Topic: If mtgox supposedly is having liquidity probs (Read 3225 times)

Can OP share his thoughts on the solvency of MTGOX?

Guys, I'm not sure in which thread we should talk about this, so I try here (instead of creating a new thread).  But feel free to make a new thread for this one:

http://thegenesisblock.com/warrant-for-mt-gox-wells-fargo-accounts-shows-additional-2-1m-seized/

"Additional $2.1M Seized from Mt. Gox Accounts – Now Over $5M Total"

If somebody is talking about this somewhere already, please give me a link, if you would.

thanks.

No, it doesn't, but then that's not what I wrote. The concept is so obvious and simple that I'm struggling to explain it in easier terms, but I'll try. The absolute amount of fiat owners is not relevant for the price setting in the supply and demand theory, only the relative amount of fiat owners who want to pay at least a certain price, compared to the relative amount of bitcoin owners wanting to sell at a certain price.

Ah, ok. I misremembered. It's the age creeping up on me.

No, they didn't.  I was one of those people (theoretically Roman still owes me money).

After the hack, Roman gamed the BTC price on his exchange by freezing peoples BTC balances but not their USD balances to prevent people from fleeing.

People happily sent USD into Bitfloor after it was 'hacked'. Twice.

BTW, has anyone IP checked where Karpeles is logging in from lately? Because he's still reading these forums, though he has not spoken since the beginning of June.

I say Cuban IP.

Er... how, exactly, would the supply rise?  Are you actually claiming that people would send new supplies of USD into an exchange that had just had its bank accounts seized and frozen customer balances?  This makes no sense.

The root cause of this phenomenon is the finality of BTC.  People demanding its ability to get them to the exits more quickly than USD is a secondary effect.  Obviously supply and demand is involved, indirectly, in just about everything humans do.  But that alone cannot explain this behavior.

It sort of happens automatically. The arbitrage 'bot runs out of cash. Arbitrage is done with the same money going round and round. With today's prices,  an arbitrage bot would be trying to sell Bitcoins on Mt. Gox and buy Bitcoins on Bitstamp in equal amounts. But there has to be available cash on Bitstamp to do this.  That cash is supposed to be refilled from sales on Mt. Gox. With Mt. Gox defaulting on withdrawals, that's not happening. So arbitrage stops when the cash runs out on Bitstamp.

If someone had heavily funded an arbitrage 'bot, they may have ended up with a big USD balance on Mt. Gox. Now they're stuck.

It's still about supply and demand. The reason why the prices might rise in your example is that the supply of bitcoins (ie. demand for USD) would shrink to almost nothing, while the supply of USD from desperate owners would increase. You have to consider supply *and* demand.

*sigh*

You've still got them mixed up with the federal reserve.  The fact that both of them are full of hot air does not make your point…

Setting aside the fact that the federal reserve isn't an exchange and can't Fail to Deliver (since they never promise delivery of anything in the first place!) for a moment: this isn't just supply+demand.  If a bitcoin exchange announced that a ton of BTC had been stolen from it you'd see the same effect -- the BTC price at the exchange would go up as people rush for the exits via the quickest escape route (BTC).  But if the exchange had half their USD bank account balances seized and froze half their customers' USD balances the effect would be the same -- freaked-out people would still rush for the exits by buying BTC, even though tradeable USD on the exchange had suddenly become scarce.

This isn't about supply and demand, it's about final delivery mechanisms during times of crisis.  Bitcoin is more final than the fiat currencies used during the last 50 years and quicker to move than the precious metals used during the previous 5,000-odd years.

MtGox most definately CAN print money. The number they show you as your balance at MtGox can be purely printed money which they cannot back up with anything. And that means both USD ans BTC. MtGox can print both USD and BTC. The difference to most banks is that banks are audited and that limits what they can get away with. Nobody audits MtGox so they can print all the money they want all day long and it only causes problems when too many people want to withdraw.

Well, sure, and I agree with your judgment there, but we're humans...  I'm just wondering if anybody's managed to get an algo to make that judgment (without hindsight).

Mtgox cannot print money.  I think you've got them mixed up with the federal reserve.

This is not so unusual. To much money leads to inflation. On Gox there is too much money because people can not (easy) withdraw the money.

I expect the price will fall in the long term because many people pull their money out of Bitcoin. Look at the order book on Bitstamp. It is almost always as good as empty. Everyone now praises Bitstamp. But People use Bitstamp only for cash out. Currently almost no trading takes place. Nowhere. People only want to withdrawals as fast as possible. The trade is limited to the arbitrage between Gox and Bitstamp. Some people use it, but not many.

OP stated: If MTGOX supposedly is having liquidity probs --- Why the fuk are they still allowing bitcoin withdrawals? It doesn't matter whether u withdraw bitcoin or USD, if u do either the money is gone from their account. So I call BS on all this speculation they don't have any money left to run their shit.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------

If you do either, the money ISN'T gone from their account. If you transfer a BTC out, then yes, the BTC is no longer on the MTGOX exchange. But, if you sell a BTC and then have funds in your account (or so it says on your MTGOX page) those "funds" aren't leaving MTGOX's account. Prove to yourself that those funds actually exist.

The notion that a lack of liquidity would prevent MTGOX from permitting BTC withdrawals is flawed.  The purchase of BTC's on MTGOX right now is being performed based on funds that are simply listed on your account. It's almost like a demo account with fake money, but the BTC's are real. If you can't get your funds out, how do you know that it actually exists?

Say MTGOX only has 2 customers (A and B). Customer A has 100 BTC's and B has enough USD in their MTGOX account to purchase all of those BTC's. Customer B with USD in GOX can't withdraw, so B buys all of Customer A 's BTC and transfers them to another exchange where B can sell those BTC's and make a withdrawal without an issue.

Customer A now has USD in their GOX account, however it's USD that they can't withdraw and there are no other customers to purchase BTC's from, so A is stuck with his/her USD in GOX and no way to get it out --- No one to buy BTC's from and no way to get the USD out because MTGOX isn't processing the withdrawal.  Now the million dollar question is this: DO THE FUNDS NOW IN CUSTOMER A's ACCOUNT ACTUALLY EXIST? It say's that they have it on their MTGOX account, but does it really exist?

It's not like MTGOX has an independent 3rd party that can audit them to say that they indeed have everyone's funds and are solvent. All we are left with is an account page that says that you have $xxxxxx.00  

You can purchase BTC's with those funds listed there, because for the moment, everyone believes that those funds are real. But can you all withdraw your funds right now?

What's working in the MTGOX's favor right now is the fact that they obviously don't have just 2 customers. Additionally, customers are depositing funds.  What's saving them from a collapse is that the simplified scenario above is being prevented by the thousands of MTGOX customers who aren't heading for the door at once. BUT, if something were to trigger a panic, we'd see the price of BTC's on MTGOX shoot up and those willing to take a lose by purchasing BTC's at panic prices will be able to get their funds out through the transfer of BTC's and those left holding USD will be out of luck. Those left holding USD will have their USD delineated on their MTGOX page, but are those funds really there? Since there wouldn't be anyone to "buy" BTC's from (because they left with the BTC's that you sold them), you could put in a request to withdraw those funds, but when that request doesn't get fulfilled (like the stories that we keep reading on this forum), is your money really in your account?

You can "buy" BTC's with the funds listed on your MTGOX account because everyone believes that those funds really exist and accept them (electronically), even if they can't withdraw those funds.  You can then transfer those BTC's out and it has nothing to do with the liquidity of MTGOX. The acquisition of BTC's and the transfer of BTC's is solely based on the belief that the funds listed on your MTGOX account are real.

If you can prove that those funds in your account actually exist, then your belief that MTGOX is solvent is founded.

However, the fact that BTC's can be transferred out of MTGOX does not prove that MTGOX is solvent.

Arbitrage involving Mt. Gox is dead. When you can't get cash out, you can only trade it once. Hence the big spreads - the arbitrageurs are stuck. Today's spread between Mt. Gox and other exchanges is about 8% - 9%.  If traders were getting money out, that spread would drop to the cost of doing a round-trip trade, which is supposedly under 2% for the two trades involved.

Yes, this is a very unusual aspect of bitcoin exchange solvency.  Several people have noted this before, but it's still underappreciated.  I cringe every time people say "price is falling because gox is in trouble".

Since bitcoins are actually more liquid than cash you get the result that when an exchange loses the public trust the price there goes up.  I can't think of another asset in the modern economy for which this is true -- normally when trust disappears, cash flees first and prices go down.  Even if you consider gold more "moneylike" than cash you still don't get this effect on precious metals exchanges since taking physical delivery is slow and a hassle -- bailing out of a teetering PM exchange is done with fiat transfers.



Huh, interesting.  I hadn't considered that.  So in addition the strange "higher prices on insolvent exchanges" effect might even be a positive feedback loop.  A true meltup.

What I really want to know is whether people running arbitrage bots are taking all of this into account.  I shut mine off five or six months ago when I no longer had time to monitor them, but this was something I always worried about.  To a bot doing price arbitrage this thing is a black hole of death… the dying exchange actively sucks in the arbitrageurs with its rising prices.  If you let your bots move coins unattended it will actually pull all your coins across the net to the doomed exchange.  I had some clumsy hacks to limit the damage in a situation like this, but nothing I'd trust with other peoples' money (or enough of mine to be a serious problem).

Here is the rundown of what is going on at MtGox.

1) MtGox lost dwolla account to seizure. This is still their money, but have to get it back when/if the government allows them.
2) This strained MtGox, because now everyone requested money via wire, and funds were limited. Coins were bid up at MtGox out of fear.
3) This is leading to even more stress at MtGox, due to the fact that it is more economical to deposit at other exchanges. Example, if you were to wire $10k into an exchange, would you wire to an exchange where you can buy BTC at $94 or buy at $99? No fiat comes in, no fiat goes out.

There have been no credible reports of BTC not being withdrawn, and there must have been many thousands of coins taken out of the exchange. I've personally asked for a large cancel of funds, which MtGox did so within hours. I bought the coins and withdrew them.

This leads to my conclusion:
Gox does have the funds and the BTC to back everything up 100%. But they need to clear government regulations for it to happen. They can't come out and say "Stupid USG won't give us your money", it would lead to a panic run on the exchange as coins get bid up. It also would not help clear regulations with the government. Therefore, it is in the exchange's best interest to stall.

I'm confused.  Did you mean to say that if you sell the BTC and transfer out US from Bitstamp you lose $5?  If you transfer 1 BTC from Bitstamp or transfer 1 BTC from Gox, you still have 1 BTC. 

thats why it does not and did not affect price in the slightest All the whales, people who should be worried about liquidity the most are on gox