Does Bitcoin Need a Central Market Maker?

The digital currency, Bitcoin, needs world-class marketing making. That’s what RT’s popular TV host, Max Keiser, told millions of viewers around the world yesterday. After we watched Mt.Gox suffer a DDOS attack these last few weeks that led to Bitcoins dropping over $100 in value–the idea of trying to weed out crazy volatility swings through an added layer of market making might not be a bad idea. Keiser even breaks news on his show that Cantor Fitzgerald, a broker dealer, is secretly working on this.

You see Cantor bought a virtual market maker tech platform from Keiser many many years ago when he owned the Hollywood Stock Exchange with Michael Burns of Lionsgate. The U.S.-based brokerage firm could use Max’s virtual specialist technology to create a trading market in about anything. Right now it looks like they’re trying to figure out how to make money off the platform trading Bitcoins.

I am not going to bother asking Cantor to confirm if they are going to jump into the new-new world of Bitcoins because when I interviewed them in 2007 at Trader Monthly Magazine for a story on the Hollywood Stock Exchange they told me Max’s technology had been lost when their New York office was blown up in the 9/11 bombings. I found out later this was a lie. Cantor had the root technology Max had created and then added a few bells and whistle to it so they could back out of paying him and claim it was their own tech platform. It was typical back-stabbing dirty-deal making on Wall Street that Max eventually just gave up trying to collect on.

I don’t think the boys at Cantor are the right group to touch anything having to do with Bitcoin. But I like Keiser’s idea of finding one group or firm to help buyers and sellers of the digital currency find true price discovery the moment they want to make a transaction. Right now with more than one Bitcoin exchange we end up with these incredible spreads. I’ve written at Bitcoin Magazine last month about hedgies getting excited to make large block buys of Bitcoins through Coinlab’s new exchange. So we know the institutional money has arrived. Problem is these hedgies are setting up limit trades on buy or sell orders to buy at say anytime Bitcoin goes below $100. Since Bitcoin’s price depends on the number of buyers and sellers coming to a market at one time this creates an opportunity to screw up the price. Or to put it a nicer way you rarely ever buy or sell a Bitcoin at true market price. That’s why Max thinks we need a specialist, like they still have on the floor of the NYSE, to step in and buy when there is a mismatch of Bitcoin buyers and sellers.

Keiser told millions of his viewers “The exchange piece of the Bitcoin formula is its weakest link right now.”

Still even without a market maker in place, we are seeing record jumps in new people signing up to trade Bitcoins at Mt.Gox – the exchange blamed for forcing the price of $BTC to nose dive. Stacy Herbert told the Keiser Report yesterday in March Mt.Gox had 60,000 new clients. As of this week they are taking in 20,000 new clients a DAY! Stacy also gave us some damn funny history on Mt.Gox which stands for – Magic the Gathering Online Exchange. The exchange is based out of Japan and actually started out trading ‘Magic the Gathering Cards’ for cash. If you need a laugh I highly recommend watching Stacy explain this on the show.

People who write about finance, like me, are often prone to pigeon-hole a new asset into a type of group. There is a huge debate now on if Bitcoin is a commodity or a currency. My friend Josh Brown, at The Reformed Broker, laughs at anyone who calls Bitcoin a currency.

I started reporting on Bitcoins last year for Bitcoin Magazine because I was fascinated with any non-government controlled product that could possibly take away transaction fee revenue from our Too Big To Jail banks. Marc Hochstein, editor at American Banker, was also early in getting his team to write on the effect of how the Bitcoin Market could hinder bank revenue and change the way we transfer money. I don’t think either Marc or I have wanted to classify if Bitcoin is a commodity or a currency and Max points out on his show it doesn’t have to be. It’s simply a new asset class. One he says asset managers in London are now coming to him to learn how they should invest in it. Think about that–sophisticated money men in London need a TV journalist to help invest because he’s been the only TV jurno to learn and report on the Bitcoin market for over two years now.

Still if your going to trade Bitcoins, or hold them for a long-term investment, you have to understand why even the feds are now calling Bitcoins MONEY. Max got one of Bitcoin’s top entrepreneurs, Tony Gallippi of Bitpay, in an exclusive TV interview to explain Bitcoin’s intrinsic value. Tony ask us to think about it this way. What gives any type of money value? It’s utility – what can you buy with it and how many people/places can you make that transaction with. I’m not going rewrite Max’s great interview with Tony here so watch the show. It’s worth it.

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Comments

  1. Teri
    I know you’re as much a regular on the Keiser report as I am a viewer, supporter and commenter, but I find myself quite disturbed by this particular episode. Max presents a host of conflicting, perplexing and incongruent statements that seemed almost Orwellian in content and meaning. I am trying hard to understand both Max’s logic on this issue and your support for that logic. As I have stated on Max’s forum and elsewhere, it is because of the decentralisation and lack of a “Market Maker” that makes Bitcoin Unique and desirable. Price discovery as I see it is near perfect, I want to sell at X, someone will buy at X, a sale or exchange is made. We don’t need a “Fat Man” market maker. That just seems like a reinvention of the Fedral Reserve.

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