It is in fact not the case that there is a single exchange on which IBM trades (it is listed on the NYSE, CsE, and at various places abroad). Liquidity factually does exist in different amounts at different places; this is a major reason why HFT works.
Bitcoin is volatile because it has a small float, terrible market infrastructure [1], a relatively unsophisticated set of traders, a Wild West of market manipulation [2], and no fundamentals to get in the way of wild gyrations.
[1] The biggest Bitcoin exchange presently is functionally incapable of transacting in dollars.
[2] As one of many things that could be said here, the biggest Bitcoin exchange earns commissions in Bitcoin and then “dollarizes” then by selling the Bitcoins on their own exchange, to their customers.
> It is in fact not the case that there is a single exchange on which IBM trades (it is listed on the NYSE, CsE, and at various places abroad). Liquidity factually does exist in different amounts at different places; this is a major reason why HFT works.
He says "single ledger" which I think alludes to the NBBO rule in a normal stock sale. Brokers are required to guarantee that customers get best prices while buying/selling. So they aggregate prices from all the exchanges, at least in US, and present it to the customers. When the trades are placed while they might be routed to exchanges for execution but they are effectively working as a single market.
Bitcoin volatility has lot of problems, a lot of them due to market micro-structure. There is also no dedicated market maker because the risk in bitcoin deal making would be huge.
What you say is mostly correct but the undertone "wild west", "unsophisticated", "manipulation", etc fails to address the point because that is true of most hedge funds as well.
While the described effect might not be the most important reason why bitcoin is changing its value so rapidly, the effect was visible during the past week after bitcoin past the 10k USD mark.
Basically you simulate the sale based on the order book. Let’s say the order book contains the following bids ordered by price:
Person A wants to buy 10 coins for 100 dollar
Person B wants to buy 4 coins for 97 dollar
Person C wants to buy 3 coins for 96 dollar
etc
Now someone wants to sell 12 coins, he will sell 10 coins to person A and 2 coins to person B. The order book will now look like this:
Person B wants to buy 2 coins for 97 dollar
Person C wants to buy 3 coins for 96 dollar
etc
Before dumping the 12 coins you could sell a coin for 100 dollar, after dumping you can sell a coin for 97 dollar. You could say the price has dropped 3%. Obviously this is a very naive calculation, but it should give you the basic idea.
perhaps, the uprise of derivatives like LedgerX, Deribit as well as the recent CME decision will increase market efficiency and help us better to understand the underlying bitcoin market
Bitcoin has a somewhat arbitrary denomination. What is the ratio of information transfer in 1 bitcoin versus a half of a coin? The answer is ....close to 1. How about 1 Satoshi? Well, gas fee needs to be a fraction of the payment, so 1 Satoshi is close to 0 utility. How accurate does gas payment need to be? Well, for starters, gas payment seems to be a fixed fee of the payload, not a ratio of the amount sent. Lets analyze this.
Higher fiat pinnings allow for higher remittance transfers using less coins, but ultimately the same network resources (mining.) How do most regular people buy coin, do they bargain? No, they just buy $500 or however many dollars IN BTC and take whatever ratio is given to them. This is because stock does not come in fractional amounts...but BTC does. Meaning there is a stabilizing force in the form of common people "settling" for a small piece at their desired fiat amount.
In summary, until Bitcoin hits amounts close to 10^5, the Satoshi as the smallest sendable amount, 10^8 coins, continues to provide close to the same amount of utility, whether you are sending 1000 satoshis, or 10 bitcoins.
Bitcoin is volatile because it has a small float, terrible market infrastructure [1], a relatively unsophisticated set of traders, a Wild West of market manipulation [2], and no fundamentals to get in the way of wild gyrations.
[1] The biggest Bitcoin exchange presently is functionally incapable of transacting in dollars.
[2] As one of many things that could be said here, the biggest Bitcoin exchange earns commissions in Bitcoin and then “dollarizes” then by selling the Bitcoins on their own exchange, to their customers.