Topic: Reason why MtGox can go to 0 - without arbirage opportunity with Bitstamp (Read 5637 times)

just follow the market. market never lies... now all mtgox action is in bitcoinbuilder.

I would think that there is a lot more than 4.7M$ on the accounts. Some of those unrealistic buy offers have been there for ages. Similarly I would also imagine that forgotten accounts with only BTC balances exist. Personally I would never "paint the book"to catch some trades, as you always catch them in the wrong direction and if you are loaded, makes yourself a target.

The real amount might be ten times higher, but thank your for the effort, I was wondering how much was down there.

I have no particular insight or knowledge of MtGox operations.

However, it appears simple to create a scheme by which a large exchange short btc and without sufficient cash assets to cover their btc liability could come out on top and probably without anyone being the wiser (aside from a freeze of customer payouts, such as with MtGox currently).

This is a hypothetical, so let us call our large exchange BigExchange

The key is that customer btc in BigExchange accounts is held by BigExchange, not the customers. What the customers have is just a number on a (BitExchange) server and the sum of these is not public. Similar for dollar amounts held by customers in BigExchange accounts.

Perhaps easier to see with numbers:

Assume BigExchange initially holds 3 btc and 3000 usd to cover their three customers, each of whom have 1 btc and 1000 usd.

BigExchange is hacked and loses 1 btc. Their liabilities are still 3 btc and 3000 usd, but they only have assets of 2 btc and 3000 usd, making them technically insolvent.

BigExchange halts payouts.

Intra-customer trades don't change BigExchange's liabilities or assets, since the three customers would still hold 3 btc and 3000 usd among them (just redistributed).

Now BigExchange creates a user on their system with 1000 usd in his account (this changes nothing in terms of liabilities or assets).

However, this user then buys up 1.5 btc at an exchange rate of 200, resulting in shift of liabilities from 3 btc and 3000 usd to 1.5 btc and 3300 usd.

BigExchange now sells 0.5 btc (of the 2 they had after being scammed) on an external exchange at an exchange rate of 600. They now hold 1.5 btc and 3300 usd, exactly matching their liabilities, and resume normal operations.

really weird that goxBTC is going up on bitcoinbuilder, but gox discount to bitstamp is dropping..

Just an FYI on the OP's comment of "MtGox can go to 0".  I have been curiously looking at the full MtGox order book.  There are orders so deep, and so many people with orders of Bitcoin from current price down to .00001 USD.  The full order book for bids is currently almost 34,000,000 BTC deep and I think the complete order book has what looks like a value of around $4.7 million USD.  Only tradingview and RTBTC allow you to magnify out to see the complete order book view.  I think I am correct by assuming since you can't place a bid unless you have fiat in your MtGox account, that means there is at least $4.7 Million USD tied up in MtGox right now, and that would only represent the fiat that is associated with trades.

This is RTBTC:
http://imgur.com/PCKEGOv

Compare that to Bitstamp's full order book, which is only 130,000 BTC deep in bids right now.
http://imgur.com/hKVgbha

or is https://www.bitcoinbuilder.com/ , making muppets out of nobs?

The price difference will cease to exist if people are confident in mtgox.   More likely the other exchanges get a bump due to increased confidence in bitcoin in general.  If they do drop there's no reason to think it'll be a major one like you suggest.   People who end up having bought cheap coin on gox will do whatever they rationally see fit to do with it at that point, which won't necessarily be selling it on another exchange.   They can no longer buy cheap coin on gox so the price difference you speak of won't exist anymore.  

Because most of the international customers who bought cheap at gox will try to sell high on other exchanges. Price difference is big enough to cover the costs/risks of arbitrage.

Why does Gox allowing withdrawals create a massive price drop on the external exchanges?  If anything I would expect them to trade up on such an event, not down, but in any case the vast majority of the equalising price changes would take place on Gox, not on the external exchange. 

Well, please read what I wrote again. Gox and external price should find equilibrium somehow with a positive or negative offset after gox enabling withdrawals. Much or less that's what I said. A good news is a good news for all but the existing trend will be reversed. After the good news gox will increase and the other markets will just decrease. Then it's all about what's unknown in the story and the look to the general reception of bitcoin will determine the market price at gox and elsewhere.

Sorry, I'm not not that fluent in English. Could not grasp what you say exactly.

If not for a theft, possibilities are :

1. They are doing the golden shot. Dump all for good where they can securely get the fiat money. Not much probable...
2. They have the knowledge of very good news that could relieve bitcoin from this mess and drive really high. So they deliberately make it crumble before it. Not much probable...
3. Incompetence, bad direction. Most possibly

Again I'm talking about possibilities here. These are not even my actual estimations. Maybe it's actually theft, maybe they are just incompetent. But that doesn't necessarily rule out the other possibilities given we don't know if there is a theft and the relative amount to market at gox if there is. Real suspicious thing is how slow gox reacting to events. They have somewhat good news  yet it takes them just 1 whole week to deliver which took other exchanges just mere days: that is enabling withdrawals. They could just work this issue out behind the scenes and while working for the fix manually check suspicious withdrawals.

Sorry, but you haven't given any valid mechanism that's going to equalise the market on gox and the external markets without gox reinstatating their withdrawals or otherwise regaining the public confidence.  Gox has dropped much further than the other markets over the same day, so your final observation doesn't support your point at all. 

Price drop then would not be necessarily just from the Gox or ones that bought in Gox cheap selling... Other people will follow selling... actually it's happening right now... 8.87 price decrease in one day... that's not Gox price on coinmarketcap.com

why would they do this, if not for a theft? they are making bank.

I don't, that isn't what I'm saying.  Gox can obviously directly manipulate their own market if they want to, but for them to bring down the price on another market to $400 (for a non-insignificant amount of time) they would have to sell more coin than they actually have ... i.e. they can't. 

How do you differentiate between regular guy and mtgox in the external market? The actual market doesn't exactly know **who** sells **where** at **what** price. Even if you know the answer of "who" as mtgox, the others doesn't seem obvious.



Read it up, in my scenario they end up going up in BTC and equalise in Fiat. This is all conspiracy yet it shows the statement in OP may not always be the case.
Mtgox didn't spell the word theft yet so it's not the obvious Market based explanation of the discount. Closing of withdrawals and the FUD around it and/or market manipulation is responsible for the price drop. It's essentially a closed market now at mtgox. In my aforementioned scenario caveat is mtgox had the chance to take the btc deposits outside. customers? no for the past week. This way, they are not compensating actually, customer who bought at $1000 now sells at $250 because of FUD. The only way they can compensate is to actually keep selling the extra btc they get cheaper at mtgox after FUD starts to disappear. That's if any ripped off customer actually buys it at that price.

All this is conspiracy though and yes we are certain about the mtgox's fall.

unless the order book is completely fake, (we know its not, because we see our orders in the book), then why would rational traders sell 500 BTCs all the way down to $250?


so MtGox is already short customer BTC, and is actively stealing more customer BTC, transferring it to [bitstamp], and selling it? thus generating more fiat? their issue is lack of BTCs not lack of fiat.

If its all a complete fraud then price analysis is useless. I believe MtGox is honest but incompetent. If what your saying is true, then everyone should be buying goxBTC, there should be no reason for a $350 discount to Bitstamp.

At the end of the day, the only market based explanation for the discount, is that customer BTC were stolen, and there is not enough BTCs to cover customer BTC deposits.

if MtGox is actively buying up goxBTC, and goxBTC is not real BTC, then they are in effect using their fiat to compensate their customers at .50 BTC for each BTC, which is exactly what would happen to all BTC deposits in an event of court ordered liquidation and insolvency.

i think we can all agree that this does not end well for MtGox.  




 

Gox don't have an unlimited supply of actual BTC.   No way they can "sell" enough elsewhere to equalise the markets without the public perception of Gox's liquidity changing. 

Shortage of BTC may not  affect Mtgox if current low prices are directly manipulated by Mtgox itself... which may seem to be the case now.

- Say half of the btc deposited to Mtgox is actually stolen. Assuming 1000 BTC deposit before theft.

- After the theft only 750 BTC is left.

- Through market manipulation with press releases & exchanges & closing withdraws say Mtgox acquires 500 BTC with average cost of $250 each.

- Mtgox sells these cheap BTC's in the external market for $600 each. Totalling $300000.

- Flow of cheap btc starts to decrease the btc value of external market... Through arbitrage  prices in Mtgox increases and settles above Mtgox's average cost of btc buy. (Caveat : Mtgox should not / cannot make customers withdraw more than 250 BTC)

- Prices find equilibrium and Mtgox purchase BTC in the external market for average $400 each... 750 BTC that is ...Deposits this back to itself...

Now, mtgox initially paid $125000 for 500 BTC. After all it got 250 + 750 BTC. Mtgox leaves 750 BTC as customer's funds. Sell remaining BTC with the increased prices. Say $500 each. That is $125000 which initially mtgox paid in fiat.

No losses in fiat... Prices at mtgox decrease again with the sale of extra BTC that Mtgox got...

And then say the thinking of a theft is just a bullshit of our conspiring minds then the thief is Mtgox itself if it's indeed manipulating the market.

Let's see how it rolls out in the coming days... And hope it's just the incompetent devs of Mtgox...

ps: Prices and other figures are just coarse estimations or say examples, relative differences / ratios should be taken into account.

yes. correct. cant go to 0, can go to .0001... many people never understood why there was a gox premium over bitstamp in the first place. so many q's about arbitrage.. reason for post was simple basic explanation of gox discount to bitstamp.

http://en.wikipedia.org/wiki/Fundamental_theorem_of_asset_pricing
http://en.wikipedia.org/wiki/No_free_lunch_with_vanishing_risk
http://www.realworldrobotics.com/readings/financial-engineering/principle-of-no-arbitrage
http://www.investopedia.com/terms/a/arbitrage.asp