
Ask HN: How can Coinbase make good on deposits/withdrawals? - ethagknight
If 10 people have 10 bitcoins that they bought from coinbase for $10, and now the ‘market’ says 1 BTC = $10,000, and all 10 people want to cash out, how does coinbase make disbursal? Obviously there are new people coming in and buying BTC at a higher price, but due to the surge, can Coinbase really honor all deposits?
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Thespian2
To get your fiat cash out, you'd have to sell that 1 BTC for $10,000. Someone
needs to be on the other side of that trade buying it. You get _their_ $10K,
and they get your 1 BTC (and coinbase takes a small percentage for
facilitating the transaction).

If nobody wants to buy your BTC at $10K, you don't get "your" money out, until
coinbase can find a buyer to match with your sale.

In your example, all 10 of you start lowering your asking price, and "the
market" goes down until you make a sale.

Coinbase may provide some liquidity, buying your BTC at "market price" with
their cash reserves, but only if they think they can resell it at a higher
price.

The risk they take on in doing that, and the liquidity they provide, is the
nominal economic reason you are paying their fees.

~~~
aaavl2821
naive question: does coinbase really make markets in BTC??

~~~
bdamm
What's the question? I assume you're asking if Coinbase actually buys BTC when
you ask them to? Coinbase isn't publicly audited as far as I know so we don't
really know. A related question would be... what fraction of Coinbase
customers actually send or receive bitcoin, and what fraction of Coinbase
customers simply buy and hold bitcoin that never goes anywhere. With this
question answered, we would know how much Coinbase needs to actually execute
on trades, and how much Coinbase could simply take the customers money, claim
BTC ownership, and then not actually transact BTC.

I assume exchanges have some way of signalling options to each other but I
don't know what that is.

~~~
aaavl2821
i was wondering whether coinbase itself actually buys or sells bitcoin, or if
they just pass along orders to exchanges or market makers that execute the
trade, and then keep a record of the transactions that are executed.

if coinbase fills orders by buying and selling bitcoin on its own account,
then that is a very different business model from what i assumed they did

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Cyberdog
From my understanding (which may be entirely wrong but it's not like that
stops people on the internet from writing things as if they're correct in all
knowledge), Coinbase itself does not give you the $10,000 when they sell.
Rather, they are merely a pretty front end for a standard exchange; probably
GDAX, the one they also own and operate. So when you go to their site and tell
them to give you $10,000 for your 1 BTC, what they actually do is go to their
exchange and create a sell order on your behalf. When that order is fulfilled
by someone else buying 1 BTC for $10,000, Coinbase takes a cut and then puts
the rest into your account.

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wyldfire
The confusion results from the conception that the market (any market) has a
single price. It doesn't. When exchanges (stock exchanges, currency exchanges,
commodity exchanges) execute trades, they do so with something called an
"order book". You can think of it more like an available histogram of
potential trade prices. The transactions tend to settle at the nexus of where
buyers meet sellers, but if there's only $1 worth of BTC available at the "1
BTC=$10000" rate, then if you want all of your $10 transaction to execute now
you will have to pay more. Alternatively you can leave your order at the
"1:10000" rate and hope that someone comes and picks it up.

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gnode
When you buy or sell on an exchange, you're not transacting against the
exchange, but against a counterparty, via the exchange; someone like you, but
making the opposite transaction. If you sell a Bitcoin for $10k, then someone
else brought $10k to the exchange and offered to exchange it for a Bitcoin.

The only way an exchange wouldn't be able to honour deposits is if they lost
them, or because of fraud. A surge in price shouldn't affect the solvency of
the exchange.

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panarky
Coinbase's exchange GDAX matches sellers with buyers. The buyers bring the
cash to the party, not Coinbase.

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mancerayder
Coinbase is an automated mechanism that matches buyer to seller, although it
does you the extra favor of storing your private keys for you (something a lot
of people don't trust, probably for good reason).

I don't know what external hooks there are that add liquidity, perhaps some of
the other exchanges including the one it owns. Otherwise it would feel more
like an E-Bay auction than a fast-paced market.

If everyone withdraws at once, you'll have 10 sell orders at the same time
that need to be filled 'someplace' on the other side.

If no one wants it anymore, the asking price will have to get lower and lower.
Coinbase shows you some sort of average price, but you can see a list of the
orders put in if you log on an actual exchange like Bittrex. When I saw the
sell and buy orders sitting in a queue waiting to be filled, some low-ball,
etc., things starting to click for me.

The above is what I've gleaned from observation and reading. I could be wrong
- and if there's one thing about this crypto bubble craze, is it's motivated
me to learn about markets/exchanges, money, cryptography, and more. And to
think about this things more abstractly and even critically.

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wereHamster
Replace BTC for EUR, CHF, GBP or any other currency (or even a physical good,
like an ounce of gold) and see what changes. The fact that BTC is a
cryptocurrency doesn't change anything in how trades happen. And the fact that
1BTC used to be 10USD but now is 10k USD is no different than 1USD being
0.95EUR one year ago and 0.85EUR today. The difference is larger, yes, but
that doesn't matter.

~~~
ethagknight
While you may be right, the difference to me, and the main reason why I
originally asked the question, is that USD has the full force and guarantee of
the us government. AAPL has a discounted future cashflow. Gold has industrial,
sentimental and government consensus value. BTC has none of that, just a
consensus of value based on active trades, which (side note) may well be the
best thing about BTC.

I recently sold my little stash of BTC because I just realized that I don't
understand at all what is happening regarding BTC, why it is happening, and
whether it will continue to happen. All this BTC has no where to go but into
other prospective wallets. I also had a sudden concern that there is no reason
to trust Coinbase, let alone the market or BTC in general, and why would I
leave money with people I have no reason to trust and have no means of
penalizing should they fail to honor their terms with me.

The reality, as others point out, is that Coinbase has people dumping real
money into their system to get in on BTC, and thats what Coinbase use to pay
my withdrawal, which is as simple as I could have imagined it. I just dont
know why.

~~~
thedragonslayer
I'm with you ethagknight. Look at my comment below. I think it's a different
ballgame at these prices, counting even more on coinbase that they are doing
the rational things.

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thisisit
I think people forget - Coinbase makes profit in BTC too.

The issue of disbursement might have happened if they were completely USD or
fiat business and the market ran away from them during conversion. But btc
fees has them covered.

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DennisP
Ultimately you don't sell your bitcoins to Coinbase. You sell them to the
people who are buying bitcoins on Coinbase. The point where buyers and sellers
meet is the current price on Coinbase.

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ethagknight
Many thanks to all these responses. I know this question has been hashed out
ad nauseam on HN but given the dramatic rise over the last week, I needed a
reality check that im not missing something. I find this discussion
interesting.

Screenshot of Coinbase quote before the site crashed this morning before price
"fell" "back" to $16,000.
[https://imgur.com/a/FClNZ](https://imgur.com/a/FClNZ)

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joshfraser
That's why Coinbase runs GDAX that caters to large & frequent traders, giving
huge discounts on fees to the people who provide that liquidity for them. They
also run an OTC desk to shuffle funds around in larger quantities both for
themselves and their largest customers.

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bsvalley
Coinbase is just a broker with a bunch of customers. It connects to all the
BTC exchanges in order to execute all their orders. They don't own bitcoins.

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rainforest
Coinbase can use (and runs) an exchange to get liquidity. When a user sells
their coins, Coinbase goes to an exchange and sells them on, taking a cut.

~~~
sk2code
The way things are moving it seems no one is selling and that's what baffles
me. Crypto market is something we have never seen before where people are
buying and not selling that is what is driving the price of Bitcoin.

~~~
Thespian2
Not true. For each buy that happens, there must be a sale. There are _more_
buyers than sellers right now, not no sellers. Each time the price goes up,
that's a sale _that happened_

This is something we've seen many times before. It's not new. It's a classic
bubble where demand (buyers) greatly outstrips supply (sellers).

The big question is _why_. Crypto currencies haven't suddenly gotten more
useful. The current rise is fueled by speculation of the ability to resell at
a higher price.

~~~
mancerayder
I think a large part of the answer is scope. The scope is international, and
the scope of average, retail investors and their ability to do this ... well,
unprecedented. Next, you have a lot of people with a lot of cash, tens, maybe
hundreds of millions of potential people, in China, Korea, Japan, U.S.,
Europe, and so forth.

That's my hypothesis as to the 'unprecedented' aspect to all of this.

What other bubbles are there that were so lightning-quick, vast in geography
and 24/7 operation.

Tulips at least required some sort of hand waving at auctions (presumably) and
some transportation at some point after 'settlement'.

This is as fast as a video game connected to your bank account.

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olivierduval
What is "the market"??? It's only people agreeing to trade... so vendor AND
buyers!! What makes a "market price"? It's the amount that buyers are willing
to give to sellers for something. If there is no buyer (or no sellers ), then
there is no "price", because there is no market. Same if buyers and sellers
cant agree on the price (vendor ask to much) Coinbase is only a marketplace.
So it doesn't have to honor any deposit. It only allows sellers and buyers to
trade

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arisAlexis
Why does this question have so many upvotes?

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egypturnash
Remember: you don't have to do your transactions in whole bitcoins.

I, for instance, had .32btc sitting around on Coinbase and decided to sell it
when the price broke 10k. That got me about $3k.

