I honestly do not understand. Are you saying that the 0% fees chinese exchanges have employed are creating a speculative bubble?
Yes, I believe that has contributed to that.
Or is it that they are faking their volumes and prices? How are the exchanges making money in the present without fees?
No, I'm not making any such accusations. I believe a lot of exchanges do pad the order book, either directly or through friends of friends... but there is no evidence either way.
Are you saying they are front running their traders to make money off them? I'd like to hear more about this please.
Again, not really.... there is no evidence of this, but there is a large incentive to do so.
For the record, I expect BTCChina is not doing this; at least not directly; they are a very successful established exchange. Some other exchanges have had completely 0% fees, including no fees for deposit/withdrawal, since inception... which does beg the question "how do they make money?". On one hand, it is a waste of time to directly accuse them of such, but I believe it is a question they should address.
For exchanges to work in the real world, it has turned out that oversight is helpful, to prevent things like insider trading, or to have subsets of people with more information than the average customer. Without even any pretence of such oversight, and a 0% fee model, you can draw your own conclusions as to what is likely going on.
However my real point in the above was not to accuse exchanges of malice -- in fact I expect there may well be none; this may all be an accident. I expect BTCChina was just trying to compete.
However, the problem with a complete lack of fees has been that it imposes no material risk on the biggest players to trade with themselves in order to manipulate the market. So we see that, for example, BTCChina had 50k volume; but we have no idea if that is a spread of many users trading, or if the vast majority is a single user (or a kabal) trading back and forth with themselves.
With a material fee, there is a downside risk to such manipulation. However, when the only fee is to withdraw from the exchange, the dynamic changes -- there is a downside risk to _not_ manipulate. The person who manipulates the last or the least, loses.
Sure, there has always been manipulation -- just look at MtGox. But I believe this an order of magnitude larger. It is 100% a speculative game. The price rising and falling by hundreds of yuan every second? It may as well be an MMORPG. Except this one is played by a couple of overweight millionaires sitting in Wenzhou in their underpants.
I'm all for a free market, dead against regulation, and disagree in artificial stability. But everything has it's limits. Without a material downside risk to trading, the largest trader will always win. Exchanges need to tailor their mechanisms to allow price discovery. If this does not happen, and exchanges are more interested in nurturing sophisticated games of online gambling instead where wild price swings are many times removed from supply and demand, there are a few end-games:
1. Average people -- Bitcoin's future -- will wise up and walk away as they *cannot* win.
2. Exchanges will be regulated or shut down
I think recent developments have made both of these much more likely.
To reiterate: In MtGox or other fee-based exchanges, there is a feedback loop for (1) -- after a while, it becomes too expensive to manipulate so you give up. In China, there is no downside to keeping on until the bitter end.
Maybe I'm wrong; I'm interested in hearing other people's thoughts. I think the price movements pretty much speak for themselves though.
Every customer likes low commission rate, exchanges compete with each other by offering low rates.
They are fighting for market share, as long as there's no government subsidies involved, it's a normal free market.
It can be cruel, but that's the nature of Capitalism.
I fail to see the difference between an ultra low commission rate (e.g. 0.001%) and 0%, or the connection between 0% commission rate and all the bad things you warned about.
Sure, and this can be a good strategy for the first-mover, but with close to 20 exchanges in China, I don't believe they realistically expect to get market share. (and actually, I think long-term customers care more about liquidity and security than commission rate, too.)
Your point about ultra-low rates is a straw man argument. I am arguing the difference between a material fee and an immaterial one.
0% fees is fine if that's the way you want to play it -- but then, you need to do two things:
(a) impose some sort of control to provide a downside risk on each sale -- e.g. you can't flip again for X hours
(b) Improve transparency and put in place controls to prove to people that you are not succumbing to the temptation to self-trade or give tips to your friends. (I'm not necessarily accusing exchanges of doing this now -- but I believe they inevitably will in a competitive environment with these dynamics).
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