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I am curious about how to acquire a lot of bitcoins (or similarly move a lot of bitcoins) without hitting the bid/ask

I don't care about blockexplorer, I am just curious about price discovery

are there any darkpools? could I just use an illiquid exchange and personally contact the counterparty and have them take the trade

options would be good too, this would make acquiring bitcoins at a certain strike easier as this is already a negotiation between the person on the other side of the contract

  • As far as i know, you can't. Bitcoin is too young, there's no dark pool for now. – user342 Sep 11 '11 at 12:37
  • Some exchanges, like Mt. Gox, do offer dark pools. – Michael McGowan Sep 11 '11 at 18:29
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    ... and those dark pools still move the market (even though it is less visible) – Thilo Sep 11 '11 at 23:45
  • This smells like investing advice to me. – eMansipater Sep 14 '11 at 1:26
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    false, mtgox used to had drk pools two years ago, but there are no more dark pools on mtgox for months or years – neofutur Apr 17 '13 at 18:40
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It won't work, no matter how you do it. If you acquire a lot of Bitcoins, that will mean that a lot of people who wanted to get rid of their Bitcoins no longer want to get rid of their Bitcoins. Thus, they will stop supplying them. The reduction in supply will move the bid/ask prices. It's fundamental economics and you can't change it.

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    I'm pretty sure I could negotiate with a seller on the other side of the exchange to put out a bid for X amount in an illiquid exchange and I take the other side of it. Why would this not work? Also an option does this exact same thing in a standardized contract. – rd. Sep 10 '11 at 23:31
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    It would work, but it will still move the bid/ask. The seller you negotiate with is now no longer a seller (at least with respect to those coins). Removing a seller reduces the supply of Bitcoins. The bid/ask is directly controlled by the supply of and demand for Bitcoins. So your transaction would change the supply (reducing it) and thus raise the price. – David Schwartz Sep 10 '11 at 23:32
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    So what are the dark pools for? I thought they were meant to do high volume trades without moving prices. Some exchanges offer them (CampBX and maybe MtGox, I'm not sure) – nmat Sep 11 '11 at 1:03
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    The dark pools are used to protect your trading strategy from being easily visible before you trade. Anyone who tells you that executing trades on a dark pool has a different effect on the market is selling snake oil. (For example, if you're willing to buy 50,000 Bitcoins at $4, that tells people Bitcoins are unlikely to drop below $4 soon. You may not want people to know that because they can trade on that basis and break your strategy.) – David Schwartz Sep 11 '11 at 1:08
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There is a way to acquire a lot of bitcoins without immediately affecting the price, and that is to buy mining equipment or contracts. Depending on the value of bitcoin and the cost of your contract, you may be able to acquire bitcoins for about the same amount as you would if you bought them on the open market, however, you would not acquire them instantly.

There are obviously other factors to consider when using this strategy.

  • That should have no effect on supply. The supply of Bitcoins is kept steady by the algorithm. Theoretically, you could increase the demand slightly, but I think this is actually the best way to achieve the effect you want. – David Schwartz Sep 11 '11 at 3:32
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    true but if we think that supply in this case refers to the supply by miners willing to sell their bitcoins at the current price. presumably if you want to acquire a bunch through mining, you could be keeping coins off the market that other miners would be willing to sell. so you are still "shifting the curve" - but in a much more opaque and harder to quantify way. I agree that this is the "best" way to acquire lots of bitcoins if one's sole criteria is moving the market as little as possible, but it still has an effect obv. – lemonginger Sep 11 '11 at 16:26
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We do this all the time in the financial industry. It's called iceberging:

Some markets allow dark liquidity to be posted inside the existing limit order book alongside public liquidity, usually through the use of iceberg orders. Iceberg orders generally specify an additional "display quantity"—i.e., smaller than the overall order quantity. The order is queued along with other orders but only the display quantity is printed to the market depth. When the order reaches the front of its price queue, only the display quantity is filled before the order is automatically put at the back of the queue and must wait for its next chance to get a fill. Such orders will, therefore, get filled less quickly than the fully public equivalent, and they often carry an explicit cost penalty in the form of a larger execution cost charged by the market. Iceberg orders are not truly dark either, as the trade is usually visible after the fact in the market's public trade feed.

Source

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Any large enough transaction should move the price, even if it is somehow "off the grid" though in that case it may move the price later. This would also apply with any other forex trade the difference is that the amount of liquidity in the bitcoin market is by comparison very small. To buy $100,000 in bitcoin would probably be a very large part of a day's trading, while in a market like say EURUSD you could trade $100,000,000 without it being a particularly huge transaction. It is just about the ratio of the size of the trade vs the entire market.

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As David mentioned, the market price will be influenced regardless. If you would like to potentially minimize / delay your transaction's impact on the market, I can think of a few methods.

I think the best way to obscure your buy would be to find someone in the #bitcoin-otc who is interested is selling a large quantity. You could then arrange some deal to not speak publicly about the transaction.

I think this might be what you are looking to do.

I could be wrong about this minimizing impact on the market price, David surely knows more about the economics end than I do.

1

To accomplish that you would have to find a person who would be willing to sell you a big amount of Bitcoins outside of the market. This would be hard, because a lot of people are afraid of scams, but it is certainly feasible. Still, the best bet to get a lot of Bitcoins without influencing their price (or at least not bringing the exchange rate down) would be to invest in large scale mining rigs. This approach is slower, but attracts less attention. Moreover, since the difficulty would increase due to your mining, it might positively influence the exchange rate (harder to earn coins => they are more valuable).

  • Dark pools can't be scammed.... – Pacerier Aug 15 '13 at 17:28
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The reality is that we don't have advanced enough financial products nor a sophisticated enough market to allow bulk transactions to occur without a price impact. The market is too thin and dark pools are impossible because every single transaction is both broadcast and verified.

If a large amount of Bitcoins are suddenly transferred from a single account, then everyone knows in ten minutes. Accounts would have to be highly divested and decentralized to hide a bulk transaction. Thus, the analogue to Iceberging. I can imagine a specialized set of market actors offering this service for large cap investors, but honestly we need options to trade risk way before we worry about large transactions.

My advice to anyone who holds several thousand Bitcoins who got in early is to wisely divest until they have recouped their initial investment and then adopt price points to slowly liquidate their holdings. It's a deflationary currency. The price has to go up if it is going to survive. Don't worry about daily fluctuations.

  • This is no longer true.... – Pacerier Aug 15 '13 at 17:29
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If you don't mind the acquiring part, you can always trade derivatives on bitcoin, such as bitcoin options on https://bitplex.co

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High volume traders can apply for a "dark net" account with Mt. Gox. I believe you qualify for this type of account if you trade over 1,000 BTC per month. (Something like that, I can't find the exact specifications at first glance.) You can also make in-person trades of digital or physical wallets, which would be "off the grid" in the sense you are speaking of.

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