Bitcoin Forum

Hello, i started on this forum not long ago while trying to make some money. I didnt made any yet, but i didnt gave up, as i used to make lots of money with internet marketing.
My question might sound stupid for Senior guys over here...but what makes the price for the bitcoin? what can make the bitcoin go up and down?

Buying and selling.

supply and demand.

free markets.

confidence.

Supply and demand is the most likely culprit, as bitcoins become more popular their price will rise and as more bitcoins come into the market their price will drop in theory bitcoins will come to a point where they have a set price though as people will always be buying and selling and trading with them their price can never be exact its the same reason any currency fluxuates

Nothing has a "set price" everything is priced against something else.  Even USD and EUR with trading volume in trillions of dollars a day (yup I said trillions a DAY, quadrillions a year) still have 1%+ daily swings in price.

The "price" of a bitcoin is exactly what someone somewhere is willing to pay for it, and someone else is willing to sell it for.

Exchanges provide a place for people who want to buy bitcoins and people who want to sell bitcoins to find each other.

Example:

Albert has 100 BTC.  He needs to pay his electric bill and the electric company doesn't accept bitcoin as payment.  He decides to convert some of his bitcoin to USD.  Albert logs on to an exchange and creates a limit order offering to sell 10 of his bitcoin for $33.45 each.  He is not willing to sell the bitcoin for less than $33.45 because at any price less than that he'd rather just hold on to the bitcoin and pay his electric bill with other funds.

Bobby only has a two bitcoin that he purchased at $32.50 each.  He decides that he doesn't really want bitcoin anymore, but he doesn't want to take loss.  He logs on to the exchange and creates a limit order offering to sell his two bitcoin for $32.55 each.

Carl has just received his paycheck.  After paying his expenses he has $200 left over.  He decides to purchase bitcoin with this money.  He feels like the exchange rate might drop a bit and so to get them as cheap as possible, he transfers his money to the exchange and creates a limit order to purchase 6.25 BTC at $32 each.

David just received an inheritance of $10,000. He decides he'd like to hold the entire balance as bitcoin.  He has seen the exchange rate varying between $31.50 and $33.50 lately, and hopes he can get the entire balance at $31.50.  He creates a limit order at the exchange for 317.460317 BTC at $31.50 each.

Earl is in a hurry.  He just wants to buy something from Overstock.com right now, and he'll take whatever the current exchange rate is.  He needs $60 worth of bitcoin.  He transfers his $60 to the exchange and places a market order for $60 worth of bitcoin.  The exchange sees that the cheapest offer to sell bitcoin at their site at the moment is Bobby's offer of 2 bitcoin at $32.55 each.  The exchange transfers the $60 from Earl to Bobby and at the same time transfers 1.84331797 bitcoin from Bobby to Earl.

At this hypothetical moment the current bitcoin price is therefore $32.55, since that is the most recent exchange that has occurred.
Earl now has 1.84331797 BTC
Bobby now has $60 and 0.15668203 BTC still available to purchase at an exchange rate of $32.55 per bitcoin.

Now Albert suddenly realizes that he doesn't have enough other funds for his bill.  He needs $334.50 right away to pay the bill, and needs to sell the bitcoin quickly to get the necessary money.  Albert cancels his limit order and places a market order to sell $334.50 worth of bitcoin.  The exchange sees that the most expensive offer to buy bitcoin at their site at the moment is Carl's offer of 6.25 bitcoin at $32 each.  The exchange transfers $200 from Carl to Albert, and 6.25 bitcoin from Albert to Carl.  Since Albert still needs another $134.50 worth of bitcoin to fulfill his order, the exchange sees that the next highest offer is David's offer of 317.460317 BTC at $31.50 each.  MtGox transfers 4.26984127 BTC from Albert to David, and $134.50 from David to Albert.

At this hypothetical moment the current bitcoin price is therefore $31.50, since that is the most recent exchange that has occurred.
Albert now has the $334.50 that he needs, and still has 89.4801587 BTC remaining.
Carl has picked up the 6.25 bitcoin that he wanted, spending the $200 that he wanted to spend.
David has purchased 4.26984127 for $134.50, and still has a limit order out there waiting to be filled for another 313.190467 bitcoin at $31.50 each.


You'll notice that there are actually many "prices" for bitcoin.  There is the price that each individual is willing to buy or sell their bitcoin for.  Some of the more often quoted prices are the "current Ask", "current Bid" and "most recent exchange".

Prior to Earl coming along, the "Current Ask" was Bobby's $32.55 that he is asking to sell his bitcoin (the lowest price anyone is willing to sell for at that time).
The "Current Bid" was Carl's $32 bid to purchase bitcoin from anyone willing to sell that cheap (the highest anyone is willing to pay to buy at that time).

Machine elves.

Bulls and Bears........................and the occasional unicorn.

The same thing which makes price up and down for say oil or precious metals.

I just want to say that DannyHamilton's very detailed hypothetical scenario is a great explanation of not just bitcoin prices, but of price fluctuation in just about any free market. I feel like bookmarking it.

Agreed! +1 DannyHamilton

I think I understand price fluctuation a bit better, but this scenario (it's only a scenario I understand) doesn't take into account people who invest in bitcoin. Investors are constantly speculating, which contributes to some of the fluctuation. People who buy them just to buy, and sell when the price raises (and vise versa) cause rising and falling prices as well.

Certainly it does.

You could probably consider both Carl and David to be speculators in the scenario.

The price is set by a seller and a buyer both being willing to exchange at the same price.  It doesn't matter if the reason they are buying or selling is to speculate on future prices, to buy something from SilkRoad, or to pay an electric bill. If they have a specific price they want, then they place a limit order.  If they just want it now at the best price anyone is offering, then they place a market order.  If there is a bunch of selling wanting an immediate sale, then they take up many of the pending "bid" offers driving the exchange rate down.  If there is a bunch of buying wanting an immediate purchase, then they take up many of the pending "ask" offers driving the exchange rate up.

Gotta love those unicorns!

thank you everyone.

Sounds like Earl is jonesin' ;D

The manipulator ?  ;D

Part of it is also the strength of your currency. If Bitcoin goes up, it could actually just be your currency going down instead of Bitcoin actually going up. It's hard to know which is moving. It's like when you sitting on a train and you start to move. It's sometimes hard to tell if it's you moving on the train next to you moving.

This raises a good point. I keep hearing in the Wall Street Journal and other news sources about how the strength of the dollar is increasing. What they don't say is that it's increasing *relative* to other currencies. Overall though, the world currencies are weakening compared to the bitcoin, gold, etc. The dollar is actually weakening, it's just weakening slower than the other currencies.

supply and demand, or hack/news story cycles.

Manipualter is hidden ;D

manipulator's will

One thing important to mention.
Arbitrage doesn't work in Bitcoin.
E.g - 1 btc = 30 USD = 28.6 EURO
If the USD falls down by 50% - then the Bitcoin won't be valued at 60 USD, yet it will still be valued at 28.6 EURO.
Which means If you sell you Bitcoins for EUROS (which had no change ) and then buy with it USD - you just doubled the your money ( on USD value , of course ).

The reason is that there is no central authority to eliminate the arbitrage difference that is created.
No reason to panic. People aren't stupid - they wont sell it for less than 60 USD.... but only the sellers/buyers will be responsible for doing so.

Although if you ask some people, the answer could be any number of the following:

• Wall St. Big Fish Manipulators
• Some Saudi Prince
• Corrupt Rich Communists from China
• Speculators
• Butthurt Bears
• Bitcoin Newbs panic-buying
• Bitcoin Newbs panic-selling
• Mt. Gox's market manipulation
• Dark Pool
• CointelPro
• Alex Jones (cointel pro agent)
• Alex Jones (not cointel pro agent) (Come on, which is it, tinfoilhatwearers)
• Ben Bernanke's massive BTC investment
• Rich miners colluding to influence price
• Reddit owners buying $1000s of bitcoins and then announcing that Reddit accepts them (profit!)
• Kim Dotcom buying $1000s of bitcoins and then announcing that Mega accepts them
• Dozens of soon-to-come variations of the same scheme
• Unicorns
• Faeries

Please make this a sticky. +1

Agreed here, too!

This isn't 100% clear to me. Are you suggesting that arbitrage is not possible with Bitcoin because of the relative value it has at the moment of purchase? I'm extremely interested in arbitrage with Bitcoin and am looking for further clarification on this, I don't mean to put you on the spot. Thanks!

I've only just joined BitcoinTalk and I can tell I'll learn a lot from DannyHamilton's posts throughout the forums. Well done sir!

Sorry, my bad. I've been using the terminology wrong.
I meant that Arbitrage Management does not exist.
Arbitrage is the practice of taking advantage of a price difference between two or more markets.
So of course in Bitcoin markets the arbitrage is significantly more lucrative than in Fiat markets.
I was merely saying that in case the difference between Bitcoin markets goes wild - there is no authority to fix it/manage it/secure clients from it - only the sellers/buyers will determine how long till the difference fades away.
That time - From when the difference in price starts until the it fades away by buying/selling - that's where you want to be.
 

As said Supply and demand along with what someone is willing to pay for it.

....Best explanation/reply

Human greed. That's the primary factor of bitcoin growth now  :-\

Don't forget The Manipulator.