3bn hedge funds decide to borrow software from some random btc site to trade other stuff? makes sense, because multi billion dollar hedge funds couldn't possibly buy their own servers or write their own software without involving a third party if it had nothing to do with bitcoin.
I worked with high frequency trading firms, who were in the same sort of valuation league as the afore mentioned hedge fund, these are companies that will spend $2000 on their lunch order and hire the best network and programmer guys in the world on salaries of hundreds of thousands of dollars *per month* in order to gain just a millisecond or two advantage on the market, to think they'd just co opt third party software or even borrow a server is absolutely stupid.
The only possible explanation for a hedge fund trading on a bitcoin exchange is that they have something they want, and cannot simply buy for themselves, and the only thing okcoin possibly has that they do not have or cannot buy is access to bitcoin market info, or the liquidity they need to play.
It's not neccessarily a good thing like some of the more myopic believers in here think, they could just plan to HFT the market and suck every penny out of everyone until btc is worthless, if they can. hedgefunds, HFT firms and the like do not *need* the market to increase in value to turn a profit, so the fact a hedgefund is involved doesn't neccessarily mean the price has to spike, as professor stolfi seems convinced should have happened if it were true.
A trading firm doing HFT is quite different from a fund seeking to set up an exchange where his titles can be traded. Not only is the software completely different in purpose and scale, but the goals are too. For HFT the most important thing is original algorithms that can outsmart the competitors. For an exchange, the most important is reliability, speed, support for thousands of clients, etc. HFT software can be developed quickly from scratch and put to work with minimal testing; exchange software must be developed with care and extensively tested before being put in operation with real clients, because the stakes are much higher.
OKCoin got at least 10 million $ of venture capital, and must be making lots more money from arbitrage, withdrawal fees, interest on leverage trades, etc.. Apart from a few dozen customer support people, it does not have much to spend it on except servers and software development. They have bragged about their previous experience with TI for banking. They have the highest volume of any exchange, an order o magnitude more than "Western" exchanges; and, in my recollection, they have had few or no downtimes, bugs, or security breaches. So their platform is certainly good enough for trading more traditional instruments of a smallish fund. Why would such a fund spend months to develop their own trading platform, if they can buy one that is ready and well-tested?
Why would a hedge fund decide to play with bitcoin at this point in time? I could understand if it wanted to buy Argentinian Pesos as a hedge against the inflation of Venezuelan Bolivares -- but bitcoin? In 2013 the Fortress group (worth a lot more than 3 G€) had invested in bitcoin, which gave then their only red entry in their 2014 Q1 report. They promptly and quietly swapped their bitcoin with Pantera, not for shares of their fund (PBP) but for equity in the company that manages the fund -- which, like SecondMarket, will make a profit even of the BTC price goes to zero.
If the fund wanted to trade in bitcoin, why would it enter in advance negotiations with OKCoin? It could just open an account, deposit how much money it wanted to, and start trading, increasing its exposure gradually. In fact it should open accounts in a some other exchanges, for increased liquidity and better prices. If it wanted bitcoins as an asset for its instruments, it could also buy off-exchange.
Here is the sentence that started the rumor:
“Also very exciting, we have a new client. I cannot disclose the name yet. It’s a €3 billion market cap client. They just do hedge fund trading, and they’re going to be trading on our platform. That’s a pretty big institution.”
Read carefully that sentence. It does not mention Bitcoin. It does not mention Litecoin, which its heavily traded at OKCoin, too. Somehow bitcoiners read that sentence to mean "the fund will trade bitcoin on our exchange". Why bitcoin and not litecoin? Answer: because it was wishful parsing -- they read what they wanted it to say, not what it actually said.
All echoes of that rumor in bitcoin media and forums were entirely based on that sentence, padded with a page or two of wild speculation. In spite of headlines that said "OKCoin confirms...", no confirmation came from OKCoin. That rumor started the rally, and OKCoin was clearly leading it. A couple of days later, since there was no confirmation, many people on reddit and forums started doubting it. The pessimism must have spread among traders, since the price crashed to almost the same level it had before the rally. (There is still a lingering effect; apparently there are still some traders who believe in the "trade bitcoin" reading.)
If the "trade bitcoin" reading was correct, why didn't OKCoin give at least an indirect hint to the market (like "we cannot talk about that topic, but the future of bitcoin is now incredibly bullish"), to keep the rally going?
Surely we can all agree that the sentence is ambiguous: it does not clearly say that the fund will use OKCoin's platform to trade their instruments, but does not say that it will trade bitcoin either. So, you keep your reading, I'll keep mine.
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