Where do exchange sites buy BTC to sell to their users?

[phishead]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

[Mickeyb]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

They have to have reserves. So before they open up, they have reserves of BTCs in their cold storage (hopefully) and have a reserve of cash in their bank accounts. Then after some time people start sending BTCs and Fiat to the exchanges. And the circle is closed.

The reserves of Bitcoin you can get wherever you want. Very often, these Bitcoin exchanges are open by the Bitcoin enthusiasts which already have pretty big stash of coins, so maybe they don't need to buy coins for the start.

I also do believe that the twins didn't have to buy any BTCs for their cold storage. They had already enough of it!

[newIndia]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

There are mainly three types of exchanges out there - Real Time, Shop, Direct Trading. Real Time exchanges matches order and allows to trade. They are like platform, e.g. Gemini. Shops buy/sell themselves at fixed rate. They always buy low & sell high, e.g. Circle. Coinbase has both facility - Real Time & Shop. The third type is Direct Trading. LBC, 100bit.co.in, PaxFul etc. fall under this category. They allow buyer & seller to directly communicate and only holds bitcoin as escrow at the time of trade.

So, apart from Shop, none else have the requirement to hold BTC at reserve. If you use direct trading exchanges, there is almost no middleman.

[phishead]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

There are mainly three types of exchanges out there - Real Time, Shop, Direct Trading. Real Time exchanges matches order and allows to trade. They are like platform, e.g. Gemini. Shops buy/sell themselves at fixed rate. They always buy low & sell high, e.g. Circle. Coinbase has both facility - Real Time & Shop. The third type is Direct Trading. LBC, 100bit.co.in, PaxFul etc. fall under this category. They allow buyer & seller to directly communicate and only holds bitcoin as escrow at the time of trade.

So, apart from Shop, none else have the requirement to hold BTC at reserve. If you use direct trading exchanges, there is almost no middleman.

So direct trading would be like localbitcoins as well?  Isn't that the most risky type of trading/buying out there, because you would have to trust the seller to actually send you the coins?  Or hope to god they don't rob you if you meet up with them face to face?

[gentlemand]

I assume the broker type places often sell coins as fast as they're buying them so there's little need to access supplies elsewhere.

[newIndia]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

There are mainly three types of exchanges out there - Real Time, Shop, Direct Trading. Real Time exchanges matches order and allows to trade. They are like platform, e.g. Gemini. Shops buy/sell themselves at fixed rate. They always buy low & sell high, e.g. Circle. Coinbase has both facility - Real Time & Shop. The third type is Direct Trading. LBC, 100bit.co.in, PaxFul etc. fall under this category. They allow buyer & seller to directly communicate and only holds bitcoin as escrow at the time of trade.

So, apart from Shop, none else have the requirement to hold BTC at reserve. If you use direct trading exchanges, there is almost no middleman.

So direct trading would be like localbitcoins as well?  Isn't that the most risky type of trading/buying out there, because you would have to trust the seller to actually send you the coins?  Or hope to god they don't rob you if you meet up with them face to face?

LBC = LocalBitCoins. Face to face meet is risky and I dont suggest is either. But, online trade on direct trading exchanges are safest and fastest. You dont need to trust the seller at all. The site provides escrow, where seller's bitcoin remain locked. Once buyer transfer FIAT to seller and seller accepts the transfer, the locked bitcoin gets released to buyer. For any dispute, site escrow helps.

[notlist3d]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

They have a big amount of people that use them.  They get coins from people selling for most part I would think.  Also consider like coinbase some levels are not instant so they have a few days to gather the coins.

But these companies are worth a LOT.  There is big money behind them so I suspect they have a certain amount they can judge from currents trades to have stock piled just incase no one is selling.

Only other way might be if they really had bad luck getting BTC going to a company like bitfury, and offer to buy BTC from mining for X amount.  Or even bitmain they could go to them with cash and offer to buy BTC.  So there are some big options I doubt they use but could if were desperate.

[Snorek]

To be able to sell BTC you need to actually own them. Unlike Banks which can just create money for credits from thin air and this process could be repeated over and over again. That is why to start bitcoin exchange you need to have initial capital to create your 'volume'. Winklevoss Brothers are rich and they already own huge amount of Btc so it wouldn't hard for them to build up Gemini's initial 'volume'.

[Possum577]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

They operate just like a traditional bank, they just don't offer loans. You could buy coins without the middle man through local bitcoin...and they'd have to be stored in a physical wallet.

[phishead]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

They operate just like a traditional bank, they just don't offer loans. You could buy coins without the middle man through local bitcoin...and they'd have to be stored in a physical wallet.

But I guess the main question I have is how do the exchange sites buy the coins without the middle man.  I know now the twins who run Gemini already have a ton of Bitcoin which they can use for selling bitcoin for a small fee, but how do the other sites get mined bitcoin? Or do they just hope people with bitcoin go on their site to sell bitcoin to them for a lower price than what they would to other users?

[Pattart]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

They operate just like a traditional bank, they just don't offer loans. You could buy coins without the middle man through local bitcoin...and they'd have to be stored in a physical wallet.

But I guess the main question I have is how do the exchange sites buy the coins without the middle man.  I know now the twins who run Gemini already have a ton of Bitcoin which they can use for selling bitcoin for a small fee, but how do the other sites get mined bitcoin? Or do they just hope people with bitcoin go on their site to sell bitcoin to them for a lower price than what they would to other users?

Many of those sites are probably just like Gemini. They had a bunch of coins to start with and over time people buying and selling bitcoin is enough so that they don't need to continuously buy more. Maybe if they do though, they buy them from miners directly, but I don't know how you would be able to do that yourself.

[DannyHamilton]

You're trying to understand 3 different business types at the same time, and probably causing yourself some confusion.


Type 1.
Speculators - The speculator tries to predict the future value of the bitcoins.  When they think the bitcoins will be more valuable in the future, they purchase as many of them as they can as cheaply as possible. When they think the bitcoins will be less valuable in the future, they sell as many of them as they can as expensively as possible.  They carry a significant risk that they will predict incorrectly and lose a significant sum of money.  If they find that there is a lot of demand for bitcoins and they are running low, they can just increase their prices significantly above market price.  This will reduce the number of buyers (and increase the profit margins on the remaining bitcoins).

Type 2.
Direct sellers - The direct seller may already have a large number of bitcoins that they acquired long ago when bitcoins were much cheaper. They may maintain a business relationship with bulk bitcoin sellers (such as miners or bitcoin accepting businesses), and have significant cash reserves that they can use to purchase bitcoins below market value.  They also may have a significant cash position on some of the exchanges.  If they find that there is a lot of demand for bitcoins and they are running low, they will contact their business relationships and see if any sellers have bulk bitcoins they can buy. If they still don't have enough, they will increase their price slightly above market price, and will buy bitcoins on the market which they will turn around and deliver to their customers.

Type 3.
Exchanges - Exchanges are businesses like Gemini, BitStamp, BTC-E, and Coinbase Exchange.  They simply maintain an order book where buyers and sellers list their positions. When a buyer's price and a seller's price intersect, the exchange settles the transaction and takes a small percentage for themselves for providing the service.  The "market price" is defined as the price where the last settlement occurred. If there is no intersection of ask and offer, then bitcoins simply don't change hands.  If there is a lot of demand for bitcoins, then the sellers on the exchange just raise their prices to increase their income.  If there is a lot of demand for fiat, then the buyers just lower their offers to get the extra bitcoins cheaply.  None of this price movement matters much to the exchange since they get a percentage of every trade regardless of what price the trade happens at.

[Nrcewker]

in a big exchange, exchanges not trade with users, but users trade with users, exchange only put a balance.

[StevenLiang]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

Actually they not sell/buy all BTC trade from their own wealth.
They inviting a lot users to Depo BTC or Dollar to their websites.

And they serve as middle man. That's why we need to choose a trusted website for trading. They hold a lot money, and of course a lot hacker targeted them too.

[acquafredda]

What about fractional-reserve?
Who assures us that our BTC on an exchange are effectively ours?
No one.

If you want more info please read this
https://bitcointalk.org/index.php?topic=945881.0

Q: Are you telling me that BTC Exchanges can do what they want with my BTC and also manipulate the price?

A: First of all, as we said, they have a huge power which is the possibility of using the money multiplier.
We don’t know whether or not they’re using it but it’s likely that some of them are taking advantage of it.
The good thing for you is that you have a great power as well: NEVER store your BTC into an exchange.
Use the exchange only when you really need to change your BTC for something else.
This is the only way to avoid that exchanges will use the money multiplier to double, triple etc. your (our) BTC.
Of course there are traders out there who will keep their BTC on the exchanges a little longer but for the average
Joe there’s no need to use an Exchange as a wallet.

[letyouearn]

I think , they buy thr bitcoins for low prices from their customers and sell it for high prices to their buyers.

[doublemore]

I was thinking about this the other day... Where do bitcoin exchange site like Circle, coinbase, gemini and others get the amount of bitcoins they need to sell to other users at a small fee? How can they get access to the direct market price with no middle man? How could I purchase bitcoins with no other middle man like these exchange sites? I know the only real way to get your own bitcoins would be to mine them, but I don't think these exchange sites could mine all of the bitcoins they steadily sell to people.

Some of the up spikes and down spikes you see on exchanges like stamp and finex are probably due to this, maybe they have deals behind the scenes its clear they communicate.

[prodigy8]

I think that if you want to open an exchange you should hold a lot of bitcoins.
The volume depends on how many investors are in that exchange.
Another way of the big volume can be from the largest bitcoin auctions if you heard about these.

[BTCBinary]

Most exchanges don't sell bitcoin to their users. The users are the ones who trade with one another. The exchange is merely a platform that enables users to sell and buy coins in real time. They take their profits from charging fees on the users

[melisande]

The exchange sites get access to cheap bitcoin due to their members selling to them and they sell high and make big profits but contrary to your opinion exchange sites do mine bitcoins and they have enough funds to buy mining equipment.