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Is it possible to buy and sell bitcoin without any of the exchanges knowing about it? Since the price of bitcoin is determined by people buying and selling, could these secret exchanges cause the reported values to be different from reality?

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    Exchanges only report transactions that occur on that exchange or on another exchange with whom they agree to share transaction prices. You are free to conduct a transaction with anyone you like off an exchange, and whatever price you settle on has no effect on the exchange itself.
    – chepner
    Aug 16 at 21:54
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    This is how arbitrage works: someone discovers two exchanges that don't agree, buys on the cheaper and sells on the other until they come into agreement.
    – chepner
    Aug 16 at 21:58
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    Reported values of what?
    – pjc50
    Aug 17 at 8:32
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    If two people are trading at a price significantly different from what's on the exchange, then either the buyer or the seller is being foolish because they're getting a worse deal than the exchange is offering. Think about some examples. Aug 19 at 1:13
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    The rate I am willing to sell to YOU is a different measure than the rate any two random market participants are willing to exchange on. The latter is used to establish an estimate of "value" Aug 19 at 6:15
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Is it possible to buy and sell bitcoin without any of the exchanges knowing about it?

Absolutely, you can send cryptocurrency from one wallet to another without anyone knowing what you are getting in return for it. The exchanges only know about the transactions they facilitate or have shared with them.

...could these secret exchanges cause the reported values to be different from reality?

No, it's still reality, it's just a different exchange rate based on the environment the transaction occurs in. Even then, most people value their cryptocurrency in terms of their local currency or USD so most likely the prices people settle on for direct cryptocurrency payments are based on the rates reported by popular exchanges.

People using cryptocurrency to launder money might pay a premium, but it's a premium relative to the going rate for legitimate uses.

If the volume of fiat to cryptocurrency transactions was very small then an exchange-reported rate could become less useful.

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    OTOH a lot of the BTC/USD exchange volume is actually BTC/USDT, and there are serious questions as to whether the USDT peg is real.
    – Kevin
    Aug 17 at 20:34
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    Maybe the wording is off, but the first answer is wrong at least in the sense I was taking the question as. Bitcoin creation and transfers are public. I consider a bitcoin 'transaction' as the simple transfer of bitcoin from one wallet to another. That is public knowledge. The transfer may correlate with an exchange of cash or products, or it may be a gift, but the transaction (transfer from one wallet to another) is public. The public will 'know about it' but as you say not necessarily know the details of the compensation received. Aug 18 at 13:18
  • @JasonGoemaat I see your point, I typically think of a transaction as an exchange not just a transfer; per dictionary: "an instance of buying or selling something; a business deal." With that definition in mind the transfers are public but transactions are not.
    – Hart CO
    Aug 18 at 15:16
  • I didn't realize anyone questioned that the USDT peg is completely fake.
    – erickson
    Aug 18 at 17:40
  • The USDT peg may not be justified/reasonable, but it is real in the sense that it has been reliable and people trust it enough to use it as an intermediary.
    – Hart CO
    Aug 19 at 5:30
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Since people are still buying and selling Bitcoin at the exchange price on the exchange, the exchange price still reflects the actual Bitcoin price.

If the exchange price didn't reflect the actual Bitcoin price, people would buy or sell until it did! If a bitcoin is worth $39738 but the exchange lets me buy one for $39000 then of course I'm going to buy as much of a bitcoin as I can afford, and then sell it to someone else for $39738. Other people know this so they won't sell me one for $39000.

That's why there's just one "actual price" and all exchange prices must be near it.

As you pointed out, you might pay extra if you need to keep your bitcoin purchase secret. But don't think of that as part of "the price of a bitcoin". Instead think of it as a transaction fee from the person you're buying it from, which could be higher than normal because you are buying secrecy. Similarly, slight differences between different exchanges can be thought of as if the exchanges are not perfectly accurate in tracking "the" bitcoin price.

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    It might be worth mentioning the practice of buying and selling at different rates to take advantage of differing prices is known as "arbitrage". These arbitrage opportunities are typically very narrow timeframes as the markets tend to level out quickly.
    – Possum
    Aug 18 at 15:40
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Those transactions are commonly called OTC, or Over The Counter.

Majority of transactions are OTC in crypto, and similarly in the regular stock market as well.

That means the price based on public exchanges represent only a small fraction of all the transactions.

Naturally if all OTC transactions were made publicly on exchanges, the price would be different.

It's a reason why in the early days, people posting large sell orders on exchanges were frowned upon because they were hurting the price and it was deemed selfish. Instead it was preferred to sell large amounts privately.

A good read on the topic for crypto by Circle Research: https://medium.com/circle-research/how-does-crypto-otc-actually-work-e2215c4bb13

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Yes; you can sell your Bitcoins to your neighbor and no exchange will know the price you two agreed on.

More relevantly, large traders not-uncommonly form "private markets", or "dark pools", to liquidate large holdings where trades are done in much larger blocks than public exchanges handle. This is done to avoid or minimize price changes during the sale as a result of the sale. But, generally, these markets have been shown to be efficient; therefore, public markets are a good representation of an asset's value.

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Any transfer of bitcoin has to put in the public ledger (unless there's some sort of escrow account or something complicated like that), so if the exchanges want to find out about it, they can (although they won't know what price was paid for it).

could these secret exchanges cause the reported values to be different from reality?

What is "reality"? If you mean "net present value of bitcoin", there's no guarantee that the exchange price will reflect that, and given the volatility of bitcoin, it clearly has deviated from the NPV quite often.

If you mean "fair market value", the exchange price is by definition the market price. There is no objective "right" price of anything. When people say "price", they generally mean the market price, so what the exchanges say is the price is by definition the right price.

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