> Counterparty risk should push the price down, not up.
Not if the counterparty risk causes you to be unable to withdraw national currency, thus forcing you to buy bitcoins for national currency and then withdraw the bitcoins.
The only way for the price to go down, in a scenario like this, is if it's possible to sell bitcoins on the exchange (thus pushing down the price) and withdraw the proceeds.
In a BTCUSD market, if you are unable to withdraw BTC you will sell BTC for USD and withdraw USD, thus pushing down the price. And if you're unable to withdraw USD you will buy BTC for USD and withdraw BTC, thus pushing up the price.
It would only push the price up on the untrustworthy exchanges, and it would lower the price everywhere else because it indicates the asset is not useful, it could be stolen & dumped on the market, it discourages anyone from getting in, it forces them to use alternative usually less convenient exchanges, etc. And even the counterparty risk doesn't produce that much increase: right up to the end when it was too late, the Mtgox premium was only like 10%. Such a mechanism can't possibly explain all or even a little bit of a runup from $2k to $7k (not to mention, the market cap being an order of magnitude or two higher).
Um? Let me use an example to explain what is happening here:
Me - Cryptocurrency markets are not mature that is why we have lot of arbitrage opportunity between exchanges.
You - Why do you think they're mature and perfect enough to worry about arbitrage opportunities?
So, let me repeat again - It is exactly because they are not mature there are issues. If they are mature, there is nothing to worry. And that is the sauce you are looking for.
You're claiming they are efficiently pricing in a particular risk, pushing up prices to reflect the counterparty risk, but then denying they are efficient enough to price in the other consequences they should be. This is not consistent or at least is very stretched.
Not if the counterparty risk causes you to be unable to withdraw national currency, thus forcing you to buy bitcoins for national currency and then withdraw the bitcoins.
The only way for the price to go down, in a scenario like this, is if it's possible to sell bitcoins on the exchange (thus pushing down the price) and withdraw the proceeds.
In a BTCUSD market, if you are unable to withdraw BTC you will sell BTC for USD and withdraw USD, thus pushing down the price. And if you're unable to withdraw USD you will buy BTC for USD and withdraw BTC, thus pushing up the price.