For example, if suddenly everyone wants to sell BTC, the price would drop, at which point the exchange could buy the BTC at a much lower price, or not buy at all?
(unless they commit fraud, massively purchase BTC without having the actual money to back it, then not be able to wire money out of our accounts?)
You acknowledge that the quoted Buy Price Conversion Rate may not be the same as the Sell Price Conversion Rate at any given time, and that Coinbase may add a margin or “spread” to the quoted Conversion Rate.
However I'm a bit confused by:
> An unsustainable price of bitcoin will lead to the collapse of other exchanges since people cashing out on these exchanges requires enormous amount of real money.
To cash out, other people need to buy, typically with fiat currency, so it's unlikely that their bank accounts would empty overnight? (assuming no fraud, bugs, not running the exchange at a loss, etc)
Isn't the problem that an exchange can [pretend to] credit your account to the tune of $n million, use your bitcoin to sell for that amount, then keep/use the proceeds of the sale.
This is what traditional banks do with fractional reserve banking, except here the fraction of your bitcoin held is zero ;0).
Also, if bitcoin plummets you're probably not going to be happy when the exchange says "oopsies, our bad, that transaction failed, here's your bitcoins back".
hahaha, regulation. That is hilarious