> Buying when the customer orders, rather than when the ACH clears, does create a risk if the price plummets.
It creates a risk either ways, it's just that different parties take ownership of the risk.
> But buying only when the funds clear creates a risk when the price skyrockets. It makes it harder to ever please customers with an 'honored price' that's lower than when the BTC arrives.
Actually you're complicating it more than necessary. There is no reason for coinbase to execute a market order as soon as the funds clear. They can simply let a customer make an informed decision, and decide if they want to buy at current market rate (market order) or using a limit order which will be executed internally if a customer tries to sell lower or will be filled on the exchange if the exchange reaches fills the order first.
This practice has existed for decades, whichever order is filled first simply cancels the other order.
This is also completely fair and very acceptable. Buying first waiting and waiting for the transfer to clear is not and will never be an good choice.
> Also, any whiff of a two-step process, where the customer reconfirms the buy-intent at funds-clearing, would put Coinbase closer to holding $USD balances for customers. That's something that I suspect, as a regulatory matter, they would rather not do. A single irrevocable 'buy' with delivery some time later (at either a locked-in or a floating price) is closer to the e-commerce transactional pattern they'd prefer.
I can see why this would be viewed as the only choice. Unfortunately as I have stated in another thread, when trouble from regulator begins they will get classified as akin to a financial institution anyways. When this happens they'll have more trouble due to the misrepresentation.
> Otherwise, they look more like a money-transfer/foreign-exchange/banking/daytrading outfit.
Again, I can see where you are coming from, but this doesn't mean the law will see them as anything but a money-transfer/banking/daytrading outfit as they fit the definition most of these in totality and a few (day trading) loosely. I left out foreign-exchange as this one is the only one they are safe from, until/unless BTC gets reclassified from a security(it meets SECs definition requirements) to a currency.
> Despite the last 2 weeks, BTC has had more total upswing than downswing – going over its history from $0 to $hundreds in value. So, buying early likely will have won more often than lost, for Coinbase and its customers.
On first glance this may seem like a likely observation, but it is unfortunately misguided (no offense intended). Unfortunately people give too much credence to the notion that past behavior dictates future movement and forget to compensate for lack of sample data and =/- effects of things such as spreads, volume, volatility etc.
If there is a single profound lesson I can impart about this topic it would be "buy low sell high" only works for short-selling, albeit in reverse order ("sell low buy lower") but for most traders, investors and speculators they should learn that the true lesson to remain profitable in any trade is to "buy high and sell higher". This is simply calculated using momentum previous x day momentum. Preferably between 10 to 20 days. You could use a higher number but it would be too late to enter or exit or a lower that would enter and exit too often.
I can talk endlessly on this topic and its importance in all entrepreneurial/business/trade endeavors, but I digress.
> Calling that approach 'simply stupid' and 'simply insane', without having considered the real risk and regulatory factors affecting their business is silly.
I agree with your prognosis, I do have a bias that I failed to consider. But unfortunately, if this was the only solution to avoid the paperwork, auditing and additional responsibilities that would come from acknowledging that the business practices are similar to those of a financial institution, they are unfortunately doing something pretty insane and simply stupid. There is no way this will not drive them to hurt themselves and their users.
Its just the fact that has been proven time and time again, if the US regulators decided you fit the definition of a financial institution even loosely then they will deem you and prosecute you on past transgressions accordingly.
In the eyes of regulators here "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck", no exceptions considered.
Again, I don't know why you think you know better than Coinbase what they should or should not consider. I suppose I am a little biased against this kind of behavior. I run an online business and we occasionally have customers/others ranting about what we should or shouldn't do, as if they have any idea what goes on behind the scenes or what went into our decision-making.
I get your point and they may well have to face regulatory matters when regulation catches up with Bitcoin in general. But, for now, they seem to have some guidance as to how they need to structure their processes to sidestep current regulations and precedent. Anyone who has experience with legal issues knows that the law is often gray. So, to wade into such waters, firms must rely on precedent and their good sense to guide them. It is a calculated risk, wherein the word reasonable becomes important. Whether they should be classified as an MSB or financial institution will be a finding based on facts. They need to line up as many facts in their favor as possible and not keeping funds on deposit or allowing limit orders works in their favor. Likewise, the timing of the trades matters. If they buy and hold the commodity, then sell it immediately upon funds clearing, then it is substantively different from taking the buyer's funds first, then selling. The former is more akin to selling a commodity they own. The latter is brokering the transaction with the buyer's funds and is dangerously close to holding deposits (if only for a brief time). If you think there is no material difference, you're wrong. In fact, part of the difference is in what you've been demomizing them for: that is, the fact that Coinbase is taking on the risk in the former scenario.
So, I don't think you can make the statements you're making so definitively, nor do I think you should assume that you have thought this through more carefully than those who are running the company.
Some point taken and agreed with to an extent. Would have edited some of my older comments to declare the biases but was to late to edit; mentioned them in two comments a couple of hours ago.
Bias declared in [0] and mistake acknowledged in [1].
> I don't think you can make the statements you're making so definitively, nor do I think you should assume that you have thought this through more carefully than those who are running the company.
That statement is flawed under the same premise that the author is calling me out for, maybe to a greater extent. There is no way for the author to prove or disprove that I can or cannot make these statements due to the lack of experience, thought or knowledge within this domain.
>That statement is flawed under the same premise that the author is calling me out for, maybe to a greater extent. There is no way for the author to prove or disprove that I can or cannot make these statements
Not really. My statements were not definitive declarations based on my opinions, nor were they refutations of demonstrable facts (ex. how Coinbase works). Yours were. Even if you have knowledge of the domain, it does not mean that you understand Coinbase's business better than they or are solely and eminently qualified to predict the future regulatory environment, etc.
BTW, in stating that I cannot "prove or disprove that you can make these statements", you are asking me to prove a negative. The onus is on you to show why you know better than Coinbase. So far, you have not done so.
It creates a risk either ways, it's just that different parties take ownership of the risk.
> But buying only when the funds clear creates a risk when the price skyrockets. It makes it harder to ever please customers with an 'honored price' that's lower than when the BTC arrives.
Actually you're complicating it more than necessary. There is no reason for coinbase to execute a market order as soon as the funds clear. They can simply let a customer make an informed decision, and decide if they want to buy at current market rate (market order) or using a limit order which will be executed internally if a customer tries to sell lower or will be filled on the exchange if the exchange reaches fills the order first.
This practice has existed for decades, whichever order is filled first simply cancels the other order.
This is also completely fair and very acceptable. Buying first waiting and waiting for the transfer to clear is not and will never be an good choice.
> Also, any whiff of a two-step process, where the customer reconfirms the buy-intent at funds-clearing, would put Coinbase closer to holding $USD balances for customers. That's something that I suspect, as a regulatory matter, they would rather not do. A single irrevocable 'buy' with delivery some time later (at either a locked-in or a floating price) is closer to the e-commerce transactional pattern they'd prefer.
I can see why this would be viewed as the only choice. Unfortunately as I have stated in another thread, when trouble from regulator begins they will get classified as akin to a financial institution anyways. When this happens they'll have more trouble due to the misrepresentation.
> Otherwise, they look more like a money-transfer/foreign-exchange/banking/daytrading outfit.
Again, I can see where you are coming from, but this doesn't mean the law will see them as anything but a money-transfer/banking/daytrading outfit as they fit the definition most of these in totality and a few (day trading) loosely. I left out foreign-exchange as this one is the only one they are safe from, until/unless BTC gets reclassified from a security(it meets SECs definition requirements) to a currency.
> Despite the last 2 weeks, BTC has had more total upswing than downswing – going over its history from $0 to $hundreds in value. So, buying early likely will have won more often than lost, for Coinbase and its customers.
On first glance this may seem like a likely observation, but it is unfortunately misguided (no offense intended). Unfortunately people give too much credence to the notion that past behavior dictates future movement and forget to compensate for lack of sample data and =/- effects of things such as spreads, volume, volatility etc.
If there is a single profound lesson I can impart about this topic it would be "buy low sell high" only works for short-selling, albeit in reverse order ("sell low buy lower") but for most traders, investors and speculators they should learn that the true lesson to remain profitable in any trade is to "buy high and sell higher". This is simply calculated using momentum previous x day momentum. Preferably between 10 to 20 days. You could use a higher number but it would be too late to enter or exit or a lower that would enter and exit too often.
I can talk endlessly on this topic and its importance in all entrepreneurial/business/trade endeavors, but I digress.
> Calling that approach 'simply stupid' and 'simply insane', without having considered the real risk and regulatory factors affecting their business is silly.
I agree with your prognosis, I do have a bias that I failed to consider. But unfortunately, if this was the only solution to avoid the paperwork, auditing and additional responsibilities that would come from acknowledging that the business practices are similar to those of a financial institution, they are unfortunately doing something pretty insane and simply stupid. There is no way this will not drive them to hurt themselves and their users.
Its just the fact that has been proven time and time again, if the US regulators decided you fit the definition of a financial institution even loosely then they will deem you and prosecute you on past transgressions accordingly.
In the eyes of regulators here "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck", no exceptions considered.