[Tehnix]

Actually, Bitcoin crashing can only be an advantage to them since they lock the prices when the customer buys from them. As in, they just got an order for 20 btc at $1000 pr. btc, but, since it's crashed, they only have to pay $500 pr. btc and the customer still only gets them as if they still cost $1000. Effectively leaving them with a $500 profit pr. btc.

[unclebucknasty]

Perhaps, but then, if that's how they were managing, then they could go out of business on a strong move up.

I think it's more likely that they are using a combo of reserve bitcoins plus actually buying on the market at the time you place an order. This is why, on some heavy volume days, you will see the message that Coinbase itself (not just you as a user) has reached its buy limit for the day. They buy at the price they quote you, then wait for your funds to clear ACH to deposit the coin in your account.

So, another risk Coinbase has is when a customer buys (prompting Coinbase to buy), then the customer's funds don't settle via ACH. Coinbase is then stuck with the coin until they can fulfill someone else's order. This might be at a loss if BTC has moved down. In fact, if a user places an order and BTC moved sharply down, it is likely possible that the user could purposely liquidate the bank account so the ACH would fail. I am betting they have seen this.

They have been toying with Instant buys as well, but having to adjust their requirements. In the first iteration, I remembered wondering how they weren't losing their shirts, as it was designed pretty naively, as if everyone were honest. Sure enough, they changed their requirements.

In general, they take on more risk than their customers, but one thing I do fault them for is failing to communicate changes in requirements, etc. And, apparently, they do need more robust processes, automated auditing, etc. It is the most reliable place to buy that I have found, but it definitely has some of the Wild West feel of BTC itself.

[bushido]

> They buy at the price they quote you, then wait for your funds to clear ACH to deposit the coin in your account.

This is simply stupid, if true. There is no way any institution trading any type of instrument, asset, commodity, security etc should ever do this. And I doubt they do this.

> Coinbase has is when a customer buys (prompting Coinbase to buy), then the customer's funds don't settle via ACH. Coinbase is then stuck with the coin until they can fulfill someone else's order. This might be at a loss if BTC has moved down. In fact, if a user places an order and BTC moved sharply down, it is likely possible that the user could purposely liquidate the bank account so the ACH would fail. I am betting they have seen this.

Again this is based on the most likely false premise that they do buy the goods before the payment is cleared. This is simply insane.

If you're right about your bet that they have seen this, and if the do buy the BTC before payment clears that they get what they deserve. There can never be bonus points for anyone doing nonsensical things.

> they have been toying with Instant buys as well

What type of instant buys?

Instantly buying the BTC on an exchange once the payment is cleared using a market order by default unless the user specifies a max. buy rate (or a min sell rate)? This is the only way they should have been doing it.

Or is it instantly buying it when the customer shows intent to purchase before the ACH clear? This is just stupid.

> In general, they take on more risk than their customers

If this is true, they should get an award for the most ridiculous business practices of the year. Again I doubt this is true.

What we need to find out is, in case of a delay on large order where the price of BTC went up did they honor the original quoted rate or the current rate?

[gojomo]

Buying when the customer orders, rather than when the ACH clears, does create a risk if the price plummets.

But buying only when the funds clear creates a risk when the price skyrockets. It makes it harder to ever please customers with an 'honored price' that's lower than when the BTC arrives.

Also, any whiff of a two-step process, where the customer reconfirms the buy-intent at funds-clearing, would put Coinbase closer to holding $USD balances for customers. That's something that I suspect, as a regulatory matter, they would rather not do. A single irrevocable 'buy' with delivery some time later (at either a locked-in or a floating price) is closer to the e-commerce transactional pattern they'd prefer. (Otherwise, they look more like a money-transfer/foreign-exchange/banking/daytrading outfit.)

Despite the last 2 weeks, BTC has had more total upswing than downswing – going over its history from $0 to $hundreds in value. So, buying early likely will have won more often than lost, for Coinbase and its customers.

Calling that approach 'simply stupid' and 'simply insane', without having considered the real risk and regulatory factors affecting their business is silly.

[bushido]

> Buying when the customer orders, rather than when the ACH clears, does create a risk if the price plummets.

It creates a risk either ways, it's just that different parties take ownership of the risk.

> But buying only when the funds clear creates a risk when the price skyrockets. It makes it harder to ever please customers with an 'honored price' that's lower than when the BTC arrives.

Actually you're complicating it more than necessary. There is no reason for coinbase to execute a market order as soon as the funds clear. They can simply let a customer make an informed decision, and decide if they want to buy at current market rate (market order) or using a limit order which will be executed internally if a customer tries to sell lower or will be filled on the exchange if the exchange reaches fills the order first.

This practice has existed for decades, whichever order is filled first simply cancels the other order.

This is also completely fair and very acceptable. Buying first waiting and waiting for the transfer to clear is not and will never be an good choice.

> Also, any whiff of a two-step process, where the customer reconfirms the buy-intent at funds-clearing, would put Coinbase closer to holding $USD balances for customers. That's something that I suspect, as a regulatory matter, they would rather not do. A single irrevocable 'buy' with delivery some time later (at either a locked-in or a floating price) is closer to the e-commerce transactional pattern they'd prefer.

I can see why this would be viewed as the only choice. Unfortunately as I have stated in another thread, when trouble from regulator begins they will get classified as akin to a financial institution anyways. When this happens they'll have more trouble due to the misrepresentation.

> Otherwise, they look more like a money-transfer/foreign-exchange/banking/daytrading outfit.

Again, I can see where you are coming from, but this doesn't mean the law will see them as anything but a money-transfer/banking/daytrading outfit as they fit the definition most of these in totality and a few (day trading) loosely. I left out foreign-exchange as this one is the only one they are safe from, until/unless BTC gets reclassified from a security(it meets SECs definition requirements) to a currency.

> Despite the last 2 weeks, BTC has had more total upswing than downswing – going over its history from $0 to $hundreds in value. So, buying early likely will have won more often than lost, for Coinbase and its customers.

On first glance this may seem like a likely observation, but it is unfortunately misguided (no offense intended). Unfortunately people give too much credence to the notion that past behavior dictates future movement and forget to compensate for lack of sample data and =/- effects of things such as spreads, volume, volatility etc.

If there is a single profound lesson I can impart about this topic it would be "buy low sell high" only works for short-selling, albeit in reverse order ("sell low buy lower") but for most traders, investors and speculators they should learn that the true lesson to remain profitable in any trade is to "buy high and sell higher". This is simply calculated using momentum previous x day momentum. Preferably between 10 to 20 days. You could use a higher number but it would be too late to enter or exit or a lower that would enter and exit too often.

I can talk endlessly on this topic and its importance in all entrepreneurial/business/trade endeavors, but I digress.

> Calling that approach 'simply stupid' and 'simply insane', without having considered the real risk and regulatory factors affecting their business is silly.

I agree with your prognosis, I do have a bias that I failed to consider. But unfortunately, if this was the only solution to avoid the paperwork, auditing and additional responsibilities that would come from acknowledging that the business practices are similar to those of a financial institution, they are unfortunately doing something pretty insane and simply stupid. There is no way this will not drive them to hurt themselves and their users.

Its just the fact that has been proven time and time again, if the US regulators decided you fit the definition of a financial institution even loosely then they will deem you and prosecute you on past transgressions accordingly.

In the eyes of regulators here "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck", no exceptions considered.

[unclebucknasty]

Again, I don't know why you think you know better than Coinbase what they should or should not consider. I suppose I am a little biased against this kind of behavior. I run an online business and we occasionally have customers/others ranting about what we should or shouldn't do, as if they have any idea what goes on behind the scenes or what went into our decision-making.

I get your point and they may well have to face regulatory matters when regulation catches up with Bitcoin in general. But, for now, they seem to have some guidance as to how they need to structure their processes to sidestep current regulations and precedent. Anyone who has experience with legal issues knows that the law is often gray. So, to wade into such waters, firms must rely on precedent and their good sense to guide them. It is a calculated risk, wherein the word reasonable becomes important. Whether they should be classified as an MSB or financial institution will be a finding based on facts. They need to line up as many facts in their favor as possible and not keeping funds on deposit or allowing limit orders works in their favor. Likewise, the timing of the trades matters. If they buy and hold the commodity, then sell it immediately upon funds clearing, then it is substantively different from taking the buyer's funds first, then selling. The former is more akin to selling a commodity they own. The latter is brokering the transaction with the buyer's funds and is dangerously close to holding deposits (if only for a brief time). If you think there is no material difference, you're wrong. In fact, part of the difference is in what you've been demomizing them for: that is, the fact that Coinbase is taking on the risk in the former scenario.

So, I don't think you can make the statements you're making so definitively, nor do I think you should assume that you have thought this through more carefully than those who are running the company.

[bushido]

Some point taken and agreed with to an extent. Would have edited some of my older comments to declare the biases but was to late to edit; mentioned them in two comments a couple of hours ago.

Bias declared in [0] and mistake acknowledged in [1].

[0] https://news.ycombinator.com/item?id=6937475 (noted under "edit:")

[1] https://news.ycombinator.com/item?id=6938355

edit:

quick note:

> I don't think you can make the statements you're making so definitively, nor do I think you should assume that you have thought this through more carefully than those who are running the company.

That statement is flawed under the same premise that the author is calling me out for, maybe to a greater extent. There is no way for the author to prove or disprove that I can or cannot make these statements due to the lack of experience, thought or knowledge within this domain.

[unclebucknasty]

>There is no way any institution trading any type of instrument, asset, commodity, security etc should ever do this. And I doubt they do this.

Your doubts don't make it any less true. Most such institutions allow you to deposit funds with them first so your purchases come from your deposits. Coinbase has opted not to allow deposits, reportedly to sidestep certain regulatory requirements. So, they use ACH. Coinbase is not an exchange or trading platform, BTW.

>Again this is based on the most likely false premise that they do buy the goods before the payment is cleared. This is simply insane.

Not sure how else you think they can allow buyers to lock in a price before the funds clear.

Think about it: if Coinbase is allowing the buyer to lock in the current market price, then using ACH to capture the buyer's money, then by definition there is risk to Coinbase, no matter how they work it out behind the scenes.

What they have tried to do is minimize their risk by verifying the customer's identity and having them link a bank account. For instant buys, they require a credit card as a backup method in the event that the ACH ultimately fails.

But, there is still risk to Coinbase, obviously.

Listen, anyone who hangs out a shingle on the Net is wide open for fraud, whether it's e-commerce, bitcoin trading, payment procesing, or otherwise. That's just part of the risk. Coinbase has calculated that it's an acceptable risk for now, which is partly mitigated by their verification process and daily buy limits. But, I would bet that part of this $25M raise will go to tackling the regulatory issues that will allow them to keep deposits on account.

>What we need to find out is, in case of a delay on large order where the price of BTC went up did they honor the original quoted rate or the current rate?

This is not a great mystery. The answer is yes. I am a customer and speak from experience. Your buy price is locked in, which can work for or against you.

You don't have any experience with Coinbase, but you're making these declarations about what they may or may not do, and acting as if we need you to dig into this great mystery to determine what's really going on.

It never ceases to amaze me how many universal experts hang out on this one lil' old site.

[bushido]

> This is not a great mystery. The answer is yes. I am a customer and speak from experience. Your buy price is locked in, which can work for or against you.

That question was not directed at if the buy rate is locked in, that is well established and not in dispute. Rather the question was specifically for the cases where "there is a delay", i.e. an unreasonable one like with the OP of this post and the previous post[0].

The problem is not how they conduct their market making(or selling a product by definition the definition you presented).

An unreasonable delay adds added risk of financial loss which is akin to, while not quite as dire as; if it was possible for someone to buy a pace-maker of Amazon, to be delivered overnight (up to two days) and it was not known to the buyer could not survive past 4 days without it and for some technical reason Amazon was unable to ship it for 5 days, would the law hold Amazon responsible for not living up to their end of the commitment and unintentionally causing the buyers demise.

Though stepping away form my overly extreme and unrealistic example, as an after thought my original question may have been nonsensical. "If coinbase does buy the goods before the price is locked and BTC rises, regardless of the situation there is no risk for coinbase or the customer."

The risks on these transactions would only occur in case of BTC dropping.

> You don't have any experience with Coinbase, but you're making these declarations about what they may or may not do, and acting as if we need you to dig into this great mystery to determine what's really going on.

You're right I have no experience with an unreasonable delay that could cause financial loss. But "any experience", how did you deduct that?

> It never ceases to amaze me how many universal experts hang out on this one lil' old site.

Right back at you :)

[0] https://news.ycombinator.com/item?id=6929705

[unclebucknasty]

>Rather the question was specifically for the cases where "there is a delay"

It appears to be the case that Coinbase honors the price and, in fact, we know of at least one case wherein it goes beyond that. That is, they gave the buyer BTC at the new, lower price when the unreasonable delay would have otherwise meant a significant loss, had they enforced the higher price quoted at buy time. I believe that was posted somewhere on this thread.

>The risks on these transactions would only occur in case of BTC dropping.

But, that's a non-statement, right? I mean, the risk is involved because no one knows whether the price will go up or down at the time of the transaction. To say there is only risk if the price drops implies the benefit of hindsight. Perhaps you meant to say there is only a loss incurred if the price drops. I'm not being pedantic. The difference is significant. The former implies that there is a scenario under which there is no risk. But, in fact, there is always risk. It just may be that all works out fine (i.e. the price does not drop before fulfillment).

>But "any experience", how did you deduct that?

Perhaps I misunderstood your original question regarding the buying process at Coinbase. Initially I thought you were asking about the simple-case, which would imply that you had no experience as a buyer. You've clarified that you were inquiring about the unreasonable delay scenario, so I retract that.

>Right back at you

I'm sure we all have our moments. :)

[pontifier]

I can't speak to what you might call a "large" order, but in the case of a delay selling 0.4 BTC, the price went up dramatically for me, and there was no recourse. I received $156 on the day the price hit it's high of $1242. There is a screenshot of my transaction here: http://imgur.com/iY1btbr

[bushido]

I feel bad for you but worse for who ever bought these if it was internally matched(some would may also call it a dark pool)(also explained further below why this was not on an exchange), here's why:

Whoever was internally matched got a benefit(alleged profit) of $339.93 on their partial fill; assuming they would have sold it immediately at the high for 216.69% ROI and let not even go into the annual compounded growth rate.

Though either ways if I were the other party I would have still asked for a reversal. And here's why:

Such error's can easily happen in the reverse order (like in your case) and most often happen on a larger transaction AND if I did not complain about the beneficial trade I would lose a great amount of credibility in court or arbitration for the wrongdoing.

Also Coinbase would be well within their rights to reverse the transaction if they followed due process.

But, I have serious doubt about all CoinBase practices since yesterday (when I first saw this error), and here's why:

1. Even if I was not adept or did not have experience at reading the tape (time and sales) etc, it would be very easy for me or anyone to very if a transaction occurred on any BTC exchange at around this price level as the data is freely available, also all web based charts available for this would have developed an enormous tail. Which implies just one legitimate reason, that is Internal Matching.[0]

2. Fortunately internal matching works differently than open exchanges that have a bid/ask spread which can get quite wide on BTC due to thin volumes, but remains in a 1% range for good measure lets call this a +/- 10% spread, so on this day if volumes were thin someone could have bought BTC at $1242 * 1.1 => $1366.2 or could have sold it for $1242 * 0.9 => $1117.8.

But like I said fortunately internal matching would work differently. Much like a normal exchange it would work on a first in first out basis (FIFO) so if there is one or more buyer at X price and someone decides to sell the first order would be filled. Usually X would be the current market rate +/- an acceptable slippage which is lower than the open market let call this 5%, though it should be no more that 1%). So the worst internal match would be $1242 * 1.15 for buying or $1242 * 0.85 for selling. If this pricing condition is not met coinbase themselves could be the seller(thus become an internal market maker) or the would route the order to an open exchange.

There is a near-zero possibility of the fill happening at 68.074% lower than the market rate. The only way this could have happened is if once the order was sent to the market in the form of a market order and there was zero bidders between the ask and < $396.52(since I assume the rate includes a fees).

But if it was not internally matched and did not get executed on any exchange the only somewhat legal possibility remaining is an intentional technical/code error the only other options remaining is (hint: completely unethical and/or illegal) them not doing an exchange at all aka. market making at +/- 60%+.

3. Unfortunately if this is a technical error, it most definitely must have happened to other customers too, if it did on a partial fill the sell price would be an average, hence most users would never see it and there (CBs) books would get cleared during the end-of-day reconciliation.

I will leave the speculation as to other reasons here. No reason to allege any deliberate wrong doing beyond their lack of understanding about auditing financial transactions.

Though did you get your trade reversed?

edit: bias correction (explained below)

I am big supporter and bigger moralizer with all things relating to the business practices and moral obligations of companies when dealing with the small guys. The critic in me can draw and deduct conclusions that may skip considering situations which while possible have a very very low probability of happening. But as Murphy would say, "Anything that can go wrong, will go wrong". So acknowledging murphy's law its my moralizing responsibility to moralize myself and declare the point below [0]. [1] is further moralizing by me, old habits and all that.

[0] There is a remote(but worth mentioning) possibility that as I cannot truly check all exchanges where BTC is traded and cannot identify the exchange through where coinbase executes their trades there is a possibility, however remote that CoinBase could have used an obscure exchange for this transaction that had spreads as wide as +/- 68%. In that case it can/may nullify completely any observations and opinions I shared above, thus rendering my opinions incorrect, in which case I apologize.

[1]Though I would request if this is the case that CoinBase/Brian make it clear in their TOS that this is the case, so that users can make an informed decision with the knowledge that they can potentially lose value due to these extreme situations. Of course you would likely not need to legally disclose this so, not disclosing it is also fair.

[pontifier]

No. The funds were supposed to be transferred by Nov 15. On Nov 22 I asked them to cancel the transaction because I had not been paid. On the 27th I got a form email asking me to reply if I still had a problem, and I re-iterated that I wanted the transaction reversed for non-payment.

I might add, that between the time that I tried to sell and the time that I got paid, They charged me for an automatic buy order that I forgot to cancel... at $823.09/BTC

I don't know the internal mechanisms of how they operate, but I think they have acted despicably. The more deeply I look, the more amateurish everything connected with them becomes.

[bushido]

My previous comment was wrong[0]. I will not edit it out due to my sheer oversight to understand the current situation and to take ownership. Also I checked I'm too late edit it and leave a note about my mistake. I'd also like to apologize for CoinBase for the excessive microscopic biased scrutiny.

Unfortunately it seems like I misunderstood your earlier message. A delay in simply transferring the fund doesn't open them up for the scrutiny and criticism I demonstrated in the previous post.

If the delay in sending the wire transfer was caused due to a non-regulatory delay such as human/tech error they are at fault for the delay in the wire and at worst may by their own accord make a gesture of goodwill but are not required to, a complaint against them would result a tap on the wrist at worst and of course loss of your goodwill.

Cancelling an already executed transaction would not be considered fair.

Of course if the wire transfer was not yet initiated they could have cancelled it.

> They charged me for an automatic buy order that I forgot to cancel... at $823.09/BTC

This is one of the reasons I am against their alleged model of buying BTC before a wire transfer clears. If it was an error (not saying it was not) and you informed them in a timely manner and they did not act in a timely manner (which seems to be a trend) you don't have to pay and they are stuck with the losses if BTC went down, on the flip-side if you did not notice your error and/or report it on time, you are stuck with the losses and/or liability (hello collection agencies!).

[0] https://news.ycombinator.com/item?id=6937475

[this_user]

It may be a short-term advantage, but it will leave them with lots and lots of disgruntled customers which is terrible in the long run if you try to start a business.

IMO all of this just goes to show that the BTC ecosystem is not yet mature enough and that you should only play with amounts that are not meaningful to you when lost.

[Tehnix]

Actually, not really. Correct me if I'm wrong in the assumptions I make on Coinbases' process (I only gathered from comments since I'm not US based and therefore can't use it).

If a buyer buys the 8th, they then lock the price to what it is the 8th. They first deliver the bitcoins after they have received payment, which takes a couple of days (or is ACH instant?).

They will have received the payment on the 13th, given them a 5 day window (or how ever many days it takes for the transfer) for bitcoins to drop in price.

They then buy the bitcoins (which can be done almost instantly when you're on an exchange with funds) and send them to the user.

See, they first buy the bitcoins when they have the payment. If the bitcoins drop in price, they benefit from the locked price, and the customer gets his bitcoins as promised.

SO! no disgruntled customers, and, they aren't doing anything shady. They simply benefit from the time delay in paymet. This of course only works in their favor when btc drops, not when it rises.

[dragontamer]

The question however, is what if they are inconsistent in their approach?

If Coinbase refunds in terms of USD whenever the market falls, and buys BTC whenever the market rises, then Coinbase is going to make a ton of money in any form of market volatility... and the customer is the one screwed in both cases.

The question we have for Coinbase is: can we trust their policies to be consistent?