Why Bitcoin, Ethereum, Ripple prices on Cex.io are a lot higher than Coinbase, Gdax, Bittrex and everyone else ?

Spoiler

Cex.io is a fraudulent scam exchange, using a Ponzi Scheme, with the exact same logic that Madoff used.... more if you are patient and keep reading..

Introduction

You are a genius and noticed a large price difference between exchanges and Cex and you think you are alone. If you are new to the crypto space or have been trading for a while, you would have noticed the difference in prices between the exchanges. This difference is in general at a maximum of 1%. But for some reason, (like a mystery the difference with Cex.io or with South Korean exchanges is 10-20%... How can this be ?

Why a price difference between exchanges

In theory, this is the first time in history that the same commodity is traded on so many exchanges simultaneously, 24/7 (stock exchanges open and close, not the crypto exchanges), with such a high volatility (price changes) during the day. So, again in theory this would explain why we observe price differences between the exchanges. But, how come these prices differences are not a lot more than 1% ? Exchanges are separated, in different countries.. the price of a Mac in uk is around 5% more than in the Us.

How can the price difference be kept under 1%

Having a large price difference between two exchanges open the door to a financial activity called "arbitrage", something very simple to understand. Buy Bitecoin on exchange X (Kraken) for 10000 usd, go to the more expensive exchange Gdax, sell it for 11,200... send back the Usd to Kraken and continue all day.. So everyone saw this opportunity and developed arbitrage bots to "regulate" the price differences between the exchanges, and this difference is kept not by chance but based on the cost of Trading and Transferring. It cost 0.1% to trade and around 0.2% to transfer, so if you go for a complete round it will cost you (0.1%+0.25%)*2 = 0.7%. So on a price difference of 1%, you could win 0.3%. Meaning you need to move a lot of money to make money with this system. And then comes the wolf : "volume", not all exchanges have such a volume that you can buy 100K of a currency. And finally, the volatility of the prices can cause your arbitrage direction to change and you will then lose money. So this 1% is kept by very clever bots that are making money for professionals and fighting over 1c per second.. no something you want to try.

Cex Santa Claus 10% Gift to humanity

So, ok i read until now, but you didn't explain the Cex.io difference of 10% ! Let's start, because it will be very very interesting.. The price difference is between pairs such as BTC/USD, EHT/USD and of course not BTC/ETH. So, if you want to buy on Kraken (or anywhere else) a BTC for 10,000 Usd, transfer to Cex and sell it for 11,000 Usd... you are a genius ! BUT .. For starter you can not send back USD to the other exchanges, so you can not do this 50 times a day, but only once a day. So you are now thinking, it doesn't matter, i will buy 100 BTC and will make a fortune when i sell them, it doesn't matter how many times i do it per day, once is enough for me. I am still a genius.. BUT...

Santa Claus is late this year

All is good until now.. but what happened if you don't get your USD wire to your bank, like for 1 month, 2 months or let's say ever ??? Let's start with the best case scenario and you get your USD after 1 month (best case scenario because this the reality). So you made a fortune ?? You made 9% in a month, meaning 0.3% per day !!! My guess is, if you had bought any crypto currency, kept if for 1 month you would have make a lot more... now after 2 months you are done to 0.15% per day (as a comparison you should use the lending platform paying you 1% per day - also ponzi, but you cares for now). And then, there is the case of never gets your USD to your bank.. the Internet is full of stories of people in that case.

How does the Ponzi works

You were skeptical when you read that it takes at best 1 month to get your usd back or even 2 months or more.. let me explain why this is linked to the ponzi... So Cex is paying you 9% more for the same crypto than anybody else. Where does the difference comes from ? People would tell you , because on this exchange people are ready to buy crypto 10% more expensive than anywhere else... I don't know who these people are, but don't think people are stupid, nobody is buying more expensive if he can go to another exchange. So who is buying at this price ? And the answer is : Cex bot. Cex bot is following the prices on the market and always pays 9% more (if it wasn't a bot the price difference would change during the day from 5 to 70%..). So Cex is stupid and buying more expensive than everybody else... NO.

The Ponzi Logic

Because there are so many people coming with their crypto to sell them, you only need to pay the people who want to leave to fiat with the people keeping their money on the exchange, the new people entering or another mechanism. Because you need to pay the 9% difference, you need a way to make this money somehow.

The logic is the following : Cex will keep your Usd as long as it takes for them to make at least 9%, but more 12-15% benefits so they can pay you. On their platform, you will notice the price differences between bid and ask (seller and buyer) are enormous, so what their bot is doing is a system called market making in order to beat you (the user) every-time you try to sell or buy, so you actually buy expensive and sell cheap. Using the market making for a long period of time with your USD, and some point the system will make 12% benefits and will decide to pay you. Or the system can bet on the price increase of a crypto, buy it with your usd, wait for it to be 12% more, sell it and pay you.

But I am a genius, I will sell into euros not usd

If you want to sell your crypto in Euros, suddenly two things happen... first your 9% are gone ! simply gone, because the ratio of euro/usd on Cex is the most expensive in the universe it is exactly 9% (such as surprise) more than the market price: around 1.29 on Cex against 1.2 on the market. Second you will get your money in 48-72h (if you send them 50 support emails), but not in one month. So suddenly when there is no 9% cex.io pays within a week .. This simply facts proves the previous paragraph.

When Madoff goes to jail and you don't see your usd back

So this system is great for them, not so bad for you (only you get your money in 30,60,90 days) until it goes bad. How does it go bad.. when you have a lot more people that want their money in fiat and far less people who want to stay on the exchange storing their fiat or crypto, you need to suddenly pay 9% out of your pocket to so many people that you go bankrupt. So you simply don't pay ! You wait for something to happen, which is called price increase. Because you had the customer usd you simply buy crypto and wait for this crypto to increase in value 12%, so you can pay.. BUT.

Any crash will kill you and it killed Madoff in 2008. Everyone want their money and you don't have time with the money of the new users or the money you store to make the 12% in 1 month, 2 months... Or even worse, the people who want their 9% are the people who sold expensive and currently the 9% are 20% because the crypto price fall. You have little chance to make so much 20% if the sellers are say 2/3 or the population... So you don't pay, don't pay.... and people wait for 30, 60, 90 and sometimes for ever to see their Usd , because you can not pay.

Then you start stealing people crypto by not honoring the transfers, or steal usd from new entrant by losing the wires.. but at the end this goes bad for everybody .

Conclusions

I have bad news, you are not a genius, everybody else is not stupid and no company can give you a 9% without making more. Everybody tried to do this and thousand are filling Trustpilot, Reddit and Steemit with their story of losing their money and never getting their wires. Santa Claus doesn't exist and crypto space is no exception.

References

HTTPS://STEEMIT.COM/CRYPTOCURRENCY/@MATHREX/C-CEX-EXCHANGE-IS-A-SCAM-NEVER-USE-THIS-EXCHANGE-FOR-ANY-CRYPTO-TRANSACTIONS-READ-REVIEW-HERE
HTTPS://STEEMIT.COM/CEX/@GOBENO/CEX-IO-CLASS-ACTION-FRAUDULENT-SCAM-EXCHANGE
https://steemit.com/bitcoin/@masi/cex-io-currency-exchange-review
HTTPS://BITCOINTALK.ORG/INDEX.PHP?TOPIC=2174542.0
HTTPS://WWW.TRUSTPILOT.COM/REVIEW/CEX.IO
HTTPS://WWW.REDDIT.COM/R/BITCOIN/COMMENTS/7JQ3UQ/IS_CEXIO_A_SCAM_MY_DEPOSIT_OF_10000_STILL_NOT_IN
HTTPS://WWW.REDDIT.COM/R/CEXIO/COMMENTS/7BKOX5/CEXIO_STEALS_MONEY/