Mt.Gox and the influence on the market

[TraderTimm]

Where have i implied that Tux actually a) intends to do so b) has done so c) has any malicious intent? You assume that i have said or implied that, which is simply false. I am simply pointing out that, given the size of btc economy and the predominant role of mtgox, darkpool sizing could be employed as a tool of monetary policy since it has a rather strong impact on the global btc<->fiat exchange rate, either directly on mtgox or, via arbitrage, on other trading places.
Before ad hominem attacking me, maybe you should invest time to play along with my train of thought that is in no way judging on tux.
Given the infancy and size of the economy it surely cant hurt kicking ideas around on how things actually affect the btc-verse.

Okay, let me back up here.

From your original post about darkpools, you seem to indicate that the withheld size is creating a two-tier market which Mt. Gox allows, and then the big 'players' use this to capture an arbitrage play off of their bid/offer compared to the open book.

So, the main question is - where did you get the idea that there is a two-tier bid/offer system, and two, why would you think Mt. Gox would allow that? (Please correct me if you didn't mean to imply this.)

Dark pools do exactly what they say - they cross trades on the public bid/offer without disclosing their size. I think you may be confusing the depth of the market (how it can absorb orders, which darkpools help do) with how the public bid/offer works.

Here's the details directly from Mt. Gox:

"There are 2 types of dark pool orders.
Dark pool and Normal - Can be filled either partially from the normal orders or the dark pool.
Dark pool Only - Can be filled only by other dark pool orders or a single normal order that is larger than the dark pool order. This means that if there is a single normal order that would fill the dark pool order both will be filled."

That indicates to me that not only are dark pools helping stability, it enables volumes to grow. Dark pool orders only cross on the public book if there is an order large enough to absorb it. That isn't manipulation. Its basic market-making. Dark pool orders are crossed with each other at size where their bid/offer match. The quote is then disseminated to the world without disclosing the size.

Seems straightforward to me.

[piuk]

cschmitz your concerns make a lot of sense to me. What if dark pools were only hidden for a certain period of time, say 24/48hrs, this would at least go some way to reducing mt.gox's advantage?

[Bimmerhead]

i think for the bitcoin community as a whole, not having darkpools would make the system alot fairer to the average joe user.

This presupposes the 'average joe user' is short-term speculating, and that speculating is a zero-sum game to which everyone is entitled to all the facts.

Individuals should be making buying and selling decisions based on their own circumstances and where they think the value of bitcoin is going.  If someone is playing the very dangerous game of day-to-day speculation, then they should be sophisticated enough to live with the fact of dark pools.  Note that dark pool users also have no idea what other dark pool users are doing.

The idea that everybody is entitled to know what everybody else is doing is somewhat akin to those forum members who seemingly want to punish early adopters because they had the 'unfair advantage' of finding out about bitcoin before everybody else.  Your own happiness shouldn't depend on other people being unhappy.  Your own buying/selling decision shouldn't depend on everyone else's buying/selling decision.

this makes no sense.  first, no one said they were presupposing the avg joe was short term speculating. individuals never make buy/sell decisions based ONLY on their own circumstances; they view what they can of the market and incl. that info into their decision.  dark orders obscure that view.

lets say i have 10 million dollars that i want to trade for btc.  we all agree thats a huge order and could move the market up if normal order joes knew i was out there.  why should i be able to obscure that order in a dark pool?  w/o dark pools i would be forced to buy up small batches to obscure the fact that i have alot to buy.  yes, it would be tough but the market doesn't owe me anything just b/c i have more money to invest than the next guy.  i know that i have 10 million to buy and adding that info to what i can see of the market depth gives me more info than the normal traders in a dark pool situation.

So if I want to trade $10 million in bitcoins face to face with my neighbour do you want me to report the order to Mt Gox so that you can get a look at it?

[cypherdoc]

this proves my pt about why dark pools should be disallowed.  all it takes is one person with superior knowledge to destabilize the level playing field.  MagTux is the only one who has the complete view of all orders and this is enabled by the dark pools. (this is not an allegation against him at all)

Well, in the spirit of open competitiveness, shouldn't the market decide? If you don't like it, trade somewhere else or start your own exchange. Trading in large volumes with partially open books or not doesn't make a market any less 'stable' or 'gamed'.

I don't know how you can squeak by on 'no offense' when you make a statement like "MagTux is the only one who has the complete view of all orders". So, what are you implying? He's 'working' the book now for his own benefit? I mean, dude, really? It makes no sense. Why would an operator of an exchange do that when the potential risk is lack of trust in his exchange? Nobody would take that kind of risk if they wanted to stay in business, period.

ah, so i am the parent.  fine, i'll start by teaching u to read.  i said i was not accusing him of anything Dude.  in fact, i vouch for him since he's treated me very well.  don't turn this into something btwn him and i.  guys like u who don't want to listen to others arguments always try to make it personal.  my pt was that theres the "potential" for him to manipulate, not that he is.  there are many articles about how the major investment banks don't wish to give up their OTC derivatives desks and move to an exchange b/c they have superior information, ie, they can see what customers are doing which gives them an advantage and is a major source of skimming.

given your nick i would bet you use the dark pool yourself don't you and like its advantages?  guys like you who don't want to acknowledge this always say well "if you don't like it, go trade somewhere else".  what were trying to argue here is whether its fair, ok?  the fact that dark pools exist allow certain players to have superior information.

[cypherdoc]

He just stated a fact that's all, and he is right. MagicTux(and his staff if he has one) is the only person with eyes on everything. Even the dark pool orders can't see other people's dark orders

Indeed, which is kind of the point of my OP, to have a public debate on this. If one would be far fetched, it could be claimed that by setting darkpool size, Tux can directly influence the price of the publicly traded BTC, much like a Central Bank can use prime rate/federal funds rate to adjust the market indirectly.

Wow, just wow... You read what I posted, right?

Why would one person ruin all their work by trashing the reputation of their exchange? Its self-defeating and makes no logical sense. Unless you actually have something to back this up with, you're just defaming someone on a 'hunch'. This doesn't seem wrong to you?

Dude, this isn't about "why would he", its about should the system put him in the position to do so.  and no, the market has not decided that he can do this.  he unilaterally has done this and yes over time the market will decide whether it was a good decision by having other exchanges arise that might not allow this.

[cypherdoc]

i think for the bitcoin community as a whole, not having darkpools would make the system alot fairer to the average joe user.

This presupposes the 'average joe user' is short-term speculating, and that speculating is a zero-sum game to which everyone is entitled to all the facts.

Individuals should be making buying and selling decisions based on their own circumstances and where they think the value of bitcoin is going.  If someone is playing the very dangerous game of day-to-day speculation, then they should be sophisticated enough to live with the fact of dark pools.  Note that dark pool users also have no idea what other dark pool users are doing.

The idea that everybody is entitled to know what everybody else is doing is somewhat akin to those forum members who seemingly want to punish early adopters because they had the 'unfair advantage' of finding out about bitcoin before everybody else.  Your own happiness shouldn't depend on other people being unhappy.  Your own buying/selling decision shouldn't depend on everyone else's buying/selling decision.

this makes no sense.  first, no one said they were presupposing the avg joe was short term speculating. individuals never make buy/sell decisions based ONLY on their own circumstances; they view what they can of the market and incl. that info into their decision.  dark orders obscure that view.

lets say i have 10 million dollars that i want to trade for btc.  we all agree thats a huge order and could move the market up if normal order joes knew i was out there.  why should i be able to obscure that order in a dark pool?  w/o dark pools i would be forced to buy up small batches to obscure the fact that i have alot to buy.  yes, it would be tough but the market doesn't owe me anything just b/c i have more money to invest than the next guy.  i know that i have 10 million to buy and adding that info to what i can see of the market depth gives me more info than the normal traders in a dark pool situation.

So if I want to trade $10 million in bitcoins face to face with my neighbour do you want me to report the order to Mt Gox so that you can get a look at it?

no, b/c thats btwn you and him outside the mkt.  but if you want to sell 10 million btc's to bidders on mtgox, yes i think you should not be allowed to hide in a dark pool.

[cypherdoc]

can someone explain the darkpool size? I have no idea what that means and I'm curious

darkpool means that orders over a certain size, previously 1k $, now 10k $, are secret from the public mtgox orderstream and do not affect the pricing.
to put it mildly: it allows large traders to game the market and effectively influence pricemovements to their advantage.
given that mtgox is the only, for bitcoin economy at least, large trading entity, the darkpool size effectively governs the size of orders that are not affecting the valueation of bitcoin.

this in effect allows professional traders to buy btc cheap in darkpool at market price with huge volume, then drive the price with a smaller, but for normal trade large order, then selling off to the normal market at now increased pricing, effectively gaming the system.

i think for the bitcoin community as a whole, not having darkpools would make the system alot fairer to the average joe user.

this isn't exactly right.  the dark pools do effect the pricing depending on there net buy or sell objective.  what it does do is allow the large sum dark pooler to accomplish his objective more easily at the expense of the avg joe who doesn't know these orders are there.

[TraderTimm]

this isn't exactly right.  the dark pools do effect the pricing depending on there net buy or sell objective.  what it does do is allow the large sum dark pooler to accomplish his objective more easily at the expense of the avg joe who doesn't know these orders are there.

I don't think you've ever traded anything in size, judging by your bias on the whole darkpool issue. And you know what? It ultimately doesn't matter what you think, because the market decides and the participants will do exactly what they want to do.

I tried to get through to you, but its okay - I don't have all the time in the world. I'm better paid looking after my bitcoin transactions

[cypherdoc]

this isn't exactly right.  the dark pools do effect the pricing depending on there net buy or sell objective.  what it does do is allow the large sum dark pooler to accomplish his objective more easily at the expense of the avg joe who doesn't know these orders are there.

I don't think you've ever traded anything in size, judging by your bias on the whole darkpool issue. And you know what? It ultimately doesn't matter what you think, because the market decides and the participants will do exactly what they want to do.

I tried to get through to you, but its okay - I don't have all the time in the world. I'm better paid looking after my bitcoin transactions

you're wrong.  i've bought lots in the dark pools so i know full well what the advantages it holds.  and yes, done it for my benefit.  but that doesn't stop me from advocating what i think is right.  you OTOH sound like you have too but want to protect your advantage.

[Nesetalis]

Tux increased the Darkpool size from 1k$ to 10k$ orders

So this is what is going on.  It would have been nice if there was a broad announcement about this. Mt. Gox should have announced this more clearly on their site because was a significant change.  If I had known that this rally was being influenced by a new factor, my trade behavior would have been very different over the past 48 hours.

same, I was sad.. as I sold a bunch of bitcoins at 9$ the other day :\

as for the dark pools... its not illegal, its not 'wrong' its just trading.

Now that the size changed, their value is being reflected in the market. This isnt gaming, this is rebalancing, and the price will bounce for a while until everything is sorted out.