Bad incentives (Mt gox)

[rebuilder]

Looking at what's going on with the price discrepancy between Mt. Gox and other exchanges, I can't help but think this demonstrates a bad incentive for exchanges.

Right now, anyone able to get funds onto Gox can make a ridiculous profit by arbitraging. Trouble is, most people can't withdraw BTC, so the play seems risky. But who's best positioned to get funds onto Gox accounts? Gox, of course. And who has most reason to trust Gox to allow BTC withdrawals? Gox again.

I don't know what's going on at Mt Gox. Right now, however, they have a financial incentive to not fix their problems, if they're buying BTC themselves and selling elsewhere. The same incentive exists, in principle, for any exchange. Run your service to the ground, get people good and scared and use your house edge to buy their BTC on the cheap. Even if this isn't what Gox are doing now, as long as the incentive is there, someone will do it eventually.

I'm not sure how this can be solved, other than not using exchanges.

[acarterczyz]

If you've got money in MtGox, you're never getting it back. Its sad, I know. But they are buried soo deep in troubles that there is absolutely no way out. I'm certain their BTC reserves are empty.

[gambit1]

How are you certain of that?

[bananas]

Deposits are working, but delayed. I just asked them how long it is taking.

[CurbsideProphet]

Looking at what's going on with the price discrepancy between Mt. Gox and other exchanges, I can't help but think this demonstrates a bad incentive for exchanges.

Right now, anyone able to get funds onto Gox can make a ridiculous profit by arbitraging. Trouble is, most people can't withdraw BTC, so the play seems risky. But who's best positioned to get funds onto Gox accounts? Gox, of course. And who has most reason to trust Gox to allow BTC withdrawals? Gox again.

I don't know what's going on at Mt Gox. Right now, however, they have a financial incentive to not fix their problems, if they're buying BTC themselves and selling elsewhere. The same incentive exists, in principle, for any exchange. Run your service to the ground, get people good and scared and use your house edge to buy their BTC on the cheap. Even if this isn't what Gox are doing now, as long as the incentive is there, someone will do it eventually.

I'm not sure how this can be solved, other than not using exchanges.

You solve it like you would any other business, you don't give money to incompetent fools who show you time and time again that they cannot be trusted.

[rebuilder]

This has nothing to do with whether or not Gox will pay out in the end. My point is, exchanges are uniquely positioned to benefit from exceptional situations, like a lack of trust pressing prices well below market.  They may even have an incentive to create such situations themselves. They operate with almost no transparency, meaning you can't necessarily tell which exchanges are 'bad' and which ones aren't.

[trace666]

in some other thread someone said that it would be illegal for Gox to buy at Gox and sell at other exchanges. I wonder if that is true...

[hgamezoom]

The centralized exchanges are the biggest risk in bitcoin world now.
Today there is one MtGox, We will see more "Gox"es in the future.

No way to solve it before the distributed exchanges are widely accepted and used.

[hgamezoom]

in some other thread someone said that it would be illegal for Gox to buy at Gox and sell at other exchanges. I wonder if that is true...

If it were a traditional financial institution, they have had already been investigated for insider tradings by the authorities.

But it is not, no bitcoin authorities get involved in such cases. That's why Gox is still alive and continues playing with people.