Coinbase buy price is pegged to Bitstamp

[skivrmt]

Right. This shows that Coinbase is doing exactly what they should be doing. Coinbase is a dealer; that is, they make a market and buy and sell as a principal. They're not an exchange, which just matches orders (or should; one wonders about some of the Bitcoin exchanges.) Coinbase takes in little Bitcoin payments, shortly thereafter sells in bulk on an exchange, and sends money to the business customers of their payment service. For this they charge a reasonable spread, under 0.5%. They have to pay Bitstamp's commission of 0.2% out of that. They also tack on a 1% fee to merchants after the first $1M in transactions, but they're probably making most of their money on the spread. Merchants get paid daily.

That's a reasonable, although not highly profitable, business. 

It's not super profitable correct per trade, but the trades add up for sure.  Plus the overhead for Coinbase is fairly small.  With $700k customers, assuming all or most of them have made at least one trade, I think there's a really good reason VC firms are lining up to give them money.

[mrjeff]

I thought it was a known thing that Coinbase uses Bitstamp as their backend (but on a quick search I didn't find proof of it). They aren't an actual exchange AFAIK. You act surprised, though?

No, not surprised, though I didn't know much about Bitstamp other than being a inactive member there when I started researching this a few months ago.  It looks like Coinbase relies on them a lot.  If you watch the line you'll see a gap opens or tightens when the market changes.  The Coinbase price rises when the market is in rapid expansion, though it still seems to be relatively pegged to Bitstamp.

They are hedging, and keeping the spread between the bid/ask. Standard procedure at forex desks (Coinbase has former forex desk people of course). You can sell yours at coinbase at 800 and they will lay them off on bitstamp at say 805 and they pocket 5 bucks, every trade or whatever the spread happens to be.

I haven't researched the sell price yet, so I don't know if they're generally selling on MtGox or Bitstamp.  I'll probably start collecting that data soon if anyone is interested.

The prices might be derived from the exchanges but do we really know how many of those coins end up on the exchanges?   I'd imagine they'd keep some off the exchanges and just transfer BTC between the wallets of their own members to save on fees.

[_wayfarer_]

The prices might be derived from the exchanges but do we really know how many of those coins end up on the exchanges?   I'd imagine they'd keep some off the exchanges and just transfer BTC between the wallets of their own members to save on fees.

Agreed, I think it would be crazy if they didn't keep at least some coins

[skivrmt]

The prices might be derived from the exchanges but do we really know how many of those coins end up on the exchanges?   I'd imagine they'd keep some off the exchanges and just transfer BTC between the wallets of their own members to save on fees.

Agreed, I think it would be crazy if they didn't keep at least some coins

But how though?  Every purchase you get your own address that you can receive coins to for a transfer in.  But they do claim 90% of all coins held offline.

[_wayfarer_]

I think recent events have definitely shored things up for Bitstamp, and all the data shows that my original assumption was more or less correct.

If anyone's interested, I made some of the numbers a little easier to read, and made the whole thing much faster.  The faster loading charts will make it much easier to visit.

Here's some recent data from the current market trend:

[keithers]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

[_wayfarer_]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

Could be.  I hadn't really thought of it that way, but it could be possible.  In my observation it doesn't fluctuate very much, and I've been able to predict many short-term Coinbase price fluctuations within a certain margin of error, without polling Coinbase, by streaming live trades from the Bitstamp servers.

[halcyon]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

I rather think there are various highrollers who arb between coinbase & bitstamp

[keithers]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

I rather think there are various highrollers who arb between coinbase & bitstamp

You think they are withdrawing via coinbase or withdrawing from bitstamp.   Obviously if you are doing that, you have to take into consideration the fees over at coinbase, (bitstamp too if they have withdraw fees).   I haven't used bitstamp directly.  Although the fees are relatively small, it definitely cuts into the margins if you are just trying to capitalize between the price differential between the two...

[halcyon]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

I rather think there are various highrollers who arb between coinbase & bitstamp

You think they are withdrawing via coinbase or withdrawing from bitstamp.   Obviously if you are doing that, you have to take into consideration the fees over at coinbase, (bitstamp too if they have withdraw fees).   I haven't used bitstamp directly.  Although the fees are relatively small, it definitely cuts into the margins if you are just trying to capitalize between the price differential between the two...

you are right about the fees... but my point was rather that I think the reason for the price difference being so low is the arbitrage.
let´s assume the spread between coinbase and bitstamp grows to 30 $.

there is an arbitrage opportunity, someone buys at the lower price (e.g. bitstamp), withdraws the BTC, transfers them to coinbase and
exchange it for fiat.

And because of this going on arbitrage it looks like the coinbase price is pegged to bitstamp.

in one sentence -> if the difference gets larger than amount "x", people abuse this arbitrage opportunity and the price difference disappears

[_wayfarer_]

you are right about the fees... but my point was rather that I think the reason for the price difference being so low is the arbitrage.
let´s assume the spread between coinbase and bitstamp grows to 30 $.

there is an arbitrage opportunity, someone buys at the lower price (e.g. bitstamp), withdraws the BTC, transfers them to coinbase and
exchange it for fiat.

And because of this going on arbitrage it looks like the coinbase price is pegged to bitstamp.

in one sentence -> if the difference gets larger than amount "x", people abuse this arbitrage opportunity and the price difference disappears

It wouldn't make sense to design a system that is 100% reliant on people doing trades manually.  This is the age of machine learning and REST API's.  The computers can learn more quickly about other systems faster than a collective group of people, at least for the most low level data.  And, Coinbase's sell price is pegged to below Bitstamp's, it just doesn't show in these charts.

[bitpop]

.

[_wayfarer_]

Arbitrage IS what stabilizes prices.

Between exchanges maybe.  But Coinbase isn't an exchange, it's more like a broker.

[skivrmt]

Although coinbase says that they draw their value off a number of exchanges and algorithms, it seems pretty apparent that it is pegged to bitstamp.   When there is a large differential in the bitstamp and coinbase price, I think they are just executing buy and sell orders in between coinbase users...

I rather think there are various highrollers who arb between coinbase & bitstamp

You think they are withdrawing via coinbase or withdrawing from bitstamp.   Obviously if you are doing that, you have to take into consideration the fees over at coinbase, (bitstamp too if they have withdraw fees).   I haven't used bitstamp directly.  Although the fees are relatively small, it definitely cuts into the margins if you are just trying to capitalize between the price differential between the two...

you are right about the fees... but my point was rather that I think the reason for the price difference being so low is the arbitrage.
let´s assume the spread between coinbase and bitstamp grows to 30 $.

there is an arbitrage opportunity, someone buys at the lower price (e.g. bitstamp), withdraws the BTC, transfers them to coinbase and
exchange it for fiat.

And because of this going on arbitrage it looks like the coinbase price is pegged to bitstamp.

in one sentence -> if the difference gets larger than amount "x", people abuse this arbitrage opportunity and the price difference disappears

Coinbase/Bitstamp spread will never reach $30.  Well maybe when Bitcoin goes to $100k.   But Coinbase is a middle man, a broker, not an exchange.  They use Bitstamp to purchase coins and collect a small spread between the bid/ask.  No arbitrage there.  BTC and Stamp small arb, but you would need very high volume to combat the fees.

[_wayfarer_]

BTC and Stamp small arb, but you would need very high volume to combat the fees.

Yeah, I've thought of pitching that idea to an investor before, but I think it will be viewed as too risky in today's climate.

[keithers]

Coinbase withdraws to blockchain.info seem to be taking longer than they used to.  When I first started it would almost immediately show up as an unconfirmed transaction over on the blockchain side, but lately it seems to take longer.   I am assuming this is because of the amount of withdrawals they are processing are probably 20 times what they used to be, but I'm not sure...

I'm not complaining at all, but if you are trying to physically purchase something from someone, or accept a payment in person for some sort of goods that you are selling, you will be standing around waiting longer than you used to have to...

[_wayfarer_]

Quck update: Coinbase no longer seems tied to Bitstamp, at least not this very moment.  Both the buy and sell prices are above Bitstamp's.  They're either making a hard buy themselves, or are tracking to another system.  Any ideas?

Will try to back my findings up with new charts, soon.

[_wayfarer_]

I updated my charts, cutting MtGox out of the equation completely for now.  And, I made a new chart, comparing the sell price on Coinbase with the bid price on Bitstamp.  My theory is that Coinbase is doing a heavy buy themselves at today's prices, but they began buying less aggressively about 12 hours ago, when as you can see the spread between the two tightened somewhat.

All times in UTC:

[keithers]

The prices might be derived from the exchanges but do we really know how many of those coins end up on the exchanges?   I'd imagine they'd keep some off the exchanges and just transfer BTC between the wallets of their own members to save on fees.

Agreed, I think it would be crazy if they didn't keep at least some coins

But how though?  Every purchase you get your own address that you can receive coins to for a transfer in.  But they do claim 90% of all coins held offline.

They keep some in hot wallets for instant buys and transfers, and the remainder is kept in cold storage.  This is why it takes some time if you make a big withdrawal... i.e. like maybe 20 BTC or more

[cloverme]

Quck update: Coinbase no longer seems tied to Bitstamp, at least not this very moment.  Both the buy and sell prices are above Bitstamp's.  They're either making a hard buy themselves, or are tracking to another system.  Any ideas?

Will try to back my findings up with new charts, soon.

I just started to notice this the other day as well. I figured since they were a BTC/USD exchange they would just establish a market rate themselves.  The only thing I don't like about coinbase is you can't put in reserve buy/sell orders at a given market price. Meh, other than that I like coinbase a lot, very stable and reliable.