Bitcoin Forum

Bitcoin has been trading at very close to $5.10 US for 2 months now. Why so stable? bitcoin has previously been characterized as being a highly volatile commodity, store of value, currency, investment, call it what you will. If someone had predicted in 2011 that the price would stabilize at X price and not move for months we all would have laughed. What are the factors that contribute to the stability of bitcoin? I think it might related to the unprecedented liquidity of bitcoin. I guess the market is prepared to buy 100% of the btc for sale at $5.10ish but not pay a nickle more. Why is this? Does bitcoin posses some quality that makes it inherently stable?

That is an incorrect assumption.

Price is always dependent on volume.  There are enough buyers and enough sellers that any trade which isn't an outlier to current daily volume can be absorbed without any significant change in price.

That doesn't mean the market is willing to absorb an unlimited volume without more slippage.  Try dropping $1M USD or 250K coins on to the market and I guarantee you the market will move.  Not only will it move directly (you simply sucking up the supply or demand) others will jump in and attempt to capitalize on that momentum. 

The "calm" is simply a metric of depth vs volume.  Depth has grown faster than volume (likely as many chased "free profits"). Today it takes "more" to move the price compared to a year ago.  Volume while it has grown, it hasn't grown by a comparable amount.  If volume quadruple and depth didn't increase you would see volatility take off again.

Thank pirate for the stability.

My theory:

Besides the growing depth of the market I also think it's all the various tools available to speculators to make bets about the exchange rate in any possible direction. We had bitcoinca where people could hedge or go long on a margin, we have several exchanges that offer arbitrage opportunities and we're getting more and more of these services which allow game theory to fully develop and that's really what is happening IMO game theory fully playing itself out between all the players.

buyers = sellers

thats it.

That's obvious, the question is why buyers = sellers for past few months.

Nobody can answer this question.

You can only guess or speculate.

If youre happy with it, go on :

There was a report a few months ago that brokers from the London exchanges were becoming interested in Bitcoin.
I wonder if they are using their money to buy/sell within a limited range (5.00 - 5.20)? I mean, maybe they are not interested in buying and keeping BTC but they use their money to profit from the price movements. If a lot of them are doing this this would increase the depth like an above poster said.

Perhaps one of the early adopters is using their pile of bitcoin to manage the rate ?

Imagine you have a large number of bitcoin and, for whatever reason, want to stabilise BTCUSD.

When the rate rises to, say, $5.10 you start selling from your pile to kill the momentum.
It trends down to $5 again.

All systems have volatility.
Imagine it blips down to $4.90. You start buying Bitcoin with the USD you got from your $5+ sales.
The downward trend is stopped.

You have just bought low, sold high = profit.

You have also set a price anchor $5 = 1 BTC which is conveniently easy for everyone to remember.

I suspect we will never know if this is the case though.

One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

There is no reason to assume that every single miner sells every single bitcoin mined every day.

Sure there's a reason to assume that - to make it seem like demand is really high.

Yeah I've been mining for a year and half and haven't sold any.

I suspected that as well.   
If you treat Bitcoin as a product/service as the creators/investors/super early adopters the best feature you could offer to entice mass adoption is price stability.

All markets tend toward stability, volatility will always fall in the long-run.

So, it's possible this amazing stability of the past 3 months is just a natural occurrence with no specific reason. However, I am honestly suprised such stability has been achieved this early. It's a very good sign, indeed.

With that said, when the price breaks out of this range, we could see another long period of volatility while a new equilibrium price is discovered.  All the people who, last year, said Bitcoin would never see stability have been proven wrong, big time.

Especially if you aren't particularly innovative or risk prone.  The "service" that is easiest to provide without any particular skill or niche would be to dampen volatility.  That produces value for everyone using it to conduct transactions.  Higher real value means higher long term appreciation which means a more likely exist scenario for a bitcoin millionaire.

A lot of people mine and keep their coins like me. Also when I sell my btc i usually try to first buy something from a user in the forum. There is probably thousands of dollars worth of computer hardware on the forum. When people buy from the forum it helps keep some of the btc out of the exchanges lowering the volume of bitcoins on them.

If the influx in capital into the market keeps pace with the new 7200 BTC produced every day, there is no need to buy up all those daily 7200 BTC. It is my understanding, that the named influx has risen over the past year along with bitcoins rising awareness.

Don't you agree that the influx of new capital should be considered more volatile with regard to pricing? Maybe these months of stagnation were only purposed to tie funds to temporally binding investions?

I think things are moving in this direction.

I think Bitcoin would be increasing in value right now if there wasn't so much inflation.

I don't just mean via mining new coins, I mean the amount of lending that is going on creating a large amount of BTC denominated bonds. This is a very healthy sign though, as long as it doesn't get out of control.

One word : market manipulation.

With Bitconica supposedly buying 18K BTC I would think price would rise.

Not so because some HEAVY players like pirateat40 don't like price going up :'(

Obviously anyone interested in this question understands the MtGox Live graph: http://mtgoxlive.com/ (http://mtgoxlive.com/)

If not, play with it till you do! It's a graphical representation of their order book. So, for example, there are a lot of orders to buy at $5.10. For the price to drop that low, just under 1900 bitcoins would need to be sold. But then another 1200 would need to be sold before the price dropped any lower. There's an even larger shoulder at $5.01.

Toby.

Someone calculated the impact this would have in another thread.  It wouldn't move the price much at all and certainly not long-term.

Of course not -- unless you are Satoshi. My hyperactive conspiracy theory cortex tells me BTC "founding fathers" want it this way:
  1. Stable exchange rate promotes commerce
  2. Discourage hoarders
  3. Wear speculators out
Probably they can afford doing it now because they have equal amount coins denominated in BTC and USD.

This is all CIA#s fault, I am telling you. In 50 years time they will declassify how Satoshi is a codename of one of their departments.
 ;)

righty right!

I would think that this unnatural stability is caused by either:

1. One or more parties accumulating BTC and ready to buy large quantities slightly below 5$
2. One or more "early adopters" are slowly converting their BTC fortune into fiat by selling large quantities slightly above 5$
3. One or more parties are "stabilizing" Bitcoin by doing both 1. and 2.
4. Some or all of the above

Simple really. The one thing is certain, this will end sooner or later and this status quo is highly unlikely to persist beyond Jan 2013.
Once this "trade" runs out volatility will return with vengeance, probably on the upside (based on fundamentals).

Want this to happen quicker, buy yourself 50x bundle of Bitcoin Magazine and distribute everywhere around you. Or go for 10x bundle that's only 60$ and free shipping, btw.

I respectfully disagree. Speculation may be near zero-sum for the professionals, but for the rest of us they're adding liquidity. From liquidity comes stability. Remember that every time you sell something for bitcoin you're gambling on bitcoin's future value (minimum 10 minute bets).

Economists are positive-sum. They contribute valuable ideas while asking little (if anything) in return.

Now THAT I can get behind 100%! Coasian solutions (https://en.wikipedia.org/wiki/Coasian_solution) spring to mind. Once we use cryptocurrency to efficiently handle externalities, it will be an enormous boon to humankind.

Bit-Pay says that the transaction volume they are processing has tripled each month for the last three months. They wouldn't be able to grow like that if the problem you mention wasn't already being fixed.

But, is it a good thing, this stability? However the dollar and the euro more so, are inflating. Up to that, national inflation (not sure how that scales up to the rest of the EU) is near 2%, still BTC to USD remains stable, accually BTC is inflating as much as USD.

So everyday over the last 6months+ people moaned that BTC isnt stable enough for realworld usage and then it is stable for months and people moan its too stable.

Im starting to think the bitcoin community is psychotic.

Given BTC money supply is growing by almost 30% having only 2% price inflation is pretty impressive.  Still there is an obvious upward trend.

It is possible for day to day (and hour to hour volatility) to be reduced without affecting the long term trend.  For example imagine you think BTC will apreciate 35% over the next year.  That is <0.1% daily.  It is possible for BTC to grow 0.1% daily having 20% daily volatility or having 2% daily volatility.  At the end of the year it will still be 35% higher but I think you can see why the "smoother road" of the later is superior for those using BTC as a medium of exchange.

Personally I love the "new BTC" stability.  I have been selling wireless refills on the forum and the exchange rate for my last  10 orders has been: 5.11
5.13
5.12
5.14
5.14
5.13
5.12
5.14
5.15
5.14

Hell if I had just used one value and stuck with it pretty much would have been a wash.  A "five spot" per coin is a nice psychological round number.  I love it, although I can see why the speculators hate it.  They make money (or at least have the potential to make/lose money) on volatility.  The loss of leverage combined with a fall in volatility is a 1-2 punch.

Stability ends the closer we get to December.

I'm still not so sure how unstable it may become. I can see however that the price will continue to creep upwards the closer we get as less newly created bitcoins make their way to market. The closer we get to that magic date the more BTC holders will speculate about the things to come. Many may become more tight fisted the closer we get.

Lots of buyers vs. sellers on mt gox as I type this, and the price is creeping upwards.

http://bitcoincharts.com/markets/mtgoxUSD.html

What's in December again? Is it that decrease to 25BTC per block as opposed to 50BTC?

hagnahh … and Gox got me again. My cash is in limbo and I sent it when the rate was around 5.10 every other hour. Somehow I bet they will report my cash incoming when we see a 6.
Last time I sent money to them the price was at 2$ and they finally charged it when we were back at 4$. :( I want a fast track.

Simple.... BitInstant  ;)

I'ma let you finish, but lemme say it like dis...


http://www.youtube.com/watch?v=VKEk7b2vfoQ

Ima let you finish, but first let me say........
http://www.guzer.com/videos/kanye-west-vma-outburst.php

Ok, so how exactly would that work when I only have German and Chilean bank accounts? With my expectations looking at the totally vanishing market depth at the bitcoin side, I would really not mind paying some % to get money there *now*.

Yeah, BITINSTANT listen up: WHY U DONT HAVE UROP BANK ACCOUNT!?

BECAUSE YORUP IS ABOUT TO COLLAPSE, THATS WHY :P

In which case Germany will be the only ones with any money left there. His acct is in Germany, so why no instant deposit? ;p

This is are REEZON to throw in the saving belt, not to let us drown without merxy isn't it? Shouldn't BitInstant hire people in Greece now to sell Bitcoin in the street? ;)

Store of value is a very real and valid use of a currency and some might question whether the numbers on their bank accounts really do provide this feature in times like these. I'm pretty sure that a good percentage of people speculating on Mt. Gox simply do so because they actually just want to hold a part of their wealth in Bitcoins but don't want to lose out because of its volatility.

While i totally agree that this would be a good thing, Bitcoin does have some unique properties all by itself which might make it appealing in the current phase of global economic uncertainty. I'd never advocate Bitcoin as a safe investment but to diversify some of your holdings into Bitcoin is surely a rational choice for many people. Think about it: even if there was not a single merchant accepting Bitcoin by itself, it would still be valuable as a very secure, non-inflatable, cheap and easy to transfer, global unit of account together with a pretty reliable transaction system that cannot realistically be shut down. There's not much else on earth fitting this description.

Oh and volatility will certainly come back - no worries :)