Monday, 19 August 2013

Is Something Going Down at MtGox...?

Regular followers of this blog will know that we called a buy trade on Friday against support @ $108 (using MtGox's price data).  Earlier today MtGox was quoting $114 and over the last 4 hours the price on this exchange has surged North to tag $120.  In fact we have been as far up as $124.

Ordinarily this would be a cause of celebration for Bitcoin holders that trade through MtGox, or a derivative product (like BTC.sx) that tracks the MtGox market.

However, it is becoming impossible to ignore the fact that NONE of the other major bitcoin exchanges are following the MtGox price up.  Indeed, at the time of writing everyone else is quoting around par (USD100 per bitcoin). In other words the spread between Mt Gox and everyone else has widened to around 20 per-cent.

If this were a broad based rally you would expect to see all the exchanges rise together.  Indeed, given the price disparity going into the day, you'd expect to see the spread between MtGox and everyone else narrow as folk took the opportunity to buy their bitcoin from the cheaper exchanges at a discount (to MtGox).

Clearly, however, this is not happening and when you consider this fact against the deepening reported dissatisfaction of MtGox's customers with respect to the difficulty they are experiencing in the repatriation of their funds from this exchange, you begin to wonder...

For example, if this rapidly widening spread and underlying dissatisfaction are indeed linked, then what we might be witnessing is a situation in which increasingly frustrated depositors of fiat at MtGox are prepared to convert to bitcoin - even at inflated prices - as a means of repatriating their capital by the fastest means possible.

We stress that this is only one potential scenario. We have no inside line here and certainly no axe to grind. We also note that as the largest exchange, MtGox has always led the rest of the market in terms of both volume and mark-up.

But what we can say for sure is there is currently a significant and widening price distortion between MtGox and the other bitcoin exchanges. Ordinarily this would present the mother of all arbitrage opportunities, but in this case we feel that caution may be a better policy, as we watch to see how this shakes out.

Just sayin'...

By Rob @ BitScan