Bitcoin Forum

Seeing as I can't yet post in the general threads but really wanted to comment / help / reply to someone on this subject, I'm posting it here:

Someone on another thread asked the question, why is the price at $17. Well here goes:

It's all about supply and demand (or buy and ask). Evaluating the price a bitcoin should be based on the current buy / ask market conditions goes like this:

Multiply all the buy amounts with the buy prices and find the average.
Multiply all the ask amounts with the ask prices and find the average.
Take the average of the two averages above and you have the middle price. Ie, the balance point where the prices will fluctuate around. With each and every trade, this balance point shifts, however in reality the actual price lags these changes and so sometimes you can exploit this. Let me show you how, based on mtgox data.

At the moment, the price is 16.77701

The data from mtgox is as follows:

Bid   12.6   8.83
Bid   12.65   6
Bid   12.7   27.01
Bid   12.75   37
Bid   12.85   156.25
Bid   12.9   7
Bid   12.95   3
Bid   13   1734.83
Bid   13.05   72.07
Bid   13.1   340.56
Bid   13.15   65
Bid   13.2   145.56
Bid   13.25   67.58
Bid   13.3   142.36
Bid   13.35   156.66
Bid   13.4   154.89
Bid   13.45   22
Bid   13.5   379.72
Bid   13.55   28.53
Bid   13.6   53.98
Bid   13.65   75
Bid   13.7   14.06
Bid   13.75   22.13
Bid   13.8   95.93
Bid   13.85   60
Bid   13.9   12
Bid   13.95   0.45
Bid   14   3716.19
Bid   14.05   571.64
Bid   14.1   402.96
Bid   14.15   208.84
Bid   14.2   623.39
Bid   14.25   108.89
Bid   14.3   416.75
Bid   14.35   0.38
Bid   14.4   84.82
Bid   14.45   53.68
Bid   14.5   1201.86
Bid   14.55   169.92
Bid   14.6   89.99
Bid   14.65   3.98
Bid   14.7   58.61
Bid   14.75   29.31
Bid   14.8   255.05
Bid   14.85   36
Bid   14.9   32.73
Bid   14.95   33.31
Bid   15   4197.49
Bid   15.05   530.72
Bid   15.1   3512.55
Bid   15.15   583.4
Bid   15.2   238.61
Bid   15.25   998.02
Bid   15.3   385.55
Bid   15.35   25.16
Bid   15.4   200.45
Bid   15.45   7
Bid   15.5   1567.15
Bid   15.55   1338.62
Bid   15.6   1722.97
Bid   15.65   1762.7
Bid   15.7   136.28
Bid   15.75   127.2
Bid   15.8   460
Bid   15.85   111.9
Bid   15.9   41.05
Bid   15.95   8.05
Bid   16   2158.52
Bid   16.05   174.05
Bid   16.1   514.07
Bid   16.15   377.87
Bid   16.2   294.97
Bid   16.25   85.81
Bid   16.3   454.14
Bid   16.35   1625.29
Bid   16.4   84.9
Bid   16.45   3017.49
Bid   16.5   3455.63
Bid   16.55   365.88
Bid   16.6   4946.73
Bid   16.65   2900.99
Bid   16.7   799.27
Bid   16.75   1552.03
Ask   16.8   1085.64
Ask   16.85   319.41
Ask   16.9   567.99
Ask   16.95   697
Ask   17   1636.62
Ask   17.05   252.1
Ask   17.1   471.11
Ask   17.15   384.21
Ask   17.2   596.76
Ask   17.25   196.27
Ask   17.3   212.28
Ask   17.35   435.3
Ask   17.4   244.38
Ask   17.45   289.37
Ask   17.5   1679.15
Ask   17.55   132.52
Ask   17.6   2248.47
Ask   17.65   32.82
Ask   17.7   252.12
Ask   17.75   501.26
Ask   17.8   646.17
Ask   17.85   13.84
Ask   17.9   741.75
Ask   17.95   169.21
Ask   18   2152.4
Ask   18.05   13.2
Ask   18.1   107.24
Ask   18.15   12.71
Ask   18.2   38.97
Ask   18.25   2
Ask   18.3   53.54
Ask   18.35   78.03
Ask   18.4   150.83
Ask   18.45   36.4
Ask   18.5   1072.15
Ask   18.55   516.53
Ask   18.6   87.16
Ask   18.65   37.1
Ask   18.7   23.5
Ask   18.75   21.72
Ask   18.8   36.52
Ask   18.85   43.34
Ask   18.9   314.11
Ask   18.95   49.38
Ask   19   1353.58
Ask   19.05   1.1
Ask   19.1   198.97
Ask   19.2   41.62
Ask   19.25   44.85
Ask   19.3   100.68
Ask   19.35   2.31
Ask   19.4   29.63
Ask   19.45   30.08
Ask   19.5   531.07
Ask   19.55   10.8
Ask   19.6   217.79
Ask   19.7   93.9
Ask   19.75   1076.15
Ask   19.8   105.54
Ask   19.85   42.12
Ask   19.9   399.39
Ask   19.95   333.8
Ask   20   3050.66
Ask   20.05   10
Ask   20.1   55
Ask   20.15   4
Ask   20.2   10.2
Ask   20.25   10.98
Ask   20.3   2.2
Ask   20.4   4.49
Ask   20.45   189.5
Ask   20.5   213.61
Ask   20.7   12.22
Ask   20.75   200
Ask   20.8   3
Ask   20.85   3.2
Ask   20.9   100.37
Ask   20.95   7.14
Ask   21   1040.39
Ask   21.05   4.66
Ask   21.1   12.15
Ask   21.25   44.41
Ask   21.3   234
Ask   21.35   32
Ask   21.4   21.2
Ask   21.45   30.28
Ask   21.5   11.25
Ask   21.6   3.5
Ask   21.7   1
Ask   21.75   15
Ask   21.8   312.65
Ask   21.85   2
Ask   21.9   15.84
Ask   21.95   25.95
Ask   22   1450.8
Ask   22.1   1
Ask   22.2   10.1
Ask   22.25   0.27
Ask   22.35   4
Ask   22.4   12.5
Ask   22.45   48
Ask   22.5   78.87
Ask   22.6   1000
Ask   22.65   10
Ask   22.7   0.25
Ask   22.8   10
Ask   22.9   15.51
Ask   22.95   107.82
Ask   23   243.18
Ask   23.1   13.76
Ask   23.15   13.16
Ask   23.2   8.6
Ask   23.4   2.5
Ask   23.45   3
Ask   23.5   141.18
Ask   23.55   255
Ask   23.7   17.33
Ask   23.8   39.87
Ask   23.9   423.73
Ask   23.95   183.7
Ask   24   1252.04
Ask   24.1   2
Ask   24.2   1.07
Ask   24.25   1.01
Ask   24.3   330
Ask   24.4   62.29
Ask   24.45   1
Ask   24.5   89.6
Ask   24.55   10.11
Ask   24.7   31
Ask   24.75   2.04
Ask   24.8   32.62
Ask   24.85   24.79
Ask   24.9   109.67
Ask   24.95   28.51
Ask   25   1847.12
Ask   25.1   5.02
Ask   25.15   50


From this you can see that someone wants to pay as little as 12.6 and at the other end someone is asking for 25.15, however we cannot simply take a middle point between these two extremes as we have not taken into account the amounts of coins involved at each price point. Just taking the middle point of the two ends comes to 18.875. Now if we take the volumes into account (ie, for each ask and bid, calculate price * amount and then take the averages) we get the following:

Total price for bid = 816552
Total coins for bid = 52749.21
Average price of bid coin = 15.47989

Now for ask:

Total price for ask = 722584.9
Total coins for ask = 36922.83
Average price for ask coin = 19.57014

The mid point is the average of both prices of coins (ie. 17.52501)

So at the current price of 16.777, they are undervalued and should at least reach 17.525 at some point in the spread. Also notice that there are more requests for coins than are being sold so demand is slightly higher (but not by much). This should put a little pressure on the coins to rise in value over time. So at 16.777, you should buy as you are getting some value (albeit not much). So how do we increase the price? If all sellers would raise their asking price the value of the coins should in theory rise so long as people are willing to buy at the higher price. If not, then eventually sellers would lower their price to shift the coins they hold.

Paul



 

I'm fairly sure this is completely wrong.

The "price" is where asks meet the bids. So what matters are the high bids and the low asks. The quantity you're calculating is instead affected mostly by the low bids and high asks. If I place a bid of $0.01 on 100000 BTC, it will have absolutely no affect on the trading price but will significantly drop your calculated price.

This is because Mt. Gox only publishes a fixed range of the order book based on the current price.

I'm talking about true value rather than actual value. The further out the bid and ask prices are (ie, the spread) the less impact they have on the price however this is way to complicated to go into here. If you place a 100000 BTC at $0.01 it will have very little impact in reality due to that additional distance factor but I was just stating the principle. Weighting would also need to factor in the calculation and I will work on that at a later date. I plan to automate the stats.

Paul.

True, and there's quite a few good reasons for doing that (including the amount of data they would have to return to the page, however it does state it's rounded also)

The other point I wanted to make is that the closer you are to the mid point the more likely your order will be fulfilled and therefore has a higher impact on price.

Just bought a bunch.

With no regulations exchange operators' friends could really be having a field day.

The bid and asks that are not near the current price may be very old, and furthermore, those that placed those bids and asks are quite likely to change their mind if the price moves significantly one way or another due to reassessing the market.

I just hope the freaking price goes up.  I have them at 16.4 bux but my god, the chances of it getting up to 40 to 50 to make actual money seems less and less liklely.

You and me both. 16.4 looks good to me. Right now we are in a dip and i believe very close to the bottom (with the current volatility). Just looking at the data now. It's all a risk, but fun never the less.

I think that all holds true in a "stable" market, but how does the difficulty in generating the coins affect the price? I'm not sure you can apply conventional weighting and stats to a currency that is still "growing" for want of a better word.

Huge trades going through right now. Might be the best time to buy. Depends how long this goes on and the knock on effects. I'm buying now at 16.45. Let's see what happens.......

I'm sure that price and difficulty are related but as you say, this is not a conventional currency. Anything can happen....

Just managed to get a few at 16.35..... Interesting.. Might go for a poop if this goes any lower. lol

Ok, I expect this to rebound very very soon. Could be wrong though so make your own minds up.

Buying again. This downward shift is temporary.

Typical, I buy my first coins and the price tanks... next time I go to buy I'll let you know first ;)

It'll recover. Don't panic sell.

I had a play with MTGOX the other day. Managed to sell 9BTC for $17 each. Didnt relise how much there commision is so only ended up getting $16.8 for the each which pee'ed me off a bit so I made a buy order for 9BTC for 16.4 each which acutrally bought them all back so iv got all my coins back and 3 dollars in my account. Going to just hold on to my BTC now untill the mining difficultly goes right up at which point the price should go up too.

Ok, here comes the rebound.

Yes, commissions need to be factored in. I made that mistake years ago on the real exchanges and lost quite a bit. Just forgot to take it into account. Mining difficulty is already priced in so you may be waiting longer than you think.

Whats up now?

 Had an auto buy at 16.6... Lucky Im just playing at trading with under 10 coins or I'd be gutted (ofc would be watching if I was doing it for real  :))

Just make sure you don't fall into the trap of correlation and causality. Price and difficulty tend to follow each other (within certain boundaries) but difficulty does not necessarily imply price. More likely it's the other way 'round - the more you can make per BTC by mining, the fewer BTC you have to make for it to be profitable. So far prices have only gone up over any reasonable span of time and difficulty has followed suit. At some point it will occur that price no longer justifies difficulty and rather than price moving up to accommodate as you seem to predict, people will stop mining and difficulty will move down.

Price increases because of the market, difficulty increases to follow price, so long as mining remains profitable. I made the mistake of confusing the two at the beginning myself, it's far too easy a mistake to make.

Yeah I'm aware that it might take awhile, No where supports transferring BTC to my currency anyway unless im willing to pay $45 for a international transfer. So im just hoping BTC will take off and become supported in more places at which point it will probably sky rocket like it did not long ago.

Of course, realistically the activity of miners does have *some* effect on price, so it's more likely a "tangled hierarchy" than a direct causal relationship... Still, the effect is much stronger in one direction than the other  ;D

Yes, quite right. As I am holding on to a lot of BTC, I am hoping that price increases but it's a gamble. It could go either way.

Maybe a neural net can make some sense of the relationships. I'm considering programming one up. All the data is there...

With all the upheaval the past few days, I've been surprised at the stability of BTC on the markets. And even more impressive was the resilience of the market when someone(s) just unloaded 13K BTC and the price dropped less than $1. You'd expect a bigger drop than that.

Lets see how things settle out over the next few hours