After buyers snapped up $7.8m worth of bitcoins that were selling for $300 each on exchange Bitstamp on Monday, bitcoin’s price appears to have found a hard floor in what has been a largely unpredictable trading period recently.
On Sunday, bitcoin’s price dropped through the 18-month average purchase price of $337.60, signalling uncertainty to many traders in the market. Then, in the early hours of the Asian morning on Monday, a sell order of 26,000 BTC at $300 that was placed on exchange Bitstamp brought a temporary halt to the volatile price and narrowed bid-ask spreads between the four exchanges in CoinDesk’s Bitcoin Price Index (BPI).
By the time of the European morning however, buyers had snapped up the entire order and the BPI jumped up into the low-to-mid-$320s.
“When the sell order for 26,000 BTC came onto Bitstamp, the price dropped from $317 to $300 in two seconds. I’ve just bought back in now that block has been lifted,” said Adam O’Brien, CEO of BTC Solutions, a Canada-based provider of ATM exchanges and leveraged trading services for bitcoin.
Investor tactics
O’Brien said that Monday’s unprecedented BTC offer on Bitstamp was most likely a single investor looking to artificially move the price lower and buy back bitcoin later at a reduced price, probably in the early $200’s.
Instead, buyers swarmed the offer. For market participants, the recent volatility has presented a welcome opportunity to make big sums of money trading bitcoin in large volumes, mostly through the practice of arbitrage trading or by taking fees for providing trading enhancements such as BTC Solutions’ leveraged product offering.
With this offering, and for a cost of 0.3% per day, buyers and sellers can obtain immediate execution on trades for as much as eight times their nominal investment. In the one-week period, as prices have fluctuated from a high of $384 to a low of $290.83 on the BPI while exchange volumes have cooled off, traders have positioned themselves in over-the-counter (OTC) markets among various regional counterparties with different supply and demand preferences. This enables them to capture the impacts of the see-sawing drop in bitcoin’s market capitalisation.
One of the largest OTC traders in the market right now is Heinrich Vollmer, a London-based trader who has been offering sellers of quantities of 10 BTC or more an 8% premium to the BitcoinAverage price throughout the past month.
You are Not Bullish on #Bitcoin? You can sell your #btc for +8% on top of bitcoinaverage price,I’ll buy them today max 300btc min10 #btc — Dr. Heinrich Vollmer (@BTCMarketMaker) October 6, 2014
As a result of the uncertain conditions, Heinrich said trading volumes for his sell-side service have skyrocketed. In the period from 29th September to 4th October, Heinrich handled purchases of 4,210 BTC at the premium price, which is currently the highest offer price in the bitcoin market globally.
Then, on Sunday 5th October, Heinrich bought over 1,300 BTC from both individual sellers and a combination of overseas miners and a top three Chinese exchange that wanted fast liquidity to service its increasing sell-side transactions.
Vollmer added that the previous week represented the first time in a seven-day period when the volume of purchases he made that came via Twitter users topped 1,000 coins.
“The increase in OTC volumes particularly on Sunday gels with a lot of the activity we are seeing over here too,” said Ron Hose, CEO of Coins.ph, an exchange and wallet service in the Philippines, which has just opened a sister service in Thailand.
Bitcon for remittance
Hose explained that, for the many Asians who work overseas and send money back home, bitcoin is increasing in popularity since individuals have until now had to fork out large sums for services such as Western Union to transfer money between borders. Bitcoin makes these costs obsolete, Hose explained.
Due to the lack of available financial services providers open over the weekend periods in their home markets, OTC services can be appealing to these investors, said Hose. As the price has continued to decline, exchange-traded volumes have dropped as many buyers and sellers have instead chosen to enter into OTC transactions with buyers such as Vollmer or on a peer-to-peer basis.
In the previous seven-day period, volumes averaged around 30,000 BTC per day, according to data supplied by Bitcoinity, which relies on exchanges to report their own numbers. That amounts to just half the amount of volume they have received on their best days over the past month and indicates a return to the volumes of trading seen over the summer period.
Vollmer expects bitcoin’s price to rise soon and points out that the small premium he offers his high volume clients stabilises moves to the downside while it also gives those who are uncertain about bitcoin’s prospects a fairer opportunity to get out.
“I will continue to buy into bitcoin, paying an 8% premium on top of current market rate for volume sellers,” said Vollmer in an email. “Why? Because I see that the BTC price is in for a turnaround.”
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Original author: Daniel Mark Harrison