HN Explorer

What if a bulk of Bitcoin owners all try to cashout today?

10 points by ashitlerferad ↗ HN
Where's all this invisible money gonna come from?

On 26 October 2013, a Hong-Kong based bitcoin trading platform owned by Global Bond Limited (GBL) vanished with 30 million yuan (US$5 million) from 500 investors.[204]

Mt. Gox, the Japan-based exchange that in 2013 handled 70% of all worldwide bitcoin traffic, declared bankruptcy in February 2014, with bitcoins worth about $390 million missing, for unclear reasons. The CEO was eventually arrested and charged with embezzlement.[205]

On 3 March 2014, Flexcoin announced it was closing its doors because of a hack attack that took place the day before.[206][207][208] In a statement that now occupies their homepage, they announced on 3 March 2014 that "As Flexcoin does not have the resources, assets, or otherwise to come back from this loss [the hack], we are closing our doors immediately."[209] Users can no longer log into the site.

Chinese cryptocurrency exchange Bter lost $2.1 million in BTC in February 2015.[210]

The Slovenian exchange Bitstamp lost bitcoin worth $5.1 million to a hack in January 2015.[211]

The US-based exchange Cryptsy declared bankruptcy in January 2016, ostensibly because of a 2014 hacking incident; the court-appointed receiver later alleged that Cryptsy's CEO had stolen $3.3 million.[212]

In May 2016, Gatecoin closed temporarily after a breach had caused a loss of about $2 million in cryptocurrency. It subsequently relaunched its exchange in August 2016 and is slowly reimbursing its customers.[213][214]

In August 2016, hackers stole some $72 million in customer bitcoin from the Hong-Kong-based exchange Bitfinex.[215]

In December 2017, hackers stole 4,700 Bitcoins from NiceHash a platform that allowed users to sell hashing power.[216][217] The value of the stolen bitcoins totaled about $80M

HYDN

19 comments

[ 3.1 ms ] story [ 48.5 ms ] thread
Aron
A rush for the exits at 10 global transactions per second, or about the rate of Visa transactions in a Manhattan city block at lunch time.
ashitlerferad
You can't make all the invisible money visible all at once. :)
zxcmx
This is hilarious but not at all accurate since BTC to USD is traded on exchanges and not on the blockchain.
bryanbuckley
Don't think any exchanges allow you to email them your private key to credit your trading account :(
grael
What do you mean by cash-out? You need to find people who are gonna buy these bitcoins from you for their cash.
riston
Well, the same thing happens with banks.
zxcmx
The same thing that would happen if the bulk of AAPL shareholders tried to cash out.

A new price would be discovered.

ashitlerferad
We'll see shortly.
zxcmx
Yes. Personally I think people are underestimating the utility of a new asset class that's not london apartments or fine art for rich people to park their money in.
mcphage
> A new price would be discovered.

That's wonderfully understated :-)

cdancette
You seem to ask three different things here :

- what happens when everyone tries to cash out?

-> a crash. Bitcoin value will drop very fast.

- where is all that money coming from?

-> it's coming from people buying exchanging Bitcoin against other currencies.

- not sure why you cite all those thefts. Are you trying to ask why there are such huge thefts? Bitcoin is still young and companies don't have strong regulations like banks, so they might be less secure. This will be better with time.

Daviey
What happens if all gold is sold today?

I believe estimates are that there are 150,000-180,000 tonnes of extracted gold in the world.

Lets say that is forty million US dollars per tonne.

Where does all the invisible money come from?

divbit
I am going to hold my $3 of bitcoin forever. To the moon!
thisisit
So much going on here.

> What if a bulk of Bitcoin owners all try to cashout today?

What happens during a bank run?

https://www.investopedia.com/terms/b/bankrun.asp

The chance of bank default rises. Something similar will happen.

> Where's all this invisible money gonna come from?

Bitcoin addresses are public. Recently there was a panic when a supposed whale moved 10k, I remember correctly to an exchange.

> Hacks

Well, this adds an interesting angle to the whole topic. Most of the hacks don't mention suspected bitcoin addresses. So, a hacker can run the coins through a tumbler to get "clean" bitcoins.

For the nicehash hack, this is the suspected account:

https://blockchain.info/address/1EnJHhq8Jq8vDuZA5ahVh6H4t6jh...

The coins are still in the account, unmoved. So, whether these guys can get the "hidden" bitcoins and cause a crash is an interesting topic to think about.

ubersoldat2k7
I think that what OP means is, where is all the real currency people have paid for BitCoin, how are those assets guarded and how fast of a conversion from all BitCoins to currency would take.

As I understand, you would need an exchange house, who receives real currency, and puts it somewhere (bank accounts, investment funds or other financial structures) from which the exchange (BTW, who controls the security of these exchanges, how much of cash [like banks] they should have?) cannot cash out immediately.

So, if 10 guys with 100BTC go to an exchange, and trade their BTC for Euros and the exchange doesn't have the amount of Euro to exchange, what would happen?

tga
You are mixing two separate things. If the bulk of Bitcoin owners were to try to sell all at once, most wouldn't have anyone to sell to, and the price would go way down. This has nothing to do with exchanges (although at increased load probably most of them would experience outages).

The second question is whether most exchanges would be capable to transfer out all bitcoins they are currently storing for customers (a "bank run"). As far as I know, exchanges aren't supposed to be running a fractional reserve system, so they theoretically shouldn't have a problem with this, given some time to get data out of cold storage. Indeed, like banks a while ago, if they did manage to lose (or spend/steal) a part of the amount they are storing, they would simply go bankrupt at this point.

teilo
It's pretty simple really. The price would drop precipitously and start a selling frenzy as people try to preserve their investment.

Unlike the exchanges, you can't close down Bitcoin if there's a run on the "bank," And unlike the banks, Bitcoin could only recover based purely on market forces.

Well, to be sure, various governments could step in to control the cash exchanges, but that is far more difficult with e-coins.

It would actually be fascinating to watch (from my perspective), because without the possibility of central banks or governments stepping in to control the bleeding, we would see what an entirely unregulated market would do in such a circumstance. It would certainly give the economics PHDs something to write about.

lmlsna
You can't sell a Bitcoin without a buyer, that's how exchanges work. If there is large sell demand, the price gets pushed down.

It would behoove a larger holder not to sell all at once as this would certainly send the price downward. But at the moment, there is pretty clearly sufficient demand for even the largest holder to dump everything over the course of a week without setting off a panic. Normal average volume is 100-500k BTC/day.

But to answer your question, the price would plummet, and new entrants would eagerly buy, that's where the money would come from.