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sanga
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April 26, 2013, 08:00:02 AM
 #1

If I ask you how much the BTC is worth right now, what is your reference?  What will you base your answer on?

Now, try think outside the box (I know it is impossible, but one may still try) and explain how this works.

So, what makes the value of a BTC any less subjected to the same manipulative forces than fiat currency is subjected to?

Don't get me wrong, I believe bitcoin is a great great tool, but there is misunderstanding about how it compares to fiat as for its market value and its safety* is and I am not the best person to explain it.

*All people don't define safety the same way do they?



I personally believe that offer and demand is the way prices should be determined, and I believe it works as long as "big players" are not manipulating it.  The price of a stock, for instance, will gain or loose value depending on how much people seem to value it, or how much people think others value it... see the concept of a Keynesian beauty contest.

However, if a player, such as the US gov gets in and buy an a LOT of ammunition (just an example) then the price of ammunition would go up.  Or, it could print (digitize) money and make the value of the dollar decrease.  (Also just an example)

While most (correct me if I'm wrong) use major exchanges as a reference for the value of the BTC, those exchanges may decide to hold on to them or basically just decide to charge more for them, therefore increasing its price.  Large purchases of bitcoins, particularly through those exchanges, would likely boost the price quickly.  On the other hand, if a exchanges were to decide* to stop buying any bitcoins, wouldn't that make the market price drop suddenly?  Also, if someone (anyone) holds a lot of bitcoins and would start selling them very quickly, would that not have that same effect.

Note that a decision is usually made in the "light" of something, for example.... I don't know... regulations?  (if that's possible)

Food for thought:  If price drops suddenly, does that mean that value drops proportionally?

Sure my private key protects my bitcoins and I can store them in my brain, but I would like someone to explain thoughtfully what the difference is, value-wise, between holding bitcoins and holding dollars.

Anyone?
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odolvlobo
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April 26, 2013, 08:04:59 AM
 #2

Fiat prices are also affected by central bank monetary policies.

BTC exchanges don't buy and sell BTC, just like stock exchanges don't buy and sell stock.

You seem to think that the word "value" has some sort of magical meaning, but it is really just one of those words that people can never agree on.

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April 26, 2013, 08:20:04 AM
 #3

The exchanges are a reasonable indication, it is in the end just a public record of what people are willing to sell/buy them for.
As for 'absolute value', there is no such thing. The value of something is only what it can be exchanged for, and then it depends on what people want or need. If I don't want a btc then its worth nothing to me, same way I feel about diamonds. If I want a BTC then its matter of what I have to trade for it, that seems fair in my mind.
As for safe, well thats another personal call. If you were to bury a stack of FRN, an ounce of gold and a paper btc wallet in your backyard what would each be worth (in  terms of trading it for say food) a year from now? Its all a guessing game.
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April 26, 2013, 09:16:13 AM
Last edit: April 26, 2013, 09:34:14 AM by Lucano
 #4

Hi there,

The market is always be an auction field.
Supply and demand will influence the price in some way.
Dont think too much about how the market operates and how Bitcoin gets it's value because fundamental and technical facts are involve and to be honest, in the last 120 years our economies are been designed in horizontal line and Bitcoin is reshaping the mental concept that we had in our heads (Note bills Vs Products and services).
In my opinion Bitcoin is a parallel currency on the making and it will interact in different ecosystems, E-communities and more...

I'm a Technical analyst for the financial market and I only look graphics (Technical data) and leave fundamentals (Bank rates, etc) to the Economist (not disrespect to the economic fundamentalist).
Now, since I start my research about Bitcoin, I've through my technical knowledge about forex, commodities etc into the Bitcoin world.
This is a new era and I can certainly show people how to manage a portfolio of Bitcoins and how to trade them in the market following a trading plan for the benefit of the Bitcoin users and the community in general.

I can see how new forces are coming to live with Bitcoins and I hope this new forces are kind with our people and our world because the forces that dominate the currencies we have right now...they are mean mother fuckers and they dont want to educate society and they hate the progress of the minority.

This is just my opinion.


P.S: in the market your not trading Bitcoins...your trading feelings which are, indifference, greed, uncertainty and panic.

Have a great day  Cool

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April 26, 2013, 09:16:50 AM
 #5

If I ask you how much the BTC is worth right now, what is your reference?  What will you base your answer on?

Now, try think outside the box (I know it is impossible, but one may still try) and explain how this works.

So, what makes the value of a BTC any less subjected to the same manipulative forces than fiat currency is subjected to?


The reference I use to value bitcoin is the same used to value the other currencies: How successful the economy that support it is, and will be in the future. Usually this is measured by some factors like total revenue,  money velocity and inflation. Total revenue in bitcoin just now is ridiculously low, less than 3% of Market Cap monthly, but there are people that are confident in a great growth potential, and speculate based in this future value.

In normal currencies the ratio of daily commercial transactions to speculation is usually so high that the exchange rates move comparatively slow following the speculative trend.  However for bitcoin that ratio is inverted, speculation is 97% of volume,  and the exchange rate is based on speculation about its future value, like it happens with stocks. If/when revenue growths enough or speculation is tempered by reality checks,  bitcoin value will go back from its future value to the intrinsec one (ouch!)
sanga
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April 26, 2013, 09:43:53 AM
 #6

Fiat prices are also affected by central bank monetary policies.
Which makes it similar to BTC for that matter.  Wasn't that my point?

BTC exchanges don't buy and sell BTC, just like stock exchanges don't buy and sell stock.
Right, it seems that my wording was ambiguous.  I've been using "buy [...]" as in "accepting [...] in exchange for [money]", or more precisely "accepting to trade them"?  Words....

You seem to think that the word "value" has some sort of magical meaning, but it is really just one of those words that people can never agree on.

In a sense, I do.  Just like the word "apple" is magic.  One thinks it's a computer, one thinks it's a fruit, and both swear that the other is a idiot.  That works with other words like "value" or "buy", and also with: safety, bitcoin, currency, virtual, transaction, you, money, future, freedom, conversation, religion, online...  we can have fun all day long. Smiley

As crazy as it may seem, "you" may refer to your person, your personality, your way of thinking, your idea, the words you use, one thing that you said, the thing he thought you meant by that, the group of people he believes you to be part of.... and there we go with which group is he talking about?  Or is he talking about the way of thinking of that group he thinks you are in according to what he thinks you meant when you used that word?  So, indeed, words are truly magic.

I totally agree with both of you, odolvlobo and Chet.  Though it seems that so far we see similarities, comparability, room (but I mean MUCH room) for interpretation, but no actual distinction between... how BTC is less prone to being manipulated by the power that be than EUR, USD or a stock.

I am not looking for an "answer" but rather for shedding a light on the fact (i.e. my belief) that BTC is not as different that holding stocks or any currency.  And if it is different, I sure want to know where it actually differs.  Wait, would that be considered an answer?

Lucano, God bless you;
rhinospray, you nailed it!  (ouch!)
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April 26, 2013, 10:58:25 AM
 #7

Who can control the price?

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April 26, 2013, 11:09:06 AM
 #8

BTC exchanges don't buy and sell BTC, just like stock exchanges don't buy and sell stock.
Right, it seems that my wording was ambiguous.  I've been using "buy [...]" as in "accepting [...] in exchange for [money]", or more precisely "accepting to trade them"?  Words....



Quote
those exchanges may decide to hold on to them or basically just decide to charge more for them,

Exchanges can't do that, because they (as stated) don't buy the coins themselves (unless, of course, they use their own system to buy the coins--but they still have to pay people for the coins they've purchased, which leaves them in the same position as any normal user using the exchange).

The exchange can't "hold on to them", because if people couldn't withdraw their coins when they wanted to, no one would use that exchange.

And they can't "charge more for them"--when you place an order to sell your coins you can see it in the order books. If it showed up more expensive than what you requested, again people would notice and no one would use that exchange. The only thing the exchange can do is increase their fee for using their system (which I don't think would have any effect on the price of the coins, it would just make people unhappy).

Just a small question--have you used an exchange yourself?


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sanga
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April 26, 2013, 09:14:48 PM
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Quote
those exchanges may decide to hold on to them or basically just decide to charge more for them,

Exchanges can't do that, because they (as stated) don't buy the coins themselves (unless, of course, they use their own system to buy the coins--but they still have to pay people for the coins they've purchased, which leaves them in the same position as any normal user using the exchange).

The exchange can't "hold on to them", because if people couldn't withdraw their coins when they wanted to, no one would use that exchange.

And they can't "charge more for them"--when you place an order to sell your coins you can see it in the order books. If it showed up more expensive than what you requested, again people would notice and no one would use that exchange. The only thing the exchange can do is increase their fee for using their system (which I don't think would have any effect on the price of the coins, it would just make people unhappy).

Just a small question--have you used an exchange yourself?

Nope, I didn't use those.  That must be one of the reasons my definition of exchange suck.  What I have used, though, is currency exchange service, in person, where I pay in one currency and get the [buying or selling] value of another currency, i.e. BTC, CAD, EUR and USD.  I very much prefer a cash transaction over one tied to a financial institution account.

While they write "exchange" in bib letters, and show the "selling" and "buying" value of each currency they trade in, then I just reused the term buy and sell.  Then while they "had" the currency they gave me and that they took the currency I gave them.... then I assume there is a certain amount of those currency in their hand.  And by "hand", I mean possession.  And by possession I mean under their supervision.  And while it is under their supervision, I say they are holding it.

You are indeed talking about exchanges where users offer to sell or buy whatever we want to exchange, though I have a vague idea of how I believe that works.  I've seen some charts, heard about it, but never went very deep in the understanding of its backed.  I would assume that I still pay to the exchange and the exchange pay me, but I can be mistaking.  If my assumption is right, it would mean that they need to have a certain amount of what they trade in their hand, even if the currency, the stock or the bitcoin legally belongs to the user during the process.

So those offices that change your currency, are they exchanges?  Or how do you call them?
And do exchange need to hold any asset at any point?  Or how can the exchanged assets be moved between users?

Thanks for your reply; I appreciate it.
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April 26, 2013, 11:32:01 PM
 #10

On the other hand, if a exchanges were to decide* to stop buying any bitcoins, wouldn't that make the market price drop suddenly? 

You really don't understand how exchanges work, do you?





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April 26, 2013, 11:51:36 PM
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Nope, I didn't use those.  That must be one of the reasons my definition of exchange suck.  What I have used, though, is currency exchange service, in person, where I pay in one currency and get the [buying or selling] value of another currency, i.e. BTC, CAD, EUR and USD.  I very much prefer a cash transaction over one tied to a financial institution account.

While they write "exchange" in bib letters, and show the "selling" and "buying" value of each currency they trade in, then I just reused the term buy and sell.  Then while they "had" the currency they gave me and that they took the currency I gave them.... then I assume there is a certain amount of those currency in their hand.  And by "hand", I mean possession.  And by possession I mean under their supervision.  And while it is under their supervision, I say they are holding it.

You are indeed talking about exchanges where users offer to sell or buy whatever we want to exchange, though I have a vague idea of how I believe that works.  I've seen some charts, heard about it, but never went very deep in the understanding of its backed.  I would assume that I still pay to the exchange and the exchange pay me, but I can be mistaking.  If my assumption is right, it would mean that they need to have a certain amount of what they trade in their hand, even if the currency, the stock or the bitcoin legally belongs to the user during the process.

So those offices that change your currency, are they exchanges?  Or how do you call them?
And do exchange need to hold any asset at any point?  Or how can the exchanged assets be moved between users?

I understand your confusion. The "exchanges" we discuss here are companies that provide a market where others can buy and sell currency. These exchanges do not buy and sell themselves. Instead, they make a commission on every sale. The kind of "currency exchange" that you are writing about might be called an "exchanger" here. The word is similar so I understand the confusion.

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May 02, 2013, 10:26:18 AM
 #12

Nope, I didn't use those.  That must be one of the reasons my definition of exchange suck. 

Okay, I see why you're confused!

Our exchanges act more like an escrow service.

Person A wants to sell their BTC for $130, so they send it to an exchange and say "please sell this for me for $130". The exchange lists that offer on their website: 2 bitcoins available for $130.

Person B has $300 and wants to buy bitcoins, so they send their $300 to the exchange and say "please buy me bitcoins for $130 each". Since their is an offer to sell 2 coins for $130, the exchange gives the 2 coins to person B, gives $260 to person A, and leaves person B's request (now totalling 0.7 btc for $130) on the website. Persons A and B can withdraw/deposit bitcoins and dollars at any time, and the exchange holds it for them so they can make trades whenever they want.

You could also simply put an offer on this forum, saying "I want to sell my 2 bitcoins for $130!", and someone might take you up on the offer, but what if you send the coins and they don't send you the money? Exchanges fix this problem (<-- this is debatable) by being a reputable mand-in-the-middle which both person A and person B can trust to not run off with their money (like an escrow).

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May 02, 2013, 03:32:00 PM
 #13

On the other hand, if a exchanges were to decide* to stop buying any bitcoins, wouldn't that make the market price drop suddenly? 

You really don't understand how exchanges work, do you?

You don't really understand how...
Unregulated exchanges with a monopoly...
Operate in an illiquid bubble, do you?

Well, it's nothing like you read in the textbook.
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May 02, 2013, 05:05:24 PM
 #14

Bitcoins are worth whatever someone will accept them for. For instance if we didnt have any fiat and only had bitcoins, then their price would be controlled by the business community. Because we have both fiat and cryptocurrencies, then their price, at least for now, is controlled by speculators. Fiat's prices on the other hand are controlled by central bankers, who own it outright.
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