[ifdefdebug]

Still Exchanges need to have two things:

1) enough coin to satisfy coin withdrawals, even in the middle of a panic run

2) enough fiat to satisfy fiat withdrawals, even in the middle of a panic run

I think maybe that's what the author meant, not sure. But if the exchanges fail to show their customers' assets, they will reinforce any panic feedback loop that might be happening sometime in the future.

[vasilipupkin]

yes. from the article:

"The most obvious way, in my view, that Bitcoin mania will turn into Bitcoin panic is when a Bitcoin depositor goes to sell their BTC for dollars – and there are no dollars available to satisfy that sell request."

coinbase has to have the dollars to let me withdraw those dollars from coinbase to my bank account. They may not have enough on hand.

[ifdefdebug]

but that's a different problem. If you want to sell BTC for dollars, you depend on the order book to have enough bids in it to satisfy your request, or you have to make a sell order and hope for someone to take it. Exchanges don't have to show liquidity for that, they have to show liquidity when people want to withdraw their assets (edit: complete truncated sentence).

[vasilipupkin]

yes, that's the problem. the order book is already quite thin - and in a panic, it can disappear and reappear at a much lower price.

[mrb]

Bitcoin's trading volume (and implicitly order book) is already bigger (impl. deeper) than stocks with comparable market capitalization, eg:

BTC: $160B market cap, ~$5B traded/day

INTC: $200B market cap, ~$1B traded/day

So if there was panic selling of INTC, the stock would presumably dive deeper and lower than a panic sale of BTC...

[vasilipupkin]

sure, panic selling is possible in INTC, absolutely. Valuing INTC is easier, though, because it actually pays dividends and because it can be compared to other stocks.

[paulpauper]

it is a lot lower than than that. you have to divide by the number of major bitcoin exchanges

[vasilipupkin]

Not sure I follow.

[ifdefdebug]

Very true. That's why a stop loss to market is a total suicide in this market. Better do a stop loss to limit and if the limit fails, keep your coins and wait for better times...

[stale2002]

Sure, that it true.

But this is only a problem if coinbase or whoever is acting as a fractional reserve system.

As far as I know, every single dollar and Bitcoin that coinbase "says" you have is actually in an account somewhere, dollar for dollar and Bitcoin for Bitcoin.

If this is NOT true, and coinbase is a fractional reserve system, that would be a huge scandal.

[pjbyrne]

Bitcoin itself is a fractional reserve system.

[coryl]

Fractional reserve systems have fixed maximum supply of currency?

According to the Bitcoin protocol, only a maximum of 21m BTC can exist. And that they are created via mining in a predictable schedule.

Respectfully, I think you need to revisit Bitcoin fundamentals.

[pjbyrne]

Nobody thinks of BTC in BTC terms. They think of it in USD terms, and right now the notional amount of BTC is higher than the amount of USD that will be available to meet it in the event of a very sharp correction.

At least, that's my view. We'll see if there's a flight to liquidity when the bubble in Bitcoin's price finally pops.

[stale2002]

OK, so in your world Bitcoin is an overpriced bubble.

That's a reasonable position to have. I think it is overpriced too.

It still doesn't make it a 'fractional reserve system'. It instead means that the price is to high.

These are different things, that have nothing to do with each other.