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Author Topic: Price pressure of exchanges  (Read 202 times)
Gabrics
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December 22, 2019, 08:01:44 PM
Merited by LoyceV (4), LFC_Bitcoin (2), joniboini (2), Dart18 (1)
 #1

Hi Guys,

Let's do a theoretical here:
Let's assume that some exchanges are not honest and they not only inflate their volume, but they actually sell what they don't have. So they have 1000 real BTC in their possession, but they sell (and hence promise to pay out) multiple times of that. Hence creating fake/paper/on the books Bitcoin out of thin air. I recall this is the reason of the yearly "not your key not your coins day", but still: probably most of the users don't participate.


My thinking:
If you sell BTC and receive FIAT it is VERY likely that you will withdraw it. Because you "know" FIAT it's better/safer at the bank and you already have an account. Not to mention that the Exchange's bank reserves are easier to check by the authorities (assuming a regulated exchange which most of them are nowadays). So it is much easier for them to get into trouble if they create fake FIAT balance.
BUT
If you do the opposite: sell FIAT and buy BTC I believe that it is more likely that the you will leave it on the exchange (or the exchange's custodial "wallet") for long long time.

My point is:
It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.

Thanks for reading this far, what do you think?


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December 22, 2019, 08:18:38 PM
 #2

I'd lean more towards the opposite.

Fiat can be painfully slow to move in many parts of the world so it's likely you'll let it sit there if you plan to buy back in the near future. If there's a sudden price movement you have zero chance of getting to it unless you already have fiat parked there. It can take several days in third world countries like the US.

Crypto is at higher risk of disappearing and can be unassailably yours in a few minutes.

Enough people unquestionably do let both sit on exchanges at any one time for them to start playing fractional reserve. Impossible to know how prevalent it is but I'm sure it has and does happen. And you haven't picked up on USDT which is a whole other world of obfuscation.
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December 22, 2019, 08:37:20 PM
 #3

I really happen?  I use to think the fake volume are just for marketing on CMC. But aren't they audited everytime specially now that is regulated.


Most of the time I withdraw BTC and will just leave the fiat (USDT considered fiat) to wait for the BTC price to dip before buying back otherwise buy ETH and withdraw. I'm form the 3rd world so its much harder to receive USD unless its sent via paypal or western union by someone personally.  BTC, ETH and XRP can easily liquidated in in my country.


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December 22, 2019, 08:57:08 PM
 #4

Didn't this happen with gold?
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December 22, 2019, 09:36:46 PM
 #5

I'd lean more towards the opposite.

Fiat can be painfully slow to move in many parts of the world so it's likely you'll let it sit there if you plan to buy back in the near future. If there's a sudden price movement you have zero chance of getting to it unless you already have fiat parked there. It can take several days in third world countries like the US.

this reminds me of the shadow banking scandal chinese exchanges were embroiled in 2 years ago. the two biggest exchanges took 1 billion chinese yuan in customer deposits and invested the money in high-yield investments. https://www.reddit.com/r/BitcoinMarkets/comments/6vadb8/chinas_two_biggest_bitcoin_exchanges_huobi_and/

bakkt and similar instruments could lead to behavior like the OP is talking about though. most physically deliverable instruments on wall street are settled in cash or rolled over, so most of the coins will probably sit in bakkt's vaults. so they'll start commingling and rehypothecating BTC collateral to make extra money. that will essentially increase supply since they'll be pledging out more BTC than they have in their vaults. https://www.forbes.com/sites/caitlinlong/2018/08/13/the-r-and-c-words-enter-the-vocabulary-of-bitcoin-enthusiasts/

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December 22, 2019, 10:13:51 PM
 #6

It’s hard to know who to trust. Sending and receiving Bitcoin typically is safe enough that you don’t have to trust anyone, but we are taking some risk when using an exchange since we no longer hold the private keys to our funds.
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December 22, 2019, 10:22:39 PM
 #7

It’s hard to know who to trust. Sending and receiving Bitcoin typically is safe enough that you don’t have to trust anyone, but we are taking some risk when using an exchange since we no longer hold the private keys to our funds.
This is the reason for me to choose the only best exchange when it comes to trading, that’s a big risk on any market to put your money into something that you don’t fully own. The pressure for the exchanges to deliver a good service so many traders will trust them and that affects the price value of the market. If trading is your forte, then choose top exchange no that risky if you work with them. Manipulation can’t be stop, they did this sometime for a marketing purposes, too bad for the small exchange to do this.

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December 22, 2019, 11:11:25 PM
 #8

Fake volume is for building coins and exchanges up to rank on CMC, the manipulation of the price is mainly made in the leverage or margin trading exchanges, where people who don't necessarily own any of the Bitcoin they trade, do the futures trading and short or long the market as a price prediction. That, for me is where the big manipulation is. Bitcoin being so scarce should by now be worth a lot more, but since futures trading was introduced, that is what killed the price of Bitcoin, not the wash trading that is occurring on the exchanges so they can rank higher on Coinmarketcap. We need to be discerning where we want to trade and also what pairings, we need good liquidity in the market but we can eventually get that when the market cap is far bigger, like there is in FX trading.


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December 23, 2019, 04:13:42 AM
 #9

My point is:
It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.

Yep, really easy compared to fiat manipulation. But they'll be in trouble if some users withdraw a lot of bitcoin. I believe when this happens they'll likely start selective scamming by disabling withdrawal for some users and that's when they screwed up.

To be honest it's really difficult to find out exactly how many BTC an exchange hold. They can lie, fake it, and so on. Which is why leaving your coins on exchange is terrible.


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December 23, 2019, 05:10:47 AM
 #10

If you sell BTC and receive FIAT it is VERY likely that you will withdraw it. Because you "know" FIAT it's better/safer at the bank and you already have an account.
BUT
If you do the opposite: sell FIAT and buy BTC I believe that it is more likely that the you will leave it on the exchange (or the exchange's custodial "wallet") for long long time.

there is no difference. if someone sells X to Y and wants to hold Y then they will definitely withdraw Y and if anything if Y is bitcoin they can withdraw it a lot easier than withdrawing fiat since bitcoin withdrawal fees are a lot smaller (specially when the exchanges charge % fee for fiat withdrawals) and they don't involve banks so there is more privacy in that since the "user's" bank is not going to be involved in that withdrawal.
and conversely if the user wanted to keep trading they will not withdraw Y and they keep it on exchange to continue trading.

Quote
Not to mention that the Exchange's bank reserves are easier to check by the authorities (assuming a regulated exchange which most of them are nowadays). So it is much easier for them to get into trouble if they create fake FIAT balance.
there is nothing more transparent than bitcoin's blockchain. exchanges' cold storage addresses are mostly known and they could be looked at a lot easier.

It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.
i think the more important question you should be answering first is "WHY?".
exchanges make money from trades, so if the trading volume is higher they will make more money. that volume is always higher in bull markets when price is going up. so why would an exchange want to push the bitcoin price down? what would they gain?

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December 23, 2019, 05:45:38 AM
 #11

My point is:
It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.

Yep, really easy compared to fiat manipulation. But they'll be in trouble if some users withdraw a lot of bitcoin. I believe when this happens they'll likely start selective scamming by disabling withdrawal for some users and that's when they screwed up.

To be honest it's really difficult to find out exactly how many BTC an exchange hold. They can lie, fake it, and so on. Which is why leaving your coins on exchange is terrible.

Yep, I was thinking the same. I mean if sh*t hits the fan they can postpone the Armageddon/reality by blocking/delaying like 10% (the largest, hence probably 50%+volume) withdrawals. Silly KYC (or better said claimed to be KYC) reasons come to mind.

Yes and even if we can see the actual BTC volume they hold it wouldn't mean much as we still wouldn't see the other side of the balance (how much they owe to users).

All this points to the need of FIAT validating DEXs (if complaint arise) from this topic:
https://bitcointalk.org/index.php?topic=5211326.0


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December 23, 2019, 05:49:47 AM
 #12

Didn't this happen with gold?

I think it's a big yes. Holding (actually receiving) gold is way more cumbersome than BTC or even FIAT. Hence -if my original reasoning stands- much more must opt. to hold paper gold with which the 3rd party risk as there too.

I also think that the situation with gold is even worse as most gold "exchanges" don't/can't even hold their own gold. They trust some other company. A company they can't really control/check...

So you trust a company you can't control/check (Schiff gold??? Smiley) who trusts a company who may trust an other company. Chain of un-trust.

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December 23, 2019, 05:55:36 AM
 #13

If you sell BTC and receive FIAT it is VERY likely that you will withdraw it. Because you "know" FIAT it's better/safer at the bank and you already have an account.
BUT
If you do the opposite: sell FIAT and buy BTC I believe that it is more likely that the you will leave it on the exchange (or the exchange's custodial "wallet") for long long time.

there is no difference. if someone sells X to Y and wants to hold Y then they will definitely withdraw Y and if anything if Y is bitcoin they can withdraw it a lot easier than withdrawing fiat since bitcoin withdrawal fees are a lot smaller (specially when the exchanges charge % fee for fiat withdrawals) and they don't involve banks so there is more privacy in that since the "user's" bank is not going to be involved in that withdrawal.
and conversely if the user wanted to keep trading they will not withdraw Y and they keep it on exchange to continue trading.

Quote
Not to mention that the Exchange's bank reserves are easier to check by the authorities (assuming a regulated exchange which most of them are nowadays). So it is much easier for them to get into trouble if they create fake FIAT balance.
there is nothing more transparent than bitcoin's blockchain. exchanges' cold storage addresses are mostly known and they could be looked at a lot easier.

It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.
i think the more important question you should be answering first is "WHY?".
exchanges make money from trades, so if the trading volume is higher they will make more money. that volume is always higher in bull markets when price is going up. so why would an exchange want to push the bitcoin price down? what would they gain?

Yes, there is nothing wrong with the Bitcoin blockchain itself. But knowing the exchange's hot/cold wallets is not too useful, as you don't know the other side of the balance, how much they owe their users.

To answer the why I would say money. It is free money and they keep doing the same money on trades too. So the two can go side-by-side.
I think one of the possible reasons to push price down is to wipe out margin trades an win big on that.
One other is to buy up cheap BTC as if you push the price down you know it is cheap now. Hence you can buy (real) coins with created ones.
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December 23, 2019, 06:13:36 AM
 #14

Why does everything I read sounds like a "bank" to me?
The physical bank, those who creates plastic cards for you to carry always to buy goods and stuffs.

Do you have the same overview like me? Am I just thinking too much?  Grin

Let them spend that money in their credit cards but is there really a paper being spent?
None? So where is the money? Everything is just a number in the computer now.
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December 23, 2019, 06:17:45 AM
 #15

Let's assume that some exchanges are not honest and they not only inflate their volume, but they actually sell what they don't have. ...

Keep in mind that exchanges don't buy or sell bitcoins. They simply create a market where others can trade. However, they hold bitcoins, and that is where the typical problems can arise.

However, it is possible for an exchange to also secretly trade with bitcoins or fiat that it does not have because the exchange controls the accounting. Whether or not that becomes a problem for the exchange depends what happens to the price. If the price rises after you sell bitcoins you don't own or it falls after you buy bitcoins with fiat you don't own, then you can lose a lot of money. If the price moves enough, it will cause the exchange to fail when there is no longer enough fiat or bitcoins to support normal operations.

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December 23, 2019, 11:26:25 AM
 #16

However, it is possible for an exchange to also secretly trade with bitcoins or fiat that it does not have because the exchange controls the accounting.

I find it interesting that people always favour the fictional money option and hardly ever consider the front running option.

Exchanges know exactly how much everyone has and have complete control over the rapidity of the execution of their moves. It would be a breeze for them to upend countless trades in their favour.

Dicing with non existent money has the capacity to kill them off if things take a turn for the worst. Simply mangling the trades of their customers can continue indefinitely with no risk at all.
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December 23, 2019, 03:20:46 PM
 #17

There is a way to prevent this. Make transactions in more transparent Exchange. It may also be preferred in decentralized systems. Dex transactions are more secure. Counterfeit volumes are difficult to understand. But they are not always incomprehensible. Before you buy a coin, make sure you do market research on it.

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December 23, 2019, 03:31:03 PM
 #18

My point is:
It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.

Thanks for reading this far, what do you think?


PS:
"You" stands here as a placeholder for the average user, not "us".

My only question is, how they create any fake Crypto and FIAT Balance, even we know that we don't know the exchange system of their way to create users wallet but i think that was very impossible way to just create and give any amount of balance. Let say they just create fake balance just to make some users happy with their balance, and then some people trying to figured it out by withdrawing it. How to keep users to trust them.

Even FIAT itself in this case it is still in the Blockchain's scope, so its impossible just to create wallet and filled it with any amount of balance we want.

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December 23, 2019, 10:15:52 PM
 #19

Exchange is a price policy for some coins. They even make fake purchases. I don't like this. Instead, they can do something else. They may close some parities to increase the volume. It provides a more real benefit.

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December 23, 2019, 11:48:29 PM
 #20


My point is:
It is way (probably multiple times?) easier for the exchanges to create fake BTC liquidity. Because of this their price pressure/manipulation capability is magnitudes higher on pushing BTC price down than on push it up.

Thanks for reading this far, what do you think?




Back in 2015 and 2016, the Chinese exchanges created fake volume because they were feeless exchanges.

It's very hard for regulated exchanges in the west, which all have a fee-based model, to create fake volume. In other words, you won't see fake volume at Gemini, Coinbase, Kraken and other western exchanges.

 
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