Coinbase Warns During Times of High Volatility, Access Could Become 'Unavailable' (cityam.com)

An anonymous reader quotes City AM: A leading bitcoin exchange has warned that customers may be unable to get their money out quickly in the event of a crash in the cryptocurrency's price. Writing in a blog post last week, Coinbase's co-founder and chief executive Brian Armstrong, said despite "sizeable and ongoing" increases in the firm's technical infrastructure and engineering staff, access to Coinbase services could become "degraded or unavailable during times of significant volatility or volume. This could result in the inability to buy or sell for period of time," he said.

Armstrong added that there would be restrictions on how much customers could sell, or sell limits, to "protect client accounts and assets"... Bitcoin's market capitalisation rose above $300 billion for the first time earlier this week when its price rocketed to an all-time high of just over $17,000. Many analysts have warned that bitcoin represents an unsustainable bubble, though no one is quite sure when it will burst.

Comments

Digital Money Rights Management

[Kunedog]

YOU Wouldn't DOWNLOAD a BITCOIN

Reasonable

[stikves]

I don't find the current Bitcoin valuation rooted in reality. Yes there is a real tangible value in Bitcoin as it can be used to purchase online items from retailers like Newegg, but that is getting more and more difficult. As seen in the Steam example, the success of Bitcoin as an investment instrument is damaging Bitcoin as a payment method. The current transaction times and rates are crazy high, and the dream of buying lattes with is no longer seems viable.

I still have a tiny amount of Bitcoin and a few other crypto coins, but don't plan to buy any more. The price just does not make sense.

Re:Reasonable

[JcMorin]

Steam abandon Bitcoin [core] because fee was too high and transaction unreliable. That's debate has been going for YEARS and bitcoin can scale much much more, it's software limitation that prevents more transactions. That's why Bitcoin Cash got created the last August.... company will relaunch using Bitcoin that cost less than 1 and can be accepted instantly.

Re:Reasonable

[Anonymous Coward]

There is no cryptocurrency rooted in reality. There are too many external factors required for it to exist. Electricity. Network communication. Programming. More than a cursory understanding of computers and keeping files protected and organized. And these are all easy links in the chain (no pun intended) to break with just one disaster whether natural or man made (or government made). Ultimately, it's totally impractical. We did and will learn a lot from this technology, however. Perhaps the most important knowledge gained is that governments should not and cannot be allowed to control the means of exchange. Other solutions exist and should be explored--most of which have existed since time immemorial. Precious metals. Bartering. Trade of services. These are first tier currencies that require nothing more than their existence and belief in the importance of that existence by humans.

Re:Reasonable

[nmb3000]

I don't find the current Bitcoin valuation rooted in reality.

Of course it isn't, and that's the reason for this announcement. Everyone knows the bubble bursting is inevitable, so those with some control over exchanges are trying to draw it out as long as possible so they can maximize their cashout. I guarantee you that if Brian Armstrong and his buddies want to start selling off their own bitcoins they won't have to deal with "delays" or "unavailable servers".

What kind of crazy clown currency has private entities acting as gatekeepers over all transactions, whether buying or selling? If I walk into a store with cash, gold dust, bottle caps, or whatever, I don't need to page some third party to come over and write down the transaction in their ledger. Oh, and writing down that transaction record takes longer each time, and he takes a huge percentage of the money changing hands.

Any kind of currency which requires a third party to take part in the transaction, and which the full value can't simple change hands without a processing fee simply isn't practical or viable.

Re:Reasonable

[chew8bitsperbyte]

Any kind of currency which requires a third party to take part in the transaction, and which the full value can't simple change hands without a processing fee simply isn't practical or viable.

What exactly do you think Visa/MasterCard/Amex/Discover do??? 2.9% of every transaction, plus $0.35 per swipe. The problem isn't paying a 3rd party to authenticate your transaction. The problem is that BTC only can handle a fraction of the transactions that credit card networks can. Low supply of authorized transactions per minute with high demand for them leads to high BTC fees.

Waiting to have your transaction complete and having the price change during the transaction is going to be the BTC's biggest hurdle, IMHO. Even things like SWIFT and Western Union have significant fees to move money, but you always know up front how much you're going to get when all is settled due to (comparatively) low volatility with traditional currencies (dollar, euro, yuan, etc.)

Re:Reasonable

[Raistlin77]

Hey genius, credit cards are not currency.

Re:Reasonable

[SuricouRaven]

No, but transferable debt is currency for all practical purposes.

Re:Reasonable

[nmb3000]

What exactly do you think Visa/MasterCard/Amex/Discover do??? 2.9% of every transaction, plus $0.35 per swipe.

Credit cards are not a currency so this is a false equivalence. In fact, Bitcoin shares many problems and negative aspects with credit cards and it's really closer to a debit card than currency.

The problem isn't paying a 3rd party to authenticate your transaction.

Yes, it absolutely is. If I can't exchange goods with another person without a third party or paying a processing fee, then I'd say whatever we are using of value is not a valid currency.

Re:Reasonable

[plopez]

Perhaps the most important knowledge gained is that governments should not and cannot be allowed to control the means of exchange.

Have you been asleep these past 17 years? Did you not see the instability wrought by repealing the Glass-Steagle act? Have you an understanding of the effect such things such as insider trading laws in helping maintain a close semblance of a Free Market in Financial markets?

Are you aware in the 1800's where there was little or no regulation of the markets there were 16 collapses, depressions and panics. In a much smaller economy. Between 1873 and 1896, a period called "The Long Depression" there were 6 of them.

The S&L crisis only occurred after it was deregulation. It destroyed S&Ls, a major competitor of banks, and now they are going after credit unions.

Because it is unregulated when the crash comes the fat cats, the exchanges and insiders, will walk away with huge sums and everyone else gets screwed.

The only way to even approximate a Free Market, a level playing field highly efficient and unbiased, is through regulation. Free Market != unregulated market. Unregulated Market usually means a captured market. That is the problem of libertarianism.

Re:Reasonable

[stikves]

Bitcoin is dual purpose depending on how you look at it.

Bitcoin as a value, is a currency (or an asset in the eyes of IRS).
Bitcoin network is a payment processor. It only works with the Bitcoin currency though.

Initially the Bitcoin as a payment network was more valuable (at least that was my understanding). This is because people would be able to do cheap cross border payments with very low latency. (WU could take a few days, whereas Bitcoin was initially 15 minutes or so). However it is no longer cheap, nor low latency.

Bitcoin as a currency was less valuable (maybe less than a dollar), since people would be expected to "go in and out" during their transaction (at least that was how I would have used it). I could order something from abroad, let's say China, buy some bitcoin to facilitate the payment, and then they could have cashed out on their end. The value, if stable, would be just another measuring stick.

It no longer seems to be the case. The price was first determined by mining. Since there was non-trivial energy costs, and expensive initial investments, miners would not have accepted anything less than what would we profitable for them. (For some hard-ish numbers: a bitcoin mining machine costs more than $1000, and mines about 1 bitcoin in less than a year, this uses about 1.5KW power not including cooling costs. The cost would be ~$400 if you could get 1kWh at 3c). Hence bitcoin currently cannot go lower than $1400 or mining, hence transaction validation would collapse (the actual numbers are rising every day, I might be a bit stale).

Then people came and saw prices soaring. The herd mentality would then be "this is getting more expensive, so I should buy it", no it is the worst time to buy. Buy there is the "fear of losing out". Nevertheless people will probably wake up to a very very very very very very bitter crash. I don't think there is sufficient interest (worth about $300 Billion) in buying all the "invested" bitcoins in the world. Someone will be holding the bag. I hope I will not be that someone.

That is bitter, but that seems to be the recurring truth in asset bubbles.

Re:Reasonable

[JustAnotherOldGuy]

I don't find the current Bitcoin valuation rooted in reality.

Exactly.

Plus, a number of other equally serious problems also come into play, but I'm not going to bother to enumerate them here. Suffice it to say that it's a wonderful idea with a bunch of fatal flaws.

I'm not going to dabble in any cryptocurrency stuff, but if other people want to that's fine by me.

Re: Reasonable

[sabri]

I can't throw my MasterCard at you or my church offering plate or the IRS.

By all means, just write down the numbers on the front and back here and I'll show you how practical your Mastercard can be used.

Thank you for restrictions!

[RhettLivingston]

There badly need to be restrictions in order to stop people from doing things like stupidly trying to sell out of 1000s of coins at once during a high volume moment or shorting it in the futures, dumping a bunch all at once, and collecting on the shorts. Selling a whole lot at once isn't good for the seller or the market unless the seller is also shorting. There are similar restrictions in stock markets.

As to strain under volume, it isn't like you can easily day trade this stuff anyway. When a transaction takes a week to be recorded, the market becomes heavily weighted towards buy and hold. People who sell during the mini flash crashes it has everyday are just losing money. 30 minutes later, it is often higher than it was.

Re:Thank you for restrictions!

[Interfacer]

You can quite easily daytrade because transactions on the exchanges are not part of the block chain. As long as you buy and sell on the exchange, it's like buying and selling IOUs. Orders and transactions are near instantaneous. Only when the load is very high do you get smallish delays.

Re:Thank you for restrictions!

[jader3rd]

There badly need to be restrictions in order to stop people from doing things like stupidly trying to sell out of 1000s of coins at once during a high volume moment or shorting it in the futures, dumping a bunch all at once, and collecting on the shorts.

That sounds like government, and the whole point of bitcoin is to have a government free currency.

Re: Thank you for restrictions!

[mbkennel]

Bitcoin is the business of experienced fraudsters ripping off naive libertarians.

Re: Thank you for restrictions!

[Anonymous Coward]

I have a feeling those same free market evangelists will be crying when they find out they cannot sell their 15k "valued" coins because ERROR CANNOT PROCESS TRANSACTION DUE TO FREE MARKET.

Re:Thank you for restrictions!

[fred911]

No one loans bitcoins so there's no short selling interest and there's not yet a futures market. And as long as there's buyers in the market, there has to be sellers. And, there's no limit on a sales quantity on Naz nor listed securities. The only difference is that listed securities have a specialist that can stop trading when there's an imbalance (to match buyers and sellers) which isn't done on transparent markets such as Naz. Hence they're much more volatile.

  As far as a guaranteed, fair and orderly market for Bitcoin, it doesn't exist. There's never a guarantee of liquidity or an orderly market.

  In addition the slower the exchange is, the more money it makes.

Get ready for the sharks to eat lots of minnows.

Re:Thank you for restrictions!

[mbkennel]

Answered the magic genie: "Why yes, you did get a real honest-to-genie 100% government-free currency! Those people running your coinbase algorithms from a front company in Cyprus are definitely not going by any government rules whatsoever when they halt your trades in progress and pin your position against the market, clear for themselves, and then give you preposterously stale and unprofitable pricing, all while your available credit is locked up! That's not a bug, that's a guaranteed 100%-government-free feature!"

Re:Thank you for restrictions!

[ShanghaiBill]

there's not yet a futures market.

This was true when you wrote it. But CBOE started trading bitcoin futures today at 6pm Chicago time.

This will be interesting.

Re: Thank you for restrictions!

[gweihir]

Hehehehe, funny. And spot-on.

Re:Thank you for restrictions!

[devman]

Coinbase isn't an exchange, it is a retail bitcoin dealer. They do run an exchange call GDAX, if you want spot pricing and instantaneous trading you use GDAX.

Re:Thank you for restrictions!

[fred911]

I agree, and we thought the subprime/derivative fiasco was kinky. I think we're about to see will top even that.

Coinbase's problem

[Interfacer]

Coinbase is not an exchange where people buy and sell from each other. Instead coinbase buys and sells at just above, and just under market value, to and from their customers.

It's not coincidental that they don't allow access at times when the market value dips very hard. They'd be shooting themselves in the foot by selling their own btc at low values. If the volatility is too high, their margins are not big enough to cover their losses.

If people transfer BTC to coinbase and then sell them all at once, they have to buy them from funds they may not have available, and they'll be unable to sell the coin they just bought from you because volatility might just have tanked the price. BTC is so valuable at the moment that they just don't have the funds to buffer and ride the wave.

Re:Coinbase's problem

[b0s0z0ku]

All exchange firms do either or both. Same deal with forex.

Re:Coinbase's problem

[fred911]

" If the volatility is too high, their margins are not big enough to cover their losses."
Untrue. Market makers list a bid, ask and quantity. Transparent markets have multiple market makers, each listing a bid, ask and quantity.
Coinbase is acting more like listed securities, matching buyers and sellers, making money on the spread. A professional specialist profits immensely from volume (and the spread). Hence the more volatility, the better the profit for a listed market. The real problem is when there's disorder, insufficient resources to handle sell and buy orders, as Coinbase obviously lacks, no one knows the price.

Forget Bitcoin

[martinX]

I'm putting all my money into tulips!

Re:Forget Bitcoin

[gweihir]

Actually, that is smart, because tulips will never crash down to zero. Quite unlike Bitcoin.

NYSE-style circuit breaker

[Anonymous Coward]

This is a transparent effort for USG to halt trading during run-ups and cancel orders on behalf of favored participants. On NYSE and similarly USG-managed venues, the purpose of the circuit breaker is ostensibly to manage 'speculation', which is a pseudonym for 'those free market agents that dare act against our commercial interests'.

I have a new bitcoin App...

[AmazingRuss]

... it's a cardboard sign that says "FUCK ME!" that is affixed to the user's back.

Bank run, babeh, in 3...2...1...

[b0s0z0ku]

https://www.youtube.com/watch?...

Merry Christmas!

Same As All Bubbles Ever

[careysub]

Many analysts have warned that bitcoin represents an unsustainable bubble, though no one is quite sure when it will burst.

This is intrinsic it to it being "a bubble".

Circuit Breakers

[DatbeDank]

This is by 100% by design and is intentional.

Look at who backs Coinbase. By conveniently shutting down during a large price swing, they prevent a run on their capitalization which to me speaks volumes as to the quality of the bitcoin exchange.

I already took profits during its initial run-up. Yeah, I missed an opportunity from the freaking 8k to 15k run, but screw it. It's better to leave the casino with a wad of cash than be a basket holder.

I've had some crpyofanboys flame me in another community because I sold so long ago and who seem to think their coins will always be worth several thousand dollars. Here's hoping they make something out of the transaction.

Re:Circuit Breakers

[ShanghaiBill]

The problem is that bitcoin blockchain transactions can take from 10 minutes to more than an hour. During a "normal" day, this does not matter so much, because an exchange will have roughly equal numbers of buyers and sellers and can clear transactions internally with just a ledger entry. But on volatile days, the number of buyers and sellers may be skewed, and since the price is fluctuating, the exchange cannot take the risk of internal clearing. So they have to buy or sell bitcoins on the blockchain ... which takes time.

This is not some conspiracy by Coinbase. This is just the way that Bitcoin works.

Re:Circuit Breakers

[gweihir]

The "quality of the exchange" is defined also by their survivability. When Bitcoin crashes, it may well crash to zero and wipe out exchanges that are willing to pay out while the exchange-rate is on free-fall. Hence it is very debatable whether this is a sign of low quality. The other thing is that the BC network itself will likely become extremely slow to do transactions when the crash happens and will get even lower when people stop mining because they cannot recover the electricity cost of mining anymore. The first effect will be immediate, the second one may happen within hours. This is an extreme booster for the speed the crash will happen.

So getting out at 8k was the only sane thing. I would have done the same if I had any bitcoins.

Re:Circuit Breakers

[gweihir]

Add to that that at some point during a crash, people will stop mining, because the electricity used will get more expensive than what they earn from it. And then add that because of the two effects, even if there are buyers, they will be unable to buy and you get the most spectacularly fast crash imaginable. My take is that people holding larger amounts of BC may well be past the point were they can sell without causing that crash.

Re:Circuit Breakers

[gweihir]

While I disagree on your take of society crashing (it will be bloody and may well take > 50 years to rebuild and it will still be the same scum on top afterwards), you are spot-on about the rest. All bubbles work on the "greater fool theory", i.e. the hope that there is somebody even more stupid to buy even later. The basic economic mechanism is fools taking the money of greater fools, except there is no casino that makes sure things stay within limits and stable. In the case of Bitcoin, it is even worse, because the real-world base value of a Bitcoin is zero, and the cost of creating it is pretty high now. All that electricity and hardware is just wasted, producing no added value at all.

Re:Circuit Breakers

[ShanghaiBill]

Add to that that at some point during a crash, people will stop mining, because the electricity used will get more expensive than what they earn from it.

Please correct me if I am wrong, but my understanding is that as miners drop out, it becomes easier for the remaining miners to find valid blocks, so the return on electricity used should not drop, and may even go up.

Re:Circuit Breakers

[gweihir]

That effect is there, but at best compensates and it is not fast. For example, the next adjustment currently seems to be happening in 12 days.

Re:Circuit Breakers

[bkk_diesel]

This is complete and utter nonsense. It is one of the wrongest things I've ever read on the internet, and that's saying something.
For every trade there is are buyers and a sellers. Nothing needs to be cleared off chain and no purchasing on the market ever needs to happen. Withdrawals and deposits may slow, but this has nothing to do with trading.
 

Re:Circuit Breakers

[slshdtisctrldbysjws]

Bitcoin will probably never crash to zero. It's used by a lot of people for business transaction; there is a whole 'off-grid' economy with people exchanging actual goods and services and not just speculating. If it does crash below $1000 it will be because another cryptocurrency took its place for those transactions, which actually might be soon considering that the volatility makes it difficult to use as currency.

But as long as this technology shows promise there will be speculation on crypto, and the only thing that will certainly kill Bitcoin is when the demand for crypto transactions exceeds the ability of its network, and then it will probably be Bitcoin Cash (BCH) that takes over, which strictly speaking is more Bitcoin than Bitcoin is.

Re:Circuit Breakers

[devman]

Block chain transactions only occur during deposit or withdrawal of BTC from the exchange. Trading on the exchange never goes to the block chain, and the exchange doesn't take sides in the trades so volatility is no risk.

Vulnerability?

[dohzer]

This may have revealed potential vulnerabilities in crazy imaginary internet money.

https://www.theonion.com/bitco...

how to scam in the event of a crash

[LordKronos]

In the event of a crash, it may take a while before you can cash out. Presumably because, until that exchange can actually find you a customer willing to take your crashing BTC for any price more than 1 cent, there's nothing they can do with it. But what is to stop the exchange from lying to you about how much you actually sold for? Say there are 5 customers with 1 coin each, BTC is crashing and is down to $10k. All 5 customer say "SELL NOW" but the exchange say "it may be a while". They manage to sell on coin for $10k, another for $8k, another for $5k, one for $3k, and the last for $1k. What mechanisms are in place (perhaps a trick question as I'm expecting the answer is "none) to prevent the exchange from telling all 5 customers "sorry it took a while, we could only get you $1k for your coin" and pocketing the extra $22k?

Re:how to scam in the event of a crash

[MikeDataLink]

What mechanisms are in place (perhaps a trick question as I'm expecting the answer is "none) to prevent the exchange from telling all 5 customers "sorry it took a while, we could only get you $1k for your coin" and pocketing the extra $22k?

Because the entire blockchain is public record. Anyone can look at it. Example: https://blockchain.info/

Re:how to scam in the event of a crash

[mbkennel]

Exactly. This is how bad and scammer retail FX 'brokers' work. You have an agent, supposedly working for you to execute orders on the market, but that agent has a direct financial interest against you, and knows all your and other customer's orders.

There's a reason there are regulatory agencies and laws and all that Big Government nonsense, because in the past institutions had the same business model and same scams in traditional finance, but eventually they started to steal some powerful people's money so regulation happened, backed by "Thugs With Guns", as the libertarian useful idiots say.

Re:how to scam in the event of a crash

[Anonymous Coward]

Maybe I'm looking in the wrong place, but I don't see any mention of dollars on there.

Re:how to scam in the event of a crash

[LordKronos]

What mechanisms are in place (perhaps a trick question as I'm expecting the answer is "none) to prevent the exchange from telling all 5 customers "sorry it took a while, we could only get you $1k for your coin" and pocketing the extra $22k?

Because the entire blockchain is public record. Anyone can look at it. Example: https://blockchain.info/

Wonderful. The block chain is public record. So I can publicly see that "my" wallet transferred out 1 bitcoin, and 0.999 of it went to some other persons wallet and the remaining 0.001 of it went as a transaction fee to the miner's wallet. A few flaws in this:

1) it doesn't say anything about what the transaction price was, so unless I can identify the actual person on the other end and get a truthful answer from them, I have no way to know what price they paid

2) I understand bitcoin very well, but I'm not familiar with how the individual exchanges record their transactions directly on the blockchain. When you have your money at an exchange, do you even really have your own individually identifiable wallet on the blockchain, or is it stored in some sort of community wallet that's shared across all exchange members? The latter was my impression, because I seem to recall reading that when you buy on an exchange you don't have to pay bitcoin transaction fees unless you want to have the funds transferred into your own personal wallet off the exchange. I don't see how it would be possible in the current bitcoin environment to record a transaction on the blockchain free of fees unless the explanation was that the individual transactions aren't actually taking place on the blockchain but just within the exchange's private accounting. I'd love for someone more knowledgeable about the inner working of an exchange to be able to confirm or correct me on this. If my guess is correct, then you technically wouldn't even have your own distinct transaction on the block chain to verify anything at all.

Re:how to scam in the event of a crash

[LordKronos]

There's a reason there are regulatory agencies and laws and all that Big Government nonsense

Yep, and that reason is "to steal all your money", right?

because in the past institutions had the same business model and same scams in traditional finance, but eventually they started to steal some powerful people's money so regulation happened, backed by "Thugs With Guns", as the libertarian useful idiots say.

Wait...so are you trying to tell me that government isn't evil, a completely free market isn't a panacea, and that these pesky laws and regulations might actually serve some real legitimate purpose and that the worshipers of our wonderful, infallible blockchain are going to have to repeat history to rediscover why we did all this stuff in the first place? Go figure.

used to be known as "bucketshop"

[mbkennel]

This setup, trading private ious on a private unregulated 'exchange' which is really a business of its own has a very long history. Known as a 'bucketshop'. And it is inevitably filled with scammers and fraud, because the company that runs it has a direct financial interest in giving you poor prices and execution slippage.

Been there for equities (now forbidden), retail foreign exchange (lots of ripoffs there), and now bitcoin.

When professionals trade in banks, they ask *multiple* market makers for two-way, buy and sell quotes. Two way is important so that the counterparty doesn't know ahead of time whether you want to buy or sell. Not true when you're on a computer platform which already has your position and clicks---so it can shade prices and spread and blow you away or margin call you during volatility, giving you worse prices than the real market and pocketing the difference.

The question is not if we are in a bubble - but wh

[SuperKendall]

Bitcoin is in a bubble, yes.

But so is every other major currency.

So the question is not if Bitcoin is in a bubble, but if and why it would pop before other currencies do - because the last to stand gains a lot.

The very real value Bitcoin has is that it is an escape from whatever currency you have, the world over... I think many people are underestimating just how valuable that really is.

So they're leveraging their clients' assets then

[slshdtisctrldbysjws]

Is that legal?