How do big exchanges get their bitcoin ?

[Smack That Ace]

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

[manrie]

 
Well, your topic is well choosen and highly interesting. I myseld make thoughts about the way a exchange is working and if they are safe for the customer.
My personal target is not using BTC to use as money to pay or to send but to trade with BTC.
This deserves that the elected exchange must be safe.
What I want is the same you want, to make money with BTC because the raise in their price.
I think the problem is that the owner of the exchange don't want their customers inform too much about their organisation and their practise. Transparency is what we all need.

[H.W.Z]

You can easily buy a chunk of bitcoin over the counter, which means you find a broker and have a good deal to buy bitcoin.

[BitCoinDream]

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Very nice question. All I can say is you are on the right track.

To answer your Q, if u follow coibase/bitpay news closely, u'll see they have corporate partners like wikipedia, overstock etc. who continuously dump their coins on them at a lower cost than market rate. This offers them the liquidity at hand. Moreover, they enjoy some privilege in international markets like Bitstamp, BTC-e for a 'better match against higher quote', because they are big trader and pillar of those exchanges. If I can recollect properly, coinbase had some issues with MK regarding this in Mt. Gox trade and hence they sued them in US court to block their funds in US. That started the fall of Mt. Gox. These are very deep and complicated relationship. So play wisely.

[Klubknuckle]

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Well, in order to sell bitcoin their customer need to deposit bitcoin. And in order to buy bitcoin you need to deposit USD. Tada, you don't actually need to own any money to start an exchange..

[bornil267645]

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Well, in order to sell bitcoin their customer need to deposit bitcoin. And in order to buy bitcoin you need to deposit USD. Tada, you don't actually need to own any money to start an exchange..

That's hefty deal isn't it? you don't need to own any money to start an exchange. Would love to start an exchange.

[Smack That Ace]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

[BitCoinDream]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

You did not mention from which country U r. If u r from US/UK, simply buy it from Circle within 10 mins.

[Smack That Ace]

No from Asia close to India

[BitCoinDream]

No from Asia close to India

India has a great geographical position. So, close to India does not mean anything really...

- China
- Nepal
- Bhutan
- Myanmar
- Bangladesh
- Pakistan
- Sri Lanka
- Afghanistan

...Which one ?

[QuestionAuthority]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

Well if you plan on having a brick & mortar outlet I already trust you more than Coinbase. I tried to go to the Coinbase office and found an apartment building, not commercially zoned, next to the Caltrain station.

You would need relationships for large buys. If you could set up a few relationships with major holders like some of the exchanges you could do fast (possibly not instant) sells of a large quantities. Remember, many exchanges of btc are off book so you wouldn't necessarily see them for sale.

Great question by the way.

[Elwar]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

[Sythyn]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

Well first of all a customer will probably not "walk" into an exchange as none of them (AFAIK) have any kind of physical presence. Most exchanges also do not sell coins directly to the customer (with coinbase being the exception) but they rather are a marketplace that buyers and sellers can buy and sell bitcoin on.

Coinbase gets it's bitcoin from bitstamp when there are many more buyers then sellers

[BitcoinExchangeIndia.com]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

OMG !!! From when 200 bitcoins have become a small amount ? In November 2013, 200 bitcoins was a life changing amount for some countries.

[Elwar]

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

OMG !!! From when 200 bitcoins have become a small amount ? In November 2013, 200 bitcoins was a life changing amount for some countries.

ahh, I meant 20...a number close to $5,000.

Either way your exchange should fill a need that the current exchanges do not fulfill.

One difficulty is finding a bank that will allow you to hold money for a bitcoin business and your government might have currency exchange laws that you have to deal with.

[Flashman]

Actually it's a really nasty business we as a community should be ashamed of.

They corrupt the indigenous mountain tribes of Malaysia, bribing them with, and addicting them to vodka, to trap and hunt a small endangered, monkeylike creature, Lemuris Cryptodigitalis, whose brains are then pureed with a rare forest orchid, this concoction is distilled to produce pure satoshis and the result uploaded by satellite phone to the exchanges.

[troy112]

Well you can't go and start a site like coinbase or bitpay. You will be handling customer money and storing them, you'll be prone to hacks. So, first and foremost security!!
And you will need reserves, you can't predict if buy and sell will be equal, a reserve is needed.

These big companies get mostly from dealers who accept bitcoin, but if need they also use exchanges like BTC-e...

[troy112]

Here's something i just read at coinbase....
"The Sun-Times partnered with the bitcoin transac­tion processer Coinbase, allowing the newspaper to vastly min­imize its risk of exposure to volatile bitcoins because it never has to actually hold them."

[franky1]

to be honest "smack the ace" if you dont have a clue how exchanges work. then you should not even bother opening one. the worse thing possible is for people to trust someone that doesnt even understand the business.

i would have given you many tips.. but then i thought that its unfair on you or others to aid you into a business model that is way above your head.

if you cannot work out your answers by looking at the current exchanges and understand how they work, then you, yourself need to accepts the limits of your abilities and try a project that you do understand.

in short. we do not need basement dweller exchanges made with crappy PHP code where the mindset is on the money and not the infrastructure (code/security).

sorry if it seems harsh but even 12year olds could work out where the bitcoins/fiat com from and work out setting offers up. so i think you are not the type of person whales would want to deposit funds into

[Coin_Master]

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

If you need to ask then you should not be opening an exchange.  That would be like asking how you go about opening a Bank, the short answer is "you" don't.