Fighting the Price Divergence. What is the true price of bitcoin?

[entertheabyss]

Fighting the Price Divergence. What is the true price of bitcoin?

Many traders and bitcoin enthusiasts may have noticed that the price of bitcoin varies on different exchanges. Lately BTC-E has had the lowest price while chinese exchanges like Huobi have had the highest. MT-GOX classically has a 30usd+ price difference over other exchanges while the infamous Willy bot ramped up the price.

So when the price of bitcoin varies significantly as it may, what is the true price of bitcoin? How do I price my goods and services? There are 2 obvious options to this, 1) a localized approach, "i use BTC-E so i shall use their price when factoring the price of bitcoin" or 2) generalized, "i will use a basket average of several exchanges." (such as bitcoinaverage.com)

What is the cause of bitcoin price divergence? In an ideal system various exchanges would be served by efficient arbitrage mechanisms. These mechanism function buy buying on exchanges where the price is low and selling on exchanges where the price is high, making profit from the difference in price. As long as there are spread between exchanges it should be profitable to make arbitrage trades bringing the price closer and closer together, Bitcoin is an electronic currency, transferring it from one exchange to another is trivial, (unless you are Crypsy). However moving fiat around may take 5-7 or more business days and incur large fees. The fees and time required to move fiat from one exchange to another is what prevents the arbitrage trades to reduce inter-exchange spreads,

What is the solution? Reduction of the barriers (fees and time) to arbitrage traders should allow market forces to prevail. The ability to transfer fiat from one exchange to another with the speed and cost of bitcoin, would be adequate.

How can this be done? Nubits is an altcoin tied to the price of the US Dollar by a sophisticated decentralized mechanism. https://nubits.com/about/white-paper For the last year Nubits price has been constantly within 0.5% most of the time within 0.01% range of the USD. If exchanges such as huobi and BTC-E both allowed bitcoin/nubit trading they would allow arbitrage forces to take effect utilizing nubits as a way to move fiat between exchanges instead of the hassle and lengthy waits of wire transfers. This would allow a significant reduction of inter-exchange spread perhaps to less than half of 1 percent.

Who would benefit? Bitcoin accepting merchants from a fair price of bitcoin, by allowing them to price goods and services constantly, Traders would benefit by allowing them to transfer funds between exchanges with less hassle, Exchanges would benefit by increasing trade volume. Seemingly everyone within the bitcoin ecosystem would benefit, except the banks collecting wire transfer fees.

What needs to be done? we need to lobby bitcoin exchanges to allow trading in nubits, and allow withdrawal and deposit capability in their API's (not all exchanges have this).


What is my motivation? I dont own any nubits, or nushares. However I would like to see a move towards a consistent bitcoin price. I operate an altcoin exchange that accepts bitcoin, nubits and other currencies. I cannot take up this activism as I do not have the free time, however I have written this proposal and encourage others to do so.

[Serpens66]

I don't think Nubit will change anything.

Because it is not important if the price of an altcoin is 1$ or x$.
You can use any altcoin to move fiat from one exchange to another. The important thing is the spread at both exchanges in the altcoin orderbook.

If you were able to buy a litecoin for 3.3$ at one exchange and sell it for 3.3$ at the other,  it would be the same result.

But here is the problem:
The market depth of all altcoins is too low. So even if the spread would not be big, you could only transfer a few hundred $ a day, which is much too less.
Even all Ltc orderbooks I know are too empty.

So you would need great market makers for nubit (or any other altcoin). But to have those great market maker, they need to be able to move fiat fast.
-> it is circular reasoning.

The only way to make really efficient arbitrage, is to move fiat fast and cheap. No new altcoin.

[entertheabyss]

I don't think Nubit will change anything.

Because it is not important if the price of an altcoin is 1$ or x$.
You can use any altcoin to move fiat from one exchange to another. The important thing is the spread at both exchanges in the altcoin orderbook.

If you were able to buy a litecoin for 3.3$ at one exchange and sell it for 3.3$ at the other,  it would be the same result.

But here is the problem:
The market depth of all altcoins is too low. So even if the spread would not be big, you could only transfer a few hundred $ a day, which is much too less.
Even all Ltc orderbooks I know are too empty.

So you would need great market makers for nubit (or any other altcoin). But to have those great market maker, they need to be able to move fiat fast.
-> it is circular reasoning.

The only way to make really efficient arbitrage, is to move fiat fast and cheap. No new altcoin.

read more about nubit, the function of the custodians is to provide orderbook depth and maintain the peg. https://nubits.com/about/price-stability they are the "great marketmakers" for nubit. and they don't need to move fiat at all.


the custodians can provide enough depth to regulate the price. and maintain a large enough buy and sell walls on multiple exchanged to arb against. that is how nubits have been so successful so far and it is perfectly scalable.

[GannickusX]

Don't you think the volatile nature of bitcoin has something to do with the big gaps between exchanges?

[entertheabyss]

Don't you think the volatile nature of bitcoin has something to do with the big gaps between exchanges?

Sure volatility plays a large part, but its really the time and cost of wiring money that prevents people from arbing. The trick is to make arb trades cheaper and faster, so that volatility plays a smaller part in the equation.

If it takes 5 days to complete a trade then the odds of bitcoin price moving substantially are high, if it takes a few minutes than the risk is less and more people would be willing to do it at a given level of price difference.

If say, the spread is 2% and the 7day volatility price range 10% it would be very risky to make a trade, because the price might change by the time you make the trade.

But if the spread is 2% and you can complete the leg in 30minutes, where the expected volatility for that time period is 1%. It would be substantially less risky to make that trade.

The inter-exchange spread upper bound is equilibrium point where the risk of making an arbitrage trade is equal potential profit of an arbitrage trade. The easier it is to make an arbitrage trade the lower the maximum spread.

[odolvlobo]

So when the price of bitcoin varies significantly as it may, what is the true price of bitcoin? How do I price my goods and services? There are 2 obvious options to this, 1) a localized approach, "i use BTC-E so i shall use their price when factoring the price of bitcoin"...

#1 is the best answer. Why did you ignore it?

[Serpens66]

read more about nubit, the function of the custodians is to provide orderbook depth and maintain the peg. https://nubits.com/about/price-stability they are the "great marketmakers" for nubit. and they don't need to move fiat at all.


the custodians can provide enough depth to regulate the price. and maintain a large enough buy and sell walls on multiple exchanged to arb against. that is how nubits have been so successful so far and it is perfectly scalable.

https://poloniex.com/exchange#btc_nbt
I see, it is much more volume and a lower spread than normal altcoins. (at the moment I could buy for ~ 40BTC at ~1.00074$ and sell ~ 15BTC at ~0.9911$.
But 40 btc is by far not enough. It would need thousand of bitcoins. Can Nubit provide this at all exchanges?
If so, you could be right.

[bitmarket.net]

the time and cost of sending fiat currencies from one exchange to another is definitely a major factor preventing the arbitrage.
Especially if you deal in different currencies, the cost of converting and moving the money is usually similar to the arbitrage profit that could be made.

I think other factor is a structure of supply / demand on particular exchanges.
There are markets, where there are buyers are quite active, but there are few sellers, so the price is being pushed above where it is currently trading on other markets.

There is still a strong home bias - people prefer to trade on the exchange in their own country, where bitcoin is trading in their home currency and they can quickly transfer and withdraw the funds to/from their bank account.

[Nagalim]

Hey all, nupond operator here (i run the liquidity pool on bter).  NBT are held fixed to the dollar through a multi-tier system to ensure we have deep decentralized pockets.  The money on exchange is just tier 1 and 2 and while it is important for sensing pressures on the peg the orders on the order books are not the be all and end all of our liquidity.  The end all is Tier 6 which constitutes us either buying or selling our own shares to cement the growth or shrinking of our nbt supply into the value of our own company.

Tier 4 buy side constitutes (currently) a multisig address ( 5 of 8 ) holding bitcoins that we can use to refill our buy side liquidity when required.  We have passed a motion that states our intention to hold 15% of the circulating nbt supply as a btc multisig reserve in Tier 4.  We are developing and growing every day such that we have deeper and more fluid reserves on both buy and sell side.

[entertheabyss]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

[coinmaster222]

If Nubits is pegged to the dollar how do you cope with inflation? or do Nubits just lose 2-3% per year

[masterOfDisaster]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

I'd recommend to visit the Nu forum at https://discuss.nubits.com/ and discuss this topic.
The community is in general very friendly and open to ideas!
Ultimately the NSR holders will need to vote for liquidity operations, because liquidity operations are compensated with a fee paid by Nu.
The liquidity operations at exchanges are offering BTC and NBT in trading pairs at a value of close to 1 USD.
There are several more liquidity layers which help keeping the rates and the volume at exchanges at an acceptable level.
It's helpful to discuss prior to put up a grant for voting.

You might want to get familiar with some technical aspects of Nu, but I think it's not too hard to understand how Nu works.
Summarized in one sentence you could say that Nu keeps NuBits pegged to USD by adjusting the NBT supply to demand.
NSR holder votes for motions and grants are just a way to directly create currency units (NBT or NSR in so-called grants) or to decide which way to go (motions).
The whole system is absolutely democratic and you need a majority of votes to get a grant or motion passed.

Have you thought about flipping the NBT/BTC pair? BTC/NBT is much easier to read if you are aware that 1 NBT = 1 USD

[...] or do Nubits just lose 2-3% per year

...compared to what?
And what is 2 or 3% per year if you can have the same loss with BTC in a single day or even hours?

NuBits is just the initial product of the Nu network.
If you are afraid of USD inflation, you might be interested in the next products of the Nu network: crypto currencies pegged to CNY and EUR and special drawing rights:
https://discuss.nubits.com/t/passed-motion-to-introduce-new-nubits-products/2834

[Nagalim]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

So basically the only obstacle to liquidity provision is the wrapper software.  We are currently in kind of an in-between time with our liquidity software because we're about to come out with much more powerful stuff.

That said, liquidity provision is a process (grant support is a positive real, not a boolean).  You should get your exchange listed on our website and make yourself known on the forum.  Tomjoad is the PR rep and can help you get listed im sure.

[entertheabyss]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

So basically the only obstacle to liquidity provision is the wrapper software.  We are currently in kind of an in-between time with our liquidity software because we're about to come out with much more powerful stuff.

That said, liquidity provision is a process (grant support is a positive real, not a boolean).  You should get your exchange listed on our website and make yourself known on the forum.  Tomjoad is the PR rep and can help you get listed im sure.

Sent Tomjoad a pm.

[Nagalim]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

So basically the only obstacle to liquidity provision is the wrapper software.  We are currently in kind of an in-between time with our liquidity software because we're about to come out with much more powerful stuff.

That said, liquidity provision is a process (grant support is a positive real, not a boolean).  You should get your exchange listed on our website and make yourself known on the forum.  Tomjoad is the PR rep and can help you get listed im sure.

Sent Tomjoad a pm.

I let Tom know.  Can you link to the exchange website?  Are you up on coinmarketcap?

[entertheabyss]

Hey all, nupond operator here (i run the liquidity pool on bter).

Who would i need to talk to for getting a liquidity pool on my exchange? Currently we offer NBT/BTC and BTC/NSR trading pairs. We are planning on starting a nubit<->fiat service similar to localbitcoins.com in a few months. we have a fully functional API and would offer a liquidity provider 0.0% trading fee's

So basically the only obstacle to liquidity provision is the wrapper software.  We are currently in kind of an in-between time with our liquidity software because we're about to come out with much more powerful stuff.

That said, liquidity provision is a process (grant support is a positive real, not a boolean).  You should get your exchange listed on our website and make yourself known on the forum.  Tomjoad is the PR rep and can help you get listed im sure.

Sent Tomjoad a pm.

I let Tom know.  Can you link to the exchange website?  Are you up on coinmarketcap?

http://coinmarketcap.com/exchanges/exchanged-i2p/

its a darknet exchange that can only be accessed through i2p.  How to use exchanged.i2p
however there are 3rd party inproxies you can use to access it. at ExchangeD.i2p.xyz the api works fine over inproxies.

https://bitcointalk.org/index.php?topic=1092682.msg13007555#msg13007555