchanges don't have to buy bitcoin from other exchanges, and exchanges don't necessarily have a position in the market.

So .... where does an exchange get all the bitcoin they hold?

jstanley 7y ago

...from the customers

village-idiot 7y ago
I’m sure many do come from customers. But the idea that exchanges never buy bitcoin from each other to maintain their stocks seems quite a fantastical claim to me.
- Scirra_Tom 7y ago
  When I go onto an exchange to buy a Bitcoin, someone on the other end is selling it. To sell it, they have to deposit it on the exchange. I don't see why an exchange would buy from other exchanges unless they saw arbitrage opportunities. If they did see arbitrage opportunities they are engaging in risk (there is timing risk for example) and I'm not even sure they could legally do this as deposits should be ringfenced.
  - village-idiot 7y ago
    Because unlike other exchanges, they actually hold onto the inventory that’s being exchanged. That’s exactly what the hot and cold wallets are, inventory that can be irrevocably lost. This fact exposes them to theft and something akin to a bank run, where withdrawals can exceed deposits, something that can never happen on the NYSE because it doesn’t hold inventory.
    - jstanley 7y ago
      None of that has anything to do with the notion that exchanges buy bitcoin off each other.
      - village-idiot 7y ago
        Yes, because the bit about exchanges buying from each other wasn’t the main point, it’s just the bit you focused on.
bouncycastle 7y ago
He's kinda right. Many exchanges use other exchanges to provide liquidity on their exchange, either directly or through users who perform arbitrage. That's how bitfinex started for example, they partnered with Bistamp and used their book to fill in theirs. Nowadays, it can happen with DEX'es on the protocol level too - eg, Kyber Network taps into the liquidity provided by Uniswap (hey, keyber is a liquidity network after all. Disclosure: don't own any Kyber tokens)
- jstanley 7y ago
  The claim under dispute is: > the exchange effectively has a position in the market too, unlike traditional exchanges like the NYSE. They have to buy bitcoin from other exchanges Exchanges don't have to buy bitcoin from other exchanges, and exchanges don't necessarily have a position in the market.