Trading on exchanges. What’s behind it?

[pocketcoiner]

Do exchanges actually need to back up crypto transactions with anything? I am talking about exchanges where you can’t actually deposit/withdraw crypto (etoro, revolut, paypal, etc).
Big crypto exchanges (binance, kraken, etc) do have crypto stashes to back trades.

I did not find any public information explaining that, thus my question.

Considering transaction back-up is not needed (I’m inclined to say that as a lot of trades aren’t really on the blockchain - even trades done on crypto exchanges), does it really matter that some cryptos have limited supply? BTC has only around 22 mil coins but if we have abstracted away and can trade without limiting to only the underlying asset, it means we’re just delusioned into burning money.

At this point I’m not even sure stock market is not in the same boat. I mean, has anyone ever been unable to buy a share for a specific company just because there isn’t any left?

[crwth]

Do exchanges actually need to back up crypto transactions with anything? I am talking about exchanges where you can’t actually deposit/withdraw crypto (etoro, revolut, paypal, etc).

I have thought of this as well. I'm not sure but I think they may be acting as a broker for you in one of those type of exchanges unless they have their own and they are syncing with the real markets or something. I haven't tried those that you mentioned though.

does it really matter that some cryptos have limited supply? BTC has only around 22 mil coins but if we have abstracted away and can trade without limiting to only the underlying asset, it means we’re just delusioned into burning money.

You know it's 21 million coins for BTC. Anyway, It does matter because the possible demand for it might be more in the future. It protects your money from being inflated. That's why a lot of institutions now are turning their cash reserves into BTC to hedge against the dollar. It's to protect them from the never-ending possible printing of money.

Conclusion: Supply Matters

[bassbity]

an analogy that makes me think over and over again and this has crossed my mind .. thank you for a simple analogy.

Regarding this, we also feel that if the supply of the stock market is actually unlimited, is there some kind of interference trying to manipulate the amount of the remaining supply?

well, we perceive it in a simple way, and what we need to know is the number of bitcoins in each of the spread exchanges is very much, maybe what comes to mind is an example of Binance. Then has Binance said the number of bitcoins on our exchange is 10 million (example). that way let's do a calculation where there are 3 elements at play. sellers, buyers, and holders.

how many bitcoins are traded?
how many bitcoins did you sell?
and how many bitcoins do Binance users hold in their portfolio?

isn't it to calculate the percentage would require a very complicated math.

As a result, in an exchange there is a cross trade, seller x buyer, seller x holder, buyer x seller, buyer x holder and holder remain in a defensive condition.

[batang_bitcoin]

I think this was already discussed when people have found out about PayPal's new news about their adoption and addition for buying crypto into their platform.
I get your thought about exchanges having off chain transactions and that's fine that they do it to save fees and there's no problem if you're looking at it. It saves you and them fees. And as for the supply limit of crypto, yes, that matters. And it all relies to the law of supply and demand how to determine the value of a crypto.

[pocketcoiner]

How would total supply influence things when we’re running away from it (we are expanding it).
Exchanges can allow you to have ‘virtually unlimited’ currency (being it crypto or whatever) and even defy the limitations set by the creators of the assets.

My point is one can now trade cryptocurrencies on platforms that don’t really have any in their vaults. - that’s really hard to digest.

One example is Bitcoin, which is only allowing 4.6 transactions per second and combining all trading platforms at this very moment I would bet hundreds or even thousands are being done.
So again.. do we even care of the limitations of a coin, or we have found a way of unlocking our way towards infinity?

Whatever assets we are using, we just want to squeeze value out of them, and fortunately enough there are a lot of thing that we can change assets into so no matter what we can bring the value closer to our hands.

LE: I think supply & demand should be also influenced by the scarcity (resource limitation). I think that’s what doesn’t really have the same feeling while some are just selling you ‘digits in a database’.

[Insanerman]

How would total supply influence things when we’re running away from it (we are expanding it).
Exchanges can allow you to have ‘virtually unlimited’ currency (being it crypto or whatever) and even defy the limitations set by the creators of the assets.

My point is one can now trade cryptocurrencies on platforms that don’t really have any in their vaults. - that’s really hard to digest.

Uhm actually, all of exchanges before being publicly opened and running, they need Volume of a certain pair. In example, ABC Exchange supports only BTC/USDT pair. In order to have transactions and trading running, there must be people nor orders that run on both sides of the pair. One must have USDT that want to buy BTC, and one must be a BTC that wants to be sold onto USDT. Now the volume is important as it dictates how much there is in a pair. If that would be 0, then there are no people that is trading in that pair and in that platform. Now, if ABC Exchange is a starting exchange, AFAIK they must provide volume first. How? They can simply use a huge amount of money then make orders. Then the more they get users onto their platform, the more they can grow their market's volume.

Also, don't confuse yourself too much. Some analogy is already simple unless you question too much without further pausing to understand it

[hd49728]

BTC has only around 22 mil coins

BTC has 21 million in total supply, not 22 million. Coinmarketcap: 21 million

Considering transaction back-up is not needed (I’m inclined to say that as a lot of trades aren’t really on the blockchain - even trades done on crypto exchanges)

When you trade on exchange, especially when you use leverage trades, you don't own bitcoin. The amount of bitcoin in your leverage balance is a credited figure. It will be turned to be a true figure of your bitcoin after you close your position. Or worse when your leverage position is liquidated.

[Reid]

I think this was already discussed when people have found out about PayPal's new news about their adoption and addition for buying crypto into their platform.
I get your thought about exchanges having off chain transactions and that's fine that they do it to save fees and there's no problem if you're looking at it. It saves you and them fees. And as for the supply limit of crypto, yes, that matters. And it all relies to the law of supply and demand how to determine the value of a crypto.

Yes, that's correct.
Because they are also questioned before if they really have Bitcoin in their stash or it will just simply imply a number in your account.
I don't really know how they do that or how they continue doing it.
Is there even someone checking the legitimacy of holding Bitcoin by these accounts?

But comparing to the stock market or even the fiat, some of them are also illusions supplied by banks.
You have millions in your account but yet they won't let you have it all in one swoop.
I bet exchanges took that idea from them. 

[LeGaulois]

@pocketcoiner

Since you mention Revolut and Etoro and Paypal

Revolut really buys bitcoins on your behalf, the company uses exchange platforms like Coinbase and Bitstamp. I didn't find any public source but I remember they mentioned it on Twitter a long time ago. The prices are based on VWAP (Volume-weighted average price). The difference is that customers don't have access to private keys.

Etoro also purchases bitcoins, they don't use CFD anymore. For each bitcoin bough, Etoro owns this bitcoin. From where they purchase I have no idea but surely the same way Revolut uses. I know Etoro plans to become a real cryptocurrencies exchange in a near future

It's the same case for Paypal. So it's not just some "bitcoin on paper" like it's the case with gold

[pocketcoiner]

Revolut really buys bitcoins on your behalf, the company uses exchange platforms like Coinbase and Bitstamp. I didn't find any public source but I remember they mentioned it on Twitter a long time ago. The prices are based on VWAP (Volume-weighted average price). The difference is that customers don't have access to private keys.

Etoro also purchases bitcoins, they don't use CFD anymore. For each bitcoin bough, Etoro owns this bitcoin. From where they purchase I have no idea but surely the same way Revolut uses. I know Etoro plans to become a real cryptocurrencies exchange in a near future

It's the same case for Paypal. So it's not just some "bitcoin on paper" like it's the case with gold

I did not know that. Thanks for clarifying.

[batang_bitcoin]

I think this was already discussed when people have found out about PayPal's new news about their adoption and addition for buying crypto into their platform.
I get your thought about exchanges having off chain transactions and that's fine that they do it to save fees and there's no problem if you're looking at it. It saves you and them fees. And as for the supply limit of crypto, yes, that matters. And it all relies to the law of supply and demand how to determine the value of a crypto.

Yes, that's correct.
Because they are also questioned before if they really have Bitcoin in their stash or it will just simply imply a number in your account.
I don't really know how they do that or how they continue doing it.
Is there even someone checking the legitimacy of holding Bitcoin by these accounts?

But comparing to the stock market or even the fiat, some of them are also illusions supplied by banks.
You have millions in your account but yet they won't let you have it all in one swoop.
I bet exchanges took that idea from them.  

It probably are just numbers just like the exchanges but when you're withdrawing it then they have to send you the actual withdrawal and bitcoin.
They're legitimate in a sense that they're a business and they're permitted to do that type of buy and sell model. I'm not updated how is it today because I've never used their service. But there's a better explanation above.

[hugeblack]

Legal legislation is what prevents these companies from accepting Bitcoin or giving users the ability to withdraw them.

  - I expect that things will change when trading of cryptocurrencies is regulated, but until that time, many companies will not engage in legal and financial problems related to the deposit and withdrawal of these currencies.

 - It is similar to the derivatives market when the value is speculating on price and not keeping the asset.

 - We do not forget that many people do not really care about buying Bitcoin and are afraid of losing it, but they want to make some profits.

[Theb]

At this point I’m not even sure stock market is not in the same boat. I mean, has anyone ever been unable to buy a share for a specific company just because there isn’t any left?

This won't really happen IRL, there will always be someone willing to buy/sell at a certain price point. Just an example on how the market behaves if a group of stock holders thinks that the current trading price is undervalued all of them won't be selling at that price but something higher than the current stock price in which the buyers for the stock they are holding will be matching depending on how the market opens, that is why we have something called "gap up" on trading charts this signified a jump in value from the previous closing just because the sellers and buyers have agreed to the new price. In an asset market there will always be buyers and sellers matching orders as this is how some people make profit or is in line with their trading plan.

[hulla]

Exchange services that offer block chain transaction like PayPal need to back up crypto transaction cause even since crypto currency have gained a lot of awareness which lead to the investment of institutional investors every Government Financial Authority or Agency have release different rules and regulation which centralized exchange must follow in periods the AML and tax issues that the reason why they keep track of every crypto trading/transaction activities done by them.

[The Cryptovator]

During trading on a centralized exchange means you are just taking on an internal interface. You aren't buying or selling crypto on the Blockchain. Perhaps they backed the crypto since it wasn't necessary to back by themselves. Because when a new coin list on a centralized exchange then the trader makes deposits there and the exchange just allows to buy it for others. So the assets are already backed by the traders. If anyone tries to withdraw they can easily do it since the assets already on their hand. Decentralized exchange is a different case, transactions happening there on the Blockchain. Keep in mind, holding crypto assets on the exchange means you are just holding an internal algorithm,  exchange is responsible for handover your assets to you.