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So I guess the market estimates a 50% chance that they disappear with the coins. 50% arbitrage upside if you can get money in and buy bitcoins at half price, 5

So I guess the market estimates a 50% chance that they disappear with the coins. 50% arbitrage upside if you can get money in and buy bitcoins at half price, 50% loss chance if they vanish.

TrainedMonkey 13y ago
That is not correct. Issue at hand is that mtgox potentially lost a lot of bitcoins due to transaction malleability. Question is - are they solvent? Or to rephrase that, do they have enough bitcoins to payout when large fraction of people decide to withdraw at the same time. Market seems to be betting at "unlikely".
gwern 13y ago
Mm, it's not quite that simple. If you were on an exchange where people were trading real!Bitcoins for MtGox!Bitcoins, then you could try to interpret the discount as equaling the market estimate (and the bitcoinbuilder.com prices seem to put the overall risk at something more like 40% if I'm understanding them right); but this is the price from an exchange which only has MtGox!fiat and MtGox!Bitcoins - so you're seeing something which is more like 'conditional on MtGox failing, are they more likely to pay out Bitcoin or fiat balances?'
CyrusL 13y ago
The discount is more complex than that. Most users also aren't able to withdraw fiat from Gox, so there isn't a liquidity advantage to selling your coins (which would raise the supply and lower the price). The 50% discount is probably because users believe that if Gox dies, they will have better odds of eventually recovering dollars rather than coins. These users believe the coins may have been lost, stolen, or end up unrecognized by the bankruptcy court. Also, there is lots of speculation about price manipulation at Gox. Some users believe that Gox is artificially lowering the price to help fix their insolvency.
deeviant 13y ago
Arbitrage generally assumes low or no risk. This would be a bit closer to junk bounds or penny stocks.
- aqme28 13y ago
  http://en.wikipedia.org/wiki/Risk_arbitrage http://en.wikipedia.org/wiki/Risk_arbitrage
VLM 13y ago
Another interesting interpretation is its a psuedo-future. The cost of having BTC tied up at mtgox isn't so much 50% its more like $300 of volatility. Something like "By the time these guys 'fix' everything and I regain access, I'll have lost $300 via volatility and/or inflation and/or some kind of net-present-value calculation". Now I have no idea if you interpret that delay as two weeks or two years. Just saying its yet another interpretation. Before yields went to zero I had a treasury direct account and occasionally the .gov found it necessary to pay me $1000 next month (or whatever it was) in exchange for my giving them only $999.whatever today. That doesn't mean a "thousand dollar T bill" is worth less than a kilobuck, its just discounted by time. The feds discount isn't much. At least some owners of mtgoxbtc seem to think their discount is worth about three hundred bucks.
ninguem2 13y ago
Something more sinister seems to be going on. Looking at the chart, it is clear that someone (mtgox itself?) is trying very hard to keep it at or above 260. http://bitcoinwisdom.com/markets/mtgox/btcusd http://bitcoinwisdom.com/markets/mtgox/btcusd
- deleted 13y ago
  [deleted]

So I guess the market estimates a 50% chance that they disappear with the coins. 50% arbitrage upside if you can get money in and buy bitcoins at half price, 50% loss chance if they vanish.

TrainedMonkey 13y ago

That is not correct. Issue at hand is that mtgox potentially lost a lot of bitcoins due to transaction malleability. Question is - are they solvent? Or to rephrase that, do they have enough bitcoins to payout when large fraction of people decide to withdraw at the same time. Market seems to be betting at "unlikely".

gwern 13y ago

Mm, it's not quite that simple. If you were on an exchange where people were trading real!Bitcoins for MtGox!Bitcoins, then you could try to interpret the discount as equaling the market estimate (and the bitcoinbuilder.com prices seem to put the overall risk at something more like 40% if I'm understanding them right); but this is the price from an exchange which only has MtGox!fiat and MtGox!Bitcoins - so you're seeing something which is more like 'conditional on MtGox failing, are they more likely to pay out Bitcoin or fiat balances?'

CyrusL 13y ago

The discount is more complex than that. Most users also aren't able to withdraw fiat from Gox, so there isn't a liquidity advantage to selling your coins (which would raise the supply and lower the price). The 50% discount is probably because users believe that if Gox dies, they will have better odds of eventually recovering dollars rather than coins. These users believe the coins may have been lost, stolen, or end up unrecognized by the bankruptcy court. Also, there is lots of speculation about price manipulation at Gox. Some users believe that Gox is artificially lowering the price to help fix their insolvency.

deeviant 13y ago

Arbitrage generally assumes low or no risk. This would be a bit closer to junk bounds or penny stocks.

aqme28 13y ago
http://en.wikipedia.org/wiki/Risk_arbitrage http://en.wikipedia.org/wiki/Risk_arbitrage

VLM 13y ago

Another interesting interpretation is its a psuedo-future. The cost of having BTC tied up at mtgox isn't so much 50% its more like $300 of volatility. Something like "By the time these guys 'fix' everything and I regain access, I'll have lost $300 via volatility and/or inflation and/or some kind of net-present-value calculation". Now I have no idea if you interpret that delay as two weeks or two years. Just saying its yet another interpretation. Before yields went to zero I had a treasury direct account and occasionally the .gov found it necessary to pay me $1000 next month (or whatever it was) in exchange for my giving them only $999.whatever today. That doesn't mean a "thousand dollar T bill" is worth less than a kilobuck, its just discounted by time. The feds discount isn't much. At least some owners of mtgoxbtc seem to think their discount is worth about three hundred bucks.

ninguem2 13y ago

Something more sinister seems to be going on. Looking at the chart, it is clear that someone (mtgox itself?) is trying very hard to keep it at or above 260. http://bitcoinwisdom.com/markets/mtgox/btcusd http://bitcoinwisdom.com/markets/mtgox/btcusd

deleted 13y ago
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