What creates this price for a bitcoin?

[mizike29]

I understand its peer to peer, ok, but is the price only based on what the last person bought and sold there coins for?  Is it that simple and why it will be so volatile?  If theres no basis or formula like the difficulty plus the finite supply equals a bitcoin at this price, I think it will be tough for a stable price to ever be reached?  Or am I missing something?

[Stuffe]

The price is what a seller is willing to sell for and a purchaser is willing to purchase for. When you talk about the price of the bitcoin now, you generally talk about the price of the last trade.

The supply is finite and easy to calculate, but the velocity is not. Also it is very hard to say how much of the current demand is based on trade and how much is based on speculation, let alone how it will evolve. Did that help anything?

[Hunterbunter]

Yep you're mostly correct...price is somewhat based on what the last person bought and sold their coin for. There are many who are guessing (speculating) the btc is going to go up in the future, so "think its worth more" and buy, pushing price up, and those who think the opposite and sell. There are also those tiny few (like 2%) of people that buy when they need to, and a large portion of people who just mine and sell. The price is essentially defined as the balance of all these pressures.

You can easily work out the "cost" of a new bitcoin (electricity + hardware deterioration + difficulty etc), but cost does not indicate price, since people can always make a loss or a gain on an investment, depending on who will value their final product.

A stable price can be reached when:

Speculators do not vary wildly on the future value of a bitcoin (as in, they all mostly agree on a small range of values),
Number of merchants and customers wildly outnumber the number of speculators.

[Jack of Diamonds]

Commodity prices are never stable in the long term even if there is limited supply.

Look at silver and gold, the price chart over 10 years is like a pogo stick (albeit an upwards moving one).

[mizike29]

Yeah Im no economics major, but I know a dollar is worth a dollar since I have been born, based on what the gov says and the financial banking industry and power of the dollar.  So when I looked at bitcoin go up and down and up and down down down, and now back up today a little bit.  I just wondered, it looks like the price is basically what the last sale of a bitcoin is, and what people want to sell them for and buy them for and thats it.  Nothing in between, just what I am willing to buy a coin at.  Maybe in the future with more places accepting bitcoins that could give it that big punch of what a bitcoin is worth making it jump to 30 to 40 a coin, but if its just us minority bitcoin users and miners, seems it would vary up and down around this area for awhile, simpley based on price.

[hugolp]

Yeah Im no economics major, but I know a dollar is worth a dollar since I have been born, based on what the gov says and the financial banking industry and power of the dollar.  So when I looked at bitcoin go up and down and up and down down down, and now back up today a little bit.  I just wondered, it looks like the price is basically what the last sale of a bitcoin is, and what people want to sell them for and buy them for and thats it.  Nothing in between, just what I am willing to buy a coin at.  Maybe in the future with more places accepting bitcoins that could give it that big punch of what a bitcoin is worth making it jump to 30 to 40 a coin, but if its just us minority bitcoin users and miners, seems it would vary up and down around this area for awhile, simpley based on price.

If you take bitcoin as the base, its the dollar that is highly unstable.

[piramida]

If you take bitcoin as the base, its the dollar that is highly unstable.

I wish more people understood that this statement is not a joke Or won't be a joke, in the near future.

[JoelKatz]

If you take bitcoin as the base, its the dollar that is highly unstable.

Right now, that's a pretty good joke. Bitcoin's instability is due to low volume, questions over whether it is ultimately viable (even if you believe a cryptocurrency is a sure thing, it may not be bitcoin), and constant supply with varying demand. But maybe in a year or so ...

[MikesMechanix]

I know a dollar is worth a dollar since I have been born, based on what the gov says and the financial banking industry and power of the dollar. 

The value of a dollar today is very different from the dollar a year ago, though. It's the prices and wages that change.

[CurbsideProphet]

Yeah Im no economics major, but I know a dollar is worth a dollar since I have been born, based on what the gov says and the financial banking industry and power of the dollar.

Putting aside inflation/deflation, to make your statement comparable to Bitcoin, you would need to compare the dollar to another form of currency.  A dollar is a dollar, but is a dollar always equal to the same amount of Yen or Euro?  No, it fluctuates.

Same with Bitcoin, a BTC is a BTC but it fluctuates in comparison to other currencies, such as the dollar.   

[mizike29]

I dont look at it like that.  I see a dollar is a dollar, period. Always has since I have been born, doesnt matter if prices and wages change, thats not in the equation, its just a dollar is a dollar.

With bitcoin you dont know day to day what a coin is worth.  I think we want it to rise but then it needs to get stable like a dollar to make it.  Doesnt matter if it takes 10 bitcoins or 50 bitcoins to buy a cd, if its always a bitcoin then were good, just like a dollar is still a buck

[naturallaw]

I dont look at it like that.  I see a dollar is a dollar, period. Always has since I have been born, doesnt matter if prices and wages change, thats not in the equation, its just a dollar is a dollar.

With bitcoin you dont know day to day what a coin is worth.  I think we want it to rise but then it needs to get stable like a dollar to make it.  Doesnt matter if it takes 10 bitcoins or 50 bitcoins to buy a cd, if its always a bitcoin then were good, just like a dollar is still a buck

This is an issue with any type of exchange rate. Importers/exporters in the real world have to deal with this all the time and have to hedge against the risk of exchange rate changes.

[deuxmill]

Speculation makes the price now. And market manipulation by the largest currency holders (dollars or bitcoins) On the midterm both want BTC to rise . But for now the USD holders would like to get the best chance of making a profit so they would like to buy the BTC at the lowest possible price. Bitcoin holders would like to go higher. But then there are a lot of miners who need too pay for electricity and need to sell a part of they're mined BTC and this keeps the BTC kinda stable now. If there will be more speculators coming in with dollars then we will se a rise if not then maybe we will see a kinda stable market with a slight depreciation trend  like we saw in the weeks after the Hack.

Also keep in mind that there are quite a few that can make big profits right now and even go lower with the price if they believe their profit now is enough because they bought low .

1000 invested around 1 of June would get you around 500 if you sell now . This might be enough for some for others not. But those that sell allow the price to goo on a downward trend.

All this means shit because i don't know how many dollars or bitcoins are entering the exchanges . The ones that know this two parameters would have far better chances of guessing the future value.

[JoelKatz]

I dont look at it like that.  I see a dollar is a dollar, period. Always has since I have been born, doesnt matter if prices and wages change, thats not in the equation, its just a dollar is a dollar.

Well then a bitcoin is a bitcoin.

With bitcoin you dont know day to day what a coin is worth.

Same with the dollar. If you're willing to say a dollar is a dollar or a bitcoin is a bitcoin, then you know what it's worth. If not, it's buying power can change constantly.

I think we want it to rise but then it needs to get stable like a dollar to make it.  Doesnt matter if it takes 10 bitcoins or 50 bitcoins to buy a cd, if its always a bitcoin then were good, just like a dollar is still a buck.

If you are willing to say "an X is an X", then everything is 100% stable. But that's not sensible for either the dollar or the bitcoin.

You find the dollar convenient because you interact with a large group of people who are willing to pretend the dollar is a stable reference because that is convenient for them. This means they gradually have to raise most prices, but that's not terribly inconvenient. In the future, you may find a group willing to do a similar thing for the bitcoin.

I admit, there is benefit to exchanging in the currency used by a large economy. You currently can do that for the dollar but not for the bitcoin.

[mizike29]

I guess it is just the price change then that messes it up for me, to where its not a bitcoin is worth a bitcoin like a dollar is worth a dollar.  I know for so long ya know I can buy a candybar for a dollar, and probably get some change back depending on if its 1990 or 2011 but still pretty damn close, where months ago a bitcoin was nothing, then it was worth 30 bux, then hit 9 bux, then 12, now 15, stablizing in the 12 to 15 range now so its just a bitcoin can not buy the same thing today as it can say tomorrow or next week.  Thats the part that messes me up I guess, is how quick the value is changing daily.

[tomcollins]

I guess it is just the price change then that messes it up for me, to where its not a bitcoin is worth a bitcoin like a dollar is worth a dollar.  I know for so long ya know I can buy a candybar for a dollar, and probably get some change back depending on if its 1990 or 2011 but still pretty damn close, where months ago a bitcoin was nothing, then it was worth 30 bux, then hit 9 bux, then 12, now 15, stablizing in the 12 to 15 range now so its just a bitcoin can not buy the same thing today as it can say tomorrow or next week.  Thats the part that messes me up I guess, is how quick the value is changing daily.

This is a speculative market that is thinly traded.  Things tend to bounce around a lot.  This is common with a lot of speculative assets that don't have much liquidity.

Not only is Bitcoin being priced based on how much people want to use it today, but on how much people might want to use it in the future.  No one knows the future, and the past is quite short, so a lot of people are betting in lots of different ways.  If you think Bitcoin becomes in 10 years huge 1% of the time, a moderate failure 95%, and a complete failure 4%, it still might make sense to buy them at $15 each.  Some people have shorter terms they want to look at, and even then it has to be based on what people will think in the future.  There is lots of uncertainty.  There are lots of people who didn't even know what a Bitcoin was a year ago.  There are also lots of amateurs who have never invested in anything before, but now find themselves in possession of something that could be worth as much as a house.  They don't know what they are doing and will screw up a lot too.

Then there is the criminal element with scams, thieves, and other attacks on the network.  All of those play a big factor.

So the price is fluctuating.  Eventually, information will give us a price that accounts for all of such things.  As new information comes out, that price may change, but there are enough incentives in place that will eventually keep it from changing too drastically too fast unless something catastrophic happens.  I wish I could tell you what that price would be, if so, I could be rich.

[hugolp]

I guess it is just the price change then that messes it up for me, to where its not a bitcoin is worth a bitcoin like a dollar is worth a dollar.  I know for so long ya know I can buy a candybar for a dollar, and probably get some change back depending on if its 1990 or 2011 but still pretty damn close, where months ago a bitcoin was nothing, then it was worth 30 bux, then hit 9 bux, then 12, now 15, stablizing in the 12 to 15 range now so its just a bitcoin can not buy the same thing today as it can say tomorrow or next week.  Thats the part that messes me up I guess, is how quick the value is changing daily.

In reality everything floats to everything. There is not an absolute. What happens is that for commodity we use the most liquid asset as a reference, but in reality you can use anything as reference. The most liquid asset is that one that everybody accepts, in the USA the dollar, in the EU the euro, ... As JoelKatz explained, when you have a big base of people using bitcoins it will happen the same with bitcoins.

And btw, from 1990 from 2011 the prices in dollars have gone up a lot.

[mizike29]

Depends, I can still buy a candy bar for a buck or less lol.  So not much change from 1990 to 2011 lol.

Yeah, I have been buying as low as possible and then selling as high as possible for a little bit now, its tough, especially with the delays in funds and trusting the buyers, but can make some profite and I figure it is helping the economy.  I hope it turns out great lol we will see

[Sultan]

I dont look at it like that.  I see a dollar is a dollar, period. Always has since I have been born, doesnt matter if prices and wages change, thats not in the equation, its just a dollar is a dollar.

A dollar is a dollar, indeed, however what that dollar can buy for you constantly becomes less and less. This is shrouded with our wages going up making us think we get pay rises, and prices going up making us think that supermarkets want to make a larger profit. Compare and see how much bread your dollar could buy 10 years ago compared to how much bread it can buy now.

It depends on your point of view: Is the dollar going down in value is is everything else on the planet going up in value???

[RogerR]

Depends, I can still buy a candy bar for a buck or less lol.  So not much change from 1990 to 2011 lol.

Yeah, I have been buying as low as possible and then selling as high as possible for a little bit now, its tough, especially with the delays in funds and trusting the buyers, but can make some profite and I figure it is helping the economy.  I hope it turns out great lol we will see

You're right - except for the candy bar thing. Vendors make them smaller - so the utility/cost ratio only appears to be stable, when in fact it is not. They use cheaper ingredients, calling it an improved recipe (yuk!). They spend more money on advertisement, making them appear more desirable to justify any price increases.

Twix (aka Raider in most European countries up until a name change for advertisement purposes some 20 years ago) used to cost 15 cents in 1967. In 1997 it was up to 50 cent already. Now it's a dollar. Your buck worth of candy bars really ain't worth it.