Bitcoin the Bubblecoin

[prof7bit]

How will it stabilize?

Its quite simple. The price is moved by market orders. If a panic sell event is induced by the "evil forces [TM]" then there is a certain amount of volume created by the panic sellers, only that volume is available to move the market, the panic sellers just don't have any more coins to sell than that. If I am the only shark in the pool surrounded by panic sellers I can estimate where to put my buy limits to get maximumm profit from that events, the lower it would drop, the more profit I can make but it is limited by how much is dumped, i can only make so much money from that one event and not more. If there are other sharks beside me then I have to share my profit with them, they will try to front-run my orders and get their share of profit and I will make less because only a finite amount of coins is dumped and we all try to buy some of them. There will be more buy orers competing with each other, absorbing the falling coins, slowing down the move, catching it earlier. The more buy limits there are competing with each other for dumped coins from the panic sellers the less it will drop. The more people start using the same strategy of catching the falling coin a little bit earlier than all the rest of the sharks the fewer it will be able to drop before it is completely absorbed and the more limit orders exist in the book to profit from huge price moves the more expensive it will become to induce such price moves.

[cbeast]

How will it stabilize?

Its quite simple. The price is moved by market orders. If a panic sell event is induced by the "evil forces [TM]" then there is a certain amount of volume created by the panic sellers, only that volume is available to move the market, the panic sellers just don't have any more coins to sell than that. If I am the only shark in the pool surrounded by panic sellers I can estimate where to put my buy limits to get maximumm profit from that events, the lower it would drop, the more profit I can make but it is limited by how much is dumped, i can only make so much money from that one event and not more. If there are other sharks beside me then I have to share my profit with them, they will try to front-run my orders and get their share of profit and I will make less because only a finite amount of coins is dumped and we all try to buy some of them. There will be more buy orers competing with each other, absorbing the falling coins, slowing down the move, catching it earlier. The more buy limits there are competing with each other for dumped coins from the panic sellers the less it will drop. The more people start using the same strategy of catching the falling coin a little bit earlier than all the rest of the sharks the fewer it will be able to drop before it is completely absorbed and the more limit orders exist in the book to profit from huge price moves the more expensive it will become to induce such price moves.

I understand the argument, but it is still guesswork at best. You presume you are the shark. It's very similar to people that believe they have a system for the casino. What happens when your strategy of absorbing the falling prices doesn't stop the drop? Will you become a panic seller? Will other sharks try to trick you into that? Maybe you overestimated the top and underestimated the bottom. Fortunately, their is a bottom stop gap with the difficulty factor and its affect on mining cost. But that only limits new coins generated.

Besides, I'm not really talking about exchange price here. I'm talking about the running average used by commerce. I don't trust centralized exchanges to report these API prices, nor do I trust their exchange practices. Meh, I guess most people will always believe in invisible hands without a spec of evidence.

[Beetle559]

As markets grow so does price stability, especially when supply is reliable, this shouldn't need a great deal of explanation to understand. As for pumping and dumping that becomes practically impossible in large markets. Consider how much wealth you would need to command in order to pump and dump the gold market or the oil market, "pumping and dumping" those markets is a sure way to lose money. Read in to the concept of "demand to hold" by owners of commodities, it's a natural practice by market participants. The volume of commodities that will enter the market during a price rise because of the total "demand to hold" is very significant and all but negates artificially "pumping" a large market. Not to mention pumping and dumping is not a guaranteed method of earning profits, most people that attempt market manipulating schemes end up spending more than they recoup.

There's simply no way to artificially stabilize the volatility of BTC, its value derives from the subjective valuations of participants in the BTC market.

[DeathAndTaxes]

Larger, deeper markets reduce volatility.  It occurs in every single free (or relatively free) market since humans began trading things.

Take a look at the volatility of Silver and Gold for example.  While both are more stable (relative to USD) than Bitcoin, Silver is much more volatile then its golden brother. 

Valuation of Bitcoin: ~$1B
Valuation of Silver:  ~$30B
Valuation of Gold: ~$7,000B

When it takes $1B or more to move the exchange rate 1% either way (like it does for Gold) you will not see 50% daily volatility. 

Another way to look at it is the total volume traded on the four largest BTC:USD exchanges is ~$6B annually.  The world GDP is ~$70T annually.  To keep the major currencies with relatively low volume how much forex volume do you think it takes?  Would $70T seem like a lot? Annual forex trade volume is on the order of $250T annually (yes 4x to 5x global GDP).

[cbeast]

Even gold and silver can be manipulated into huge bubbles. Bitcoin may or may not be able to be leveraged via passthrus or derivatives, but there will always be attempts to create fraudulent investment vehicles that undermine faith in Bitcoin as a store of value. Currently I believe that exchanges may be doing this now. I want to believe that large numbers are enough to peg Bitcoin's value to the general commodities indexes. It's just that Bitcoin isn't a commodity. Perhaps Bitcoin can become bigger than gold, but because it isn't physical, it may never be trusted enough to get there. It just seems that there is more we can do to make it better than gold.

From: http://en.wikipedia.org/wiki/Silver_Thursday

[papa_snurf]

Bitcoin is not a currency it’s a steak. My corner grocer had T-bones on sale last week for $5.99 a pound, this week they’re $10.99 and next week they might be $6.99. You are never going to know the exact price of btc or steak until you check the price today. Welcome to the world of commodity trading; glad you could join us.

When I price a steak in chicken wing, then it becomes relatively stable.

Bitcoin will eventually become less volatile. The market is still very small and relatively small influxes of money can be very large compared to the market value of the coins in circulation. It's still a very young baby, don't forget that.

[jimhsu]

Oh, it'll stabilize eventually. And one of the big factors that will contribute is something that the libertarian crypto-anarchists will hate - the traditional banking institutions. Simply put, institutions move slower (technically, their holdings have lower velocity). Hence, participation in bubbles and crashes will slow commensurately as more money total is involved. Yes, there will still be bubbles and crashes (just as there are with stocks, gold, USD, etc). But no, we won't see as many 40%+ moves in the future, simply because of greater (and slower) participation.

[UKMark]

I've been talking with a friend of mine for over two years about investing in Bitcoin.

Imagine if your friend had invested two years ago.

[agentbluescreen]

I've been talking with a friend of mine for over two years about investing in Bitcoin. He is not at all interested. He calls it bubblecoin and has a point. Bitcoin will always trade at plus or minus 50% or more and will never stabilize. There is no plan to create any stabilizing factor. Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

Price is psychological and there are no psychological tools to create faith in the price stability, nor is there even any discussion about it. Psychology, sociology, and economics uses statistics to create useful tools. Bitcoin uses "invisible hands" of the free market. Analysts use statistics to look at the market, but their results are not peer reviewed, nor even publicly available. Market analysts are the soothsayers of economics. We need a useful predictive tool for Bitcoin price that is useful for business.

The solution is childsplay but first you have to understand the essentials:


About Bitcoin:

A Bitcoin is a commercial "over the counter (OTC) derivative" of the current-past value and future possible values of itself and it's network, which are only (at best) completely deregulated commercial resources, and neither "commodity futures" nor "securities" as per the CFMA of 2000. This is why, with it's "penny-stock market" exchange-value changing every 15 seconds, it is useless as a "money" because you need an hour to accept and/or spend it, and never really[/] know what it will be worth come (future) selling time. It's current wildly unstable, disparate and volatile exchange-values are really only very useful as a delayed-exchange "funding" funded-swap medium.

The "exchange-value" (price) inflation and deflation of Fiat Bitcoins has squat to do with any "monetary supply" of them and (foreseeably) never, ever will!

Market speculators and their fiat-antics capriciously determine the latest (stale) fiat exchange-value of the last fiat Bitcoin that past their way.

The actual "price" of any given Bitcoin remains forever unknown and unknowable until after it has been re-sold (re-exchange valued) to the next guy, in the future.

The best way to think of the exchange-value of Bitcoins is as a kind of a "virtual toilet" which, regardless of what has been dumped through it, only bears the memory-value of the position that it's last user left the seat in, to it's own current owner, alone. Bitcoin functions exactly in much the same way as a "funded" Credit Default Swap (fCDS). You fund it's former owner's "loss" (costs) on it, and the next owner funds yours.

This and it's other features make it ideal as a delayed patient "credit swap" Medium of Exchange between two sophisticated parties, but other factors make it a totally or nearly useless commercial Medium of Labour Exchange Currency like other stable, dependable and reliably valued things that "currently" serve that purpose.

The way BTC is kicked around by it's bone-headed "exchangers" as if it were "somebody else's" trashy penny stock, it will never be stably valued enough to be considered as a competitive Medium of Labour Exchange "currency" by anyone who might wish to contract, conduct business nor any serious large or long-term transactions in it. (let alone loan it  LOL)

The stupid Bitcoin "penny stock market" Exchangers

Agentbluescreen, I like your thoughts on exchanges creating incentive mechanisms to discourage volatility. I think that exchanges might realize it is in their long-term best interest to see BTC survive, and while the short-term gains are realized best from big, fast, scary swings up and down, this is really the quickest way to kill BTC and therefore destroy the very basis of their existence. Imagine if the stock market were as volatile as BTC... the economy would be a mess! This is a currency we're talking about, not a penny stock. The best part is, we don't even need any sort of government regulation or oversight - we'd just need the biggest, most popular exchanges to start THINKING and acting like exchanges. For instance, not allowing even a SECOND of lag because this is simply not how a professional exchange operates. If your system doesn't work, pull the plug until it's fixed. Blind trading makes you lots of money in the short term due to panic sells, but is really dangerous for any market in the long run.

Well this is the whole deal. Certainly it has to always continue to rise in value or "gradually deflate" (simply our profits or "interest" for adopting and spreading the adoption and wider use, ever-more widely of our "money") but we can't ever be pleased to see it inflate,(devalued) such that we all lose!!

So not only should those "$5 Bitcoin Pharaohs" who have profited most immensely from it be eager to support it, but our exchanges have to stop thinking like penny-stock markets, by actually assisting speculators to long and short it excessively without any sturdy disincentives to deter or make such deliberately mischievous attacks upon our currencies value unprofitable.

Exchangers: It's not like you don't know what's going on when you see the same fat wallet speculative traders high frequency bidding your basis up with low volume spread price "egg-on" buy/sell orders. By permitting out of range bids to execute at the same cost as rational fair bargaining bids (for more patient bargain seekers) a single player can rapidly bid the price through 20-30% by burning through as little as a hundred bucks, then buy or sell his thousands into it, causing scary and catastrophic volatilities to be triggered.

So really it's quite a simple and automatic dampening system you need like an "arithmetic shock absorber". There are two things you have to control, the number of and value-levels of (valid, permissible) bid/ask slots about the "current basis", and a progressive scale of "trading slot fees"(for them) that increase exponentially the further they deviate from the "current basis" value.

Of course you may need to keep (out of range) buy-limits there too,(without fee penalty) for support.

The number of buyers or sellers are irrelevant, only their positions their goals and the weights of their wallets are.

Usually sellers sell at the buy price and buyers buy at the sell price but often the buyers go short and the sellers go long, to "bargain".

Eventually an impatient buyer must go long enough to get a buy or an impatient seller must go short enough to make a sale, especially if a larger quantity is involved.

Those two smallish "bridging a spread" labours capriciously move the last market price (spread bounds range limits) up or down, over-valueing or devaluing the pretend "currency" like a hooked swordfish but that is not the real problem.

Any larger transactor (who we desperately want and need more of like big retailers) who must obtain or clear large amounts is always forced to very painfully suffer a much lower or higher than market price, (vaulting the spreads) and the larger the quantities, the bigger those (nasty) spreads get and remain, left behind them. It's not like they can go to a flush "money-changer" and buy or sell the particular given price.

They have to go into the "penny-stock exchanges" penny-order book and find a bid that will get them all the cash or BTC they need to transact.

In fact the critical challenge to Bitcoin transactions other than a stable price, is the actually practical value of liquidity a given transactor can move through an exchange at or around a given price within a practical period of time, which argues for a much, much more highly valued Bitcoin (eg $1,000-$10,000-$100,000), specific pre-determined bid-rung levels about the "current median-basis price" with exponentially higher fee punishments for further out of bounds bids, and for tighter daily transaction frequency limits also punished by exponentially higher fees.

 

So you accomplish three goals; making simple exchanges at current value the "cheapest fee trades", and you make wildly out of range bids or asks that may stampede the market in either direction costly to place the further they go, you keep bids and asks within a given "basis-centric" range and ladder, while you still preserve "support level" bids.

The way I see it is as an automatic mathematically derived dampening mechanism that (profitably for the exchanges and us all) simply impedes upwards bubbles, and large gulfs in ongoing median trading prices, by tweaking, rather than breaking the laws of (monetary) supply and demand.

[agentbluescreen]

"Monetary devaluation" or decreasing the value of a money (price inflation) is the same thing as making and circulating more of it. It is a moronic tactic used by Tory-Bilderberg Trotskyite Mensheviks to foolishly attempt to prod growth by monetizing slaves debts that you are too greedy and evil to forgive. It only results in making bond loans even more worthless than the debt liabilities they back.

"Monetary revaluation" (seldom heard-of as in 1973 Bretton Woods) or increasing the value of a "limited commodity" foolishly used as money is the same thing as reducing/monopolizing it's supply or a "Gold Standard" doomed to shrink until fraudulent rented-Receipts For It Notes must be used to replace it (1913), then leading to rented They-Owe-Us Notes backed by "bond" debt-slavery pledges to it's former value (1973).

"Monetary iValuation" is the BTCitcoin free market system, where monetary supply and demand determine an ever naturally increasing valuation that profits all who own it and automatically remains "price-inflation neutral" regardless of growth without central control.

[cbeast]

So you accomplish three goals; making simple exchanges at current value the "cheapest fee trades", and you make wildly out of range bids or asks that may stampede the market in either direction costly to place the further they go, you keep bids and asks within a given "basis-centric" range and ladder, while you still preserve "support level" bids.

The way I see it is as an automatic mathematically derived dampening mechanism that (profitably for the exchanges and us all) simply impedes upwards bubbles, and large gulfs in ongoing median trading prices, by tweaking, rather than breaking the laws of (monetary) supply and demand.

A reasonable measure of exchange self-regulation will go a long ways. I had only thought to calculate the ongoing median price as a guide, but if the  exchanges themselves take the initiative, then perhaps a client driven algo would not be necessary. I like this suggestion.

Perhaps it is only needed in these early days. It is likely that many exotic exchange mechanisms will evolve, but for now we need to keep the child alive long enough to find its own way.

[agentbluescreen]

A reasonable measure of exchange self-regulation will go a long ways. I had only thought to calculate the ongoing median price as a guide, but if the  exchanges themselves take the initiative, then perhaps a client driven algo would not be necessary. I like this suggestion.

Perhaps it is only needed in these early days. It is likely that many exotic exchange mechanisms will evolve, but for now we need to keep the child alive long enough to find its own way.

A Credit Swap derivative is a perfectly fine medium of self-backed transactional exchange mechanism but to assure it's more or less constant and conservatively or at least gracefully rising Exchange Valuation you cannot have it traded like just-any common penny-stock.

The simple liquidity transfer burdens themselves become a severe vulnerability and hazard to it's values, as large gulfs of spread must be bridged for them.

The current system is unworkable - you have to regiment bids and asks into a dense well populated region of echelons about the current median basis point and while still vastly encouraging deeper support for the effects of moving big BTC by backing fallback bid (red) volumes you must also be counterweighting the effects of moving $cash ask (green) volumes through always fostering lesser (discouraging or banning greater) upwards ask spreads

I mean people shouldn't be using exchanges to post their Craigs list "want ads" to move their special, "vintage, smells like Sitoshi" $3,000 "collectors 2010" BTCitcoin. If they do, an exchange should charge them a "reasonable" 95.64% transaction fee

[Adrian-x]

We need a useful predictive tool for Bitcoin price that is useful for business.

The most trusted prediction tool I read to date it "Bitcoin is like Binary - it is going to be or it isn't going to be."

Until then it is just a Schlesinger's cat betting game.

[wingding]

I've been talking with a friend of mine for over two years about investing in Bitcoin. He is not at all interested. He calls it bubblecoin and has a point. Bitcoin will always trade at plus or minus 50% or more and will never stabilize. There is no plan to create any stabilizing factor. Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

Price is psychological and there are no psychological tools to create faith in the price stability, nor is there even any discussion about it. Psychology, sociology, and economics uses statistics to create useful tools. Bitcoin uses "invisible hands" of the free market. Analysts use statistics to look at the market, but their results are not peer reviewed, nor even publicly available. Market analysts are the soothsayers of economics. We need a useful predictive tool for Bitcoin price that is useful for business.

There is a thread that collects different attempts to solve this problem [Stablecoin] https://bitcointalk.org/index.php?topic=179918.msg1878011#msg1878011

[niko]

Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

This is a valid point. No matter what market size is, there will always be players willing and able to move the market for their own benefit. Even more so when players have essentially free fiat available (banks).

[gbl08ma]

u say bubble i say easy money

I think this line of thinking is one of the main problems. Many of the people using or investing into Bitcoin today, are doing it as if Bitcoin were a "get rich quick" scheme. From the huge USD/BTC price changes we've seen in the last few months, many people have created the opinion that Bitcoin is mostly used for speculation, even though this may not be all that true. And as other people, which were interested in Bitcoin but not as a way to get rich by buying low and selling high, see these price changes, they lose that interest because they conclude Bitcoin is too unstable to use as a currency. Then you see these "Bitcoin is not money" and etc. articles in the media.
To sum it up in a sentence that is maybe too extreme, I'd would say: the speculators are preventing the mainstream adoption of Bitcoin.

[Herodes]

I've been talking with a friend of mine for over two years about investing in Bitcoin. He is not at all interested. He calls it bubblecoin and has a point. Bitcoin will always trade at plus or minus 50% or more and will never stabilize. There is no plan to create any stabilizing factor. Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

Price is psychological and there are no psychological tools to create faith in the price stability, nor is there even any discussion about it. Psychology, sociology, and economics uses statistics to create useful tools. Bitcoin uses "invisible hands" of the free market. Analysts use statistics to look at the market, but their results are not peer reviewed, nor even publicly available. Market analysts are the soothsayers of economics. We need a useful predictive tool for Bitcoin price that is useful for business.

Stick to Bitcoin, and find a new friend. 

[wingding]

u say bubble i say easy money

Many of the people using or investing into Bitcoin today, are doing it as if Bitcoin were a "get rich quick" scheme.

So it is'nt?

[Herodes]

u say bubble i say easy money

Many of the people using or investing into Bitcoin today, are doing it as if Bitcoin were a "get rich quick" scheme.

So it is'nt?

No. If you're in it for the quick buck, chances are you will get burnt.

[wingding]

Another thing to consider is that as the price gets higher and higher, the market becomes harder to manipulate.  

That's wrong. If icoins became more distributed, it would be harder to manipulate. However, it is likely that bitcoin becomes less distributed, since the large holders can easily manipulate the market today, and gather more coins.