

Venture Capitalist Tim Draper Wins Bitcoin Auction - secondForty
http://dealbook.nytimes.com/2014/07/02/venture-capitalist-tim-draper-wins-bitcoin-auction/

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chollida1
Wow, looking at the order book of bitstamp [1] through the eyes of someone who
lives in the world of market microstructure is eye opening:)

There are huge holes everywhere in the order book and the liquidity at each
offering level seems to be completely without reason.

I just spent 20 minutes applying the sort of algorithms that'd we'd normally
run on each stock to make markets in it and it can't detect any real patterns
or justification for the bid/ask levels.

Is this just a case of everyone in the bitcoin market being "unsophisticated"
in the quantitative sense? or is there some new form of market micro structure
being created here?

Thoughts??

 __EDIT __For people asking about what you 'd expect to see:

1) After the initial price level, you'd generally expect the next 10 or so
price levels to be pretty tight. In the bitcoin case some of the spreads
between price levels are larger than the bid/ask spread.

The price levels don't appear to have any logical basis behind why they are
placed where they are.

2) volume at each price level. Similarly to above the volume at each price
level doesn't appear to have any discernible pattern. Typically volumes would
increase at each price level, up to a point, as more people join the market at
each price level.

They don't break out a level 3 quote( order book by order, as opposed to
price) so you can't really see how many orders are backing up each price level
but given how small the volume of many of the price level are you can probably
assume its only one person/order at most levels.

[1]
[https://www.bitstamp.net/market/order_book/](https://www.bitstamp.net/market/order_book/)

~~~
minimax
For more lols check out the trading API. There is no TIF for orders and there
isn't any obvious way to get fills as they occur. I guess you just poll the
api to check for fills but they also say they'll ban your IP if you poll too
often. Nice. Also no mechanism for cancel on disconnect or whatever the HTTP
equivalent of that would be.

Maybe there is some money to be made there, but it's hard to imagine trading
with that kind of tech.

[https://www.bitstamp.net/api/](https://www.bitstamp.net/api/)

~~~
latchkey
The btc-e API is far far worse. Some of the messages are in Russian and some
are in English (randomly). Even worse (and a deal breaker for me) is that the
order id can change underneath you if your transaction is split to fill the
order, so there is no way to tell if your order completed or not. I've talked
to people on Reddit who say they've made it work, but I'd never trust a bot
spending money against an API like that. It's amateur hour when it comes to
these exchanges and their API designs.

~~~
yebyen
That's the same (almost) issue that Mt.Gox supposedly famously had with the
actual blockchain, transaction malleability. I've read that Mt.Gox actually
lost tens of Bitcoins in this way and it was a red herring for the whole
actual giant scam that was perpetrated, but it was still a real vulnerability
that needed patching or working around.

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jordanmessina
The Drapers are quite bullish on Bitcoin. Adam Draper's accelerator, Boost VC,
is investing in 100 Bitcoin companies over the next 3 years:
[http://www.coindesk.com/boost-vc-accelerate-100-bitcoin-
comp...](http://www.coindesk.com/boost-vc-accelerate-100-bitcoin-companies-
next-three-years/)

~~~
cbhl
I'm confused as to why anyone would invest in Bitcoin companies as opposed to
Bitcoins directly. The impression I got was that investing in companies
provided added risks (co-founder separation, business failure, legal risks),
without providing a significant advantage (risk mitigation, upside
multiplication) over just buying Bitcoins directly.

~~~
ghshephard
Bitcoin companies may quickly move to focus on properties of the blockchain
that are not related (and, perhaps more importantly, more profitable), than
the bitcoin currency.

Also, importantly, bitcoins may be extraordinarily profitable for a bitcoin
company, but never increase in value, whereas if you purchased a bitcoin today
for $700, and 5 years from now, the bitcoin was still $700, you would likely
be unhappy.

~~~
meh_master
> Bitcoin companies may quickly move to focus on properties of the blockchain
> that are not related (and, perhaps more importantly, more profitable)

What properties?

~~~
ghshephard
The consensus based global ledger of script based transactions. Bitcoin
currency is just one application of such a system. Others, such as Contracts,
Escrow, Title Assignment have been proposed as well - and the transaction fees
of such might be _much_ more profitable than simply identifying a input/output
of a bitcoin transaction.

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goodcanadian
From the article:

 _“Bitcoin frees people from trying to operate in a modern market economy with
weak currencies. With the help of Vaurum and this newly purchased bitcoin, we
expect to be able to create new services that can provide liquidity and
confidence to markets that have been hamstrung by weak currencies”_

The issue that I take with this statement is that so far, bitcoin is far from
a strong stable currency. I reserve judgment on whether it will ever get
there, but I am not convinced that doing business in bitcoin is currently
safer than doing it in Indonesian rupiah (for example).

~~~
ianpurton
Citizens in countries with high inflation could piossible benefit.

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davycro
Mr Draper states that Bitcoin is badly needed in resource-poor countries with
unstable currencies. How does he expect Bitcoin to compete with mobile
currencies such as M-Pesa?

Thinking about it, I imagine that the advantage of Bitcoin is that it can be
sent globally, whereas M-Pesa type currencies are restricted to specific
countries.

~~~
defo_nonconvex
Isn't M-pesa backed using the country's currency? What logic of what you're
saying sounds like it could imply that "Paypal is it's own virtual
currency"...

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lowlevel
Regardless, he managed to buy without driving the market price up too much.

~~~
dave_sullivan
No, he didn't buy it on the open market as this was essentially a private
transaction between two parties. What it means is there's now someone trying
to sell (instead of hoard) bitcoins worth $what_he_paid_for_it +
%target_return.

That will have an effect on the price, but he's not going to dump them and
drive the price down because he paid a lot for them and wants to make a return
(unless there's some kind of panic in bitcoin and he just says screw it). Kind
of interesting actually.

At the very least, bitcoin is going to be a data driven economists wet dream
for years to come.

~~~
danielweber
Do we know his plan to sell them? It's what I would do, but has he stated his
intent?

~~~
jackgavigan
Well, in TFA, it's pretty clear that he plans to team up with Vaurum "to
provide Bitcoin liquidity to emerging markets."

So, it sounds like he may end up selling them to other people but only as part
of a broader strategy to (and I'm guessing here) make it easier to transfer
money to and from emerging markets.

If that's what he's doing (and bear in mind I'm just guessing here) it's a
very ambitious goal. I used to trade emerging market equity swaps (which
involved hedging FX exposure) and I've worked on international, cross-currency
payments systems for one of the biggest banks in the UK. You need to know what
you're doing when you're playing around in the FX space. You _really_ need to
know what you're doing when you're dealing in emerging markets currencies. I
once lost $16,000 in the space of twenty seconds because I made a single,
simple mistake.

~~~
voltagex_
I've always wondered - what do you do when you lose that much money? What
happens next?

~~~
jackgavigan
You turn to the desk head and say "Boss, I just lost $16,000." and _he_ says
"Don't worry. It's happened before, it'll happen again."

That incident happened just a few weeks into my (short) career as a trader. I
later learnt that everybody makes a mistake once in a while. It's unavoidable.
It becomes a problem if you try to cover it up or if you keep making mistakes.

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test1235
Where does the money actually go after the sale is complete?

~~~
mrb
"Proceeds generated from asset sales are used to operate the AFP, compensate
victims, supplement funding for law enforcement initiatives and support
community programs."
[http://www.usmarshals.gov/duties/factsheets/asset_forfeiture...](http://www.usmarshals.gov/duties/factsheets/asset_forfeiture-2014.pdf)

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skizm
Anyone see for how much?

~~~
mkngrm
No exact figures have been released, but based on other bidder's input, the
assumptions are that his bid was well over the market price.

~~~
phantom784
I'm surprised. What would be the reason to pay more than the market rate to
get these coins?

~~~
pmorici
If he had bought that many on the open market it would have driven the price
up by a large amount. Just go look at the current order book on Bitstamp.net
one of the major exchanges. There are only about 5k coins on offer and many of
those are for prices well above market.

[https://www.bitstamp.net/market/order_book/](https://www.bitstamp.net/market/order_book/)

~~~
hueving
That's a terrible indicator. Unless the guy was a complete moron, he wouldn't
just submit an order to the market to buy 30k coins at the market price. It
would be trickled over the process of a couple of weeks.

By your same logic, the coins he bought are hardly worth anything because if
he tried to sell them it would just crash the price. There is only about 5k
worth of buy orders in the book at the moment.

In fact, if he paid above market price, it would be in his interest to make
sure the number got 'leaked' to encourage rampant speculation to drive up the
price beyond what he paid.

~~~
pmorici
Yeah, that's the point. You would have to go through a lot of work slowly
buying coins over several weeks to get to 30k and even then it would affect
the price. So it makes sense to bid a little high and get them all in one go.

~~~
hueving
What 'work'? It would be trivial to just keep setting small orders until you
reach your target. With how volatile bitcoin is there is no reason to chase
the price up.

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fdsary
So there was a press conference about this. It was streamed somewhere.

If anyone has a torrent of the video I'd love it's url! Thank you very much

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tomlongson
Building on the momentum of mainstream adoption and giving access to emerging
markets, GogoCoin (500 Startups) is working to get Bitcoin and digital cash
into everyone's hands.

I applaud Tim Draper and all the other notable bidders who help push Bitcoin
one step closer to Wall Street and the mass market.

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mandeepj
how it is different to mine your own bitcoins rather than buying from market?
Who decides and based upon what factors - how many coins you can mine?

~~~
arg01
To simplify: Bitcoin miners race to discover a code that gives them 50
bitcoins. This code gets harder to find each time it is found. This decision
is pre-baked in using the bitcoin system (other e-currencies have different
traits.)

If you join a mining pool then you split the 50 coins with everyone else in
the pool (and they'll split with you) if you are the lucky machine than found
the code.

The analogy is pretty direct: mining is the same as going and doing work to
dig up gold, buying from the market is the same as buying gold in the market.

~~~
jc123
The current coinbase reward is 25, not 50, bitcoins. Halves every 4 years.

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BorisMelnik
anyone have any clue what some of the highest bids were?

~~~
r0m4n0
It's interesting that they didn't communicate the amount and I haven't found
any sources that provide one. You would think there would be more transparency
seeing that the money is going into the government's pocket.

Someone should submit a freedom of information request...

~~~
n6mac41717
The FAQ
([http://www.usmarshals.gov/assets/2014/bitcoins/faqs.pdf](http://www.usmarshals.gov/assets/2014/bitcoins/faqs.pdf))
specifically says they will not disclose. I guess if someone really wants the
information, they will challenge this intention. I find it interesting that it
was leaked that 1 party won the bid--that seems in contradiction to the
above...

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robertlf
Yup, the rich get richer.

~~~
oafitupa
Everyone can get richer now thanks to Bitcoin. Not rich? Doesn't matter, just
buy $10, $100, or whatever you can spare.

