BitThink
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February 07, 2014, 03:22:56 AM

PS. Still hypothetically speaking, suppose that you own an exchange and your clients have entrusted you with 100.000 Bitcoins.

Suppose further that the Bitcoin price is 100$ and has been stable for a while.

Thus your company's current assets include a pile of bitcoins worth 10 million $.  But that is a totally unproductive asset, like having a pile of cash locked in a safe.

So you decide to sell most of those coins at other exchanges and invest the money into stocks or something that will yield a return.  You take care to leave a reserve in a "hot wallet" for the occasional withdrawals. You also pick an investment that can be quickly liquidated, so that you can buy back the coins you sold if the hot wallet is not enough.

But then there is a big unexpected  rally, and the Bitcoin price eventually stabilizes at 800$.   

Some of your clients eventually want to withdraw their bitcoins; some sell them at your exchange, for 800$, and want to withthdraw the money.

Either way,  you now owe 80 M$ to your clients, but still have only 10 M$ invested in stocks...

It's impossible to sell your most BTC in other exchanges without crashing the market.