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Author Topic: What would be the cost of keeping BTC - USD exchange rate < 200 ?!  (Read 2775 times)
btcusr
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July 09, 2013, 04:56:21 AM
 #1

Lets assume bitcoin generates interest among general public, and every month, the amount of money comes in to bitcoin exchanges is $5 million; and other markets like euro, GBP, yen, etc. are negligibly small and lets say everything together, about $10 million constant money inflow to exchanges.

If there is a trading entity whose goal is to push down BTC exchange rates, then what is the minimum amount required to prevent BTC exchange rates to go up.

One more assumption; BTC exchanges are fair and they are not colluding.

Another fact: There are limited number of units (about 11 million BTC, if smallest possible trading unit is mBTC, then there are 11 billion mBTC). I am not sure but just hope this count also contributes to price movement.

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July 09, 2013, 07:15:51 AM
 #2

If there is a trading entity whose goal is to push down BTC exchange rates, then what is the minimum amount required to prevent BTC exchange rates to go up.

Exactly the same amount of money that is going in.
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July 09, 2013, 07:23:49 AM
 #3

If there is a trading entity whose goal is to push down BTC exchange rates, then what is the minimum amount required to prevent BTC exchange rates to go up.

Exactly the same amount of money that is going in.

No, my guess is one hundredth to one tenth of money is enough.
An experienced  trader can turn the market upside down.
I'm no expert, let's see what others have to say. Smiley

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July 09, 2013, 08:32:48 AM
 #4

Why the interest in what it takes to keep its valuation down?

If the purpose of BitCoin (and other cryptocurrencies) is to replace 'real' fiat currencies, I think their effect should be largely ignored. Maybe right now it's a good thing their is an exchange rate, but eventually we'd want these 'hard' currencies to go away, right?

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July 09, 2013, 09:51:40 AM
 #5

Why the interest in what it takes to keep its valuation down?

If the purpose of BitCoin (and other cryptocurrencies) is to replace 'real' fiat currencies, I think their effect should be largely ignored. Maybe right now it's a good thing their is an exchange rate, but eventually we'd want these 'hard' currencies to go away, right?

That would be the ideal case, but that will take a long time to happen, or it will never happen.

Till then, we have to deal with exchange rates, speculations, and conspiracy theories.

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July 09, 2013, 09:52:49 AM
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The cost would not be in actually trading on the exchanges but rather connections, media bias, regulatory actions, etc.
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July 09, 2013, 10:05:59 AM
 #7

The cost would not be in actually trading on the exchanges but rather connections, media bias, regulatory actions, etc.

ok, I agree.. Smiley

but, let's not add any more parameters to the problem.

my question is that, we have a fixed money inflow,how much would it take to keep it down.

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July 09, 2013, 12:25:49 PM
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No, my guess is one hundredth to one tenth of money is enough.
An experienced  trader can turn the market upside down.
I'm no expert, let's see what others have to say. Smiley

All things being equal, to raise the price will take exactly the same amount of money than to lower it.

Imagine an order-book populated with buy and sell orders. Each one which gets taken out by a market order (of the opposite type), will either raise or lower the best buy/sell price on the exchange. On average, the entries in the book are spaced apart by the same amount on both sides, therefore it will take the same amount of money traded to raise or lower the price.
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July 09, 2013, 12:41:27 PM
 #9

The trader could buy all the coins out of the exchange und dump them every now and then on the exchanges.
I guess that could work for a while, it's all about the psychology seeing the reference market only going down.
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July 09, 2013, 01:22:47 PM
 #10

It is very easy to manipulate, because even if there is 11 million BTC in the world, there is only a few thousands of BTC in the main exchanges. So, you just need to pump / dump the price in the exchange, and then make a large transaction outside to be rich.

For instance, if you want to sell 10 000 btc: now, you will get 720 000 USD for that...
But, if you spend 100 000 USD in buying btc, you will increase the price from $72 to $80.
And more people will buy then, and you will have an extra 1 000 btc to sell. So, Smiley

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July 09, 2013, 01:40:04 PM
 #11

Guess I'll toss in my ideas, but they are just thoughts and opinions of course.

There may be scenarios', with which, money is not the larger aspect of the equation.
 For instance;
1. psychological FUD  (create a consensus of fear or doubt that price will hold)
2. Media/ Govt. Attention (negative media or govt reports; *helps augment 1.)
3. Conformity (Sheeple syndrome, whereby, the larger mass does not want to be a bag holder NOR miss-out on profits.  *Direct result of 1 and 2)
4. Money (only enough necessary to "fulfill" certain aspects of "fear", already present, with the conformal component of traders *direct result of 1 and 3 (2 optional) **leads to 1.)

This "loop" can repeat (1,2,3,4,1,2,3,4) indefinitely;  until either 1 or 3 "values" are reduced or reversed.   

If we were to consider, to some degree, that this has / is occurring over the last couple of months;  then the actual money required is fairly low.   

Closest I can figure, it took appx 5 Million USD to drop BTC from the peak 266 to below 200 (april 10th 2pm-5pm).  Later that day,  another 4.5 Million was required to maintain price below 200 (April 10th 8pm-9pm).  Additionally, another 3 Million was sold again to maintain price below 200 (april 11th 1am-2am).  Lastly, another "set of sells"  around 3 million further pushed the price under 150. (April 11th 12pm-2pm).
 Later we see another 4 million sells, to prevent the rally to over 150 (april 19th 8am -10am).  Following the "Gox outage rally" (result of removing some #1 from above temporarily);  Just under 10 Million was sold to return price to under 150 (april 24th 4pm-8pm).  Following 3, 1/2 million sells (april 25th 2am-2pm);  one final set of sells was required to drop the price below 150.  Here appx 7.5 Million was sold (april 25th 4pm-9pm).  Finally sells at just over 5 million ended any push above 150 (april 25th 10pm - april 26th 6am).


It would appear that, no more than 5 million (in a set) was required to drop the price below 200 and prevent its' short-term return.  It would appear that, no more than 10 million (in a set) was required to drop the price below 150 and prevent its' short-term return.  This was also during the highest volume times that BTC has seen, in it's entire life.  Considering that the loop shown above (1,2,3,4,1,2,3,4) has been in effect throughout;  the required cost in money has been relatively low. 
  It should be noted that the above points work oppositely as well.  If, for instance, 1 and (thus) 2 become positive values; then by default 3 will as well.  This of course would dramatically increase the 4. Money required to "hold" below a price of X.  There has been one point shown above where, to some degree;  this applied.  IF you look at the "Gox outage rally" from above, it took roughly 2 times the cost of any other "dump" (10 Million).  While not technically having 1. go to a positive value;  the amount of negative was reduced with the return of Gox and thus "Cost" more 4. Money to stop. 

Lastly, I did not track the recent drop (as far as volume and time) from 100.   I would imagine, since the 1,2,3,4 loop is still active;  that no more than 5 Million in dumps was required here as well.

Just thoughts I guess.  Sorry to be long
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July 09, 2013, 02:16:50 PM
 #12

In a closed system, the answer is fairly simple, for each bitcoin bought you'd need one bitcoin sold.

Bitcoin isn't a closed system, though. There are a number of external variables, which is why whenever shorting becomes available, the price tends to slide downwards. All it takes is someone with enough BTC willing to sell enough BTC to fulfil the needs created when he shorted BTC.

It happened with Bitcoinica, and it's happening now.

The good news is, it's artificial, and eventually the true valuation will win out.
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July 09, 2013, 03:37:07 PM
 #13

To sell a BTC requires that you first bought some BTC and because supply is limited you would need to buy the dips and accumulate a large sum of BTC... PUSHING THE PRICE UP.   Then you would have to create a sell wall.  A large number of BTC for sale at $200.   Once all BTC for sale at $200 are bought and held by others, there is nothing they could do.

Lets assume there were 10M BTC total in circulation and an attacker some how acquired half of it or 5 M BTC, at $200 per BTC that would be one 1 Billion dollars worth.  They would be able to peg the price at $200 max until other people bought up 1 billion dollars worth at $200.

Assuming they had printing presses and were no concerned about losing money, they could continually buy anytime the price fell below $200 to restock their supply.   The effect of this mode of operation would be to provide BTC with a PEG at $200 (never going above nor much below).  This peg would then increase demand and ultimately the money printers would be losing money while maintaing that peg.

Instead what they would do is introduce wild volatility.  Buy up $1 billion and pushing the price up to $400, then sell it all pushing the price down to $1.   The problem is that such artificial manipulation would allow 'true believers' to buy the dips and sell the highs and make a ton of money at the expense of the manipulators.  Because they do not use leverage, the manipulators would be unable to shake their position.   Therefore speculators who are attempting to ascertain the true value of BTC would end up providing an equal and opposite reaction and making a ton of money off of the manipulators to the extent that they could separate the true price signal from the artificial noise.

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July 09, 2013, 06:12:01 PM
 #14

As usual, you don't need to do anything on the exchange, you just reduce the fiat money supply (FED is going to tighten soon), when available fiat is getting less, people will sell any kind of asset they have for fiat, in order to support their expense. If bitcoin can be spent everywhere, then the price will not be affected by a tightening of fiat money supply, it will get more adoption instead

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July 10, 2013, 01:14:40 AM
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...

no more than 5 million (in a set) was required to drop the price below 200 and prevent its' short-term return.  It would appear that, no more than 10 million (in a set) was required to drop the price below 150 and prevent its' short-term return.  This was also during the highest volume times that BTC has seen, in it's entire life.

...


Thanks. When someone is willing to spend money to keep exchange rates low, then it is easy to scare away initial / naive investors.

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July 10, 2013, 02:43:59 AM
 #16

To sell a BTC requires that you first bought some BTC

Or borrowed it, say, by selling short an ETF...

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July 10, 2013, 03:36:35 AM
 #17

Why the interest in what it takes to keep its valuation down?

If the purpose of BitCoin (and other cryptocurrencies) is to replace 'real' fiat currencies, I think their effect should be largely ignored. Maybe right now it's a good thing their is an exchange rate, but eventually we'd want these 'hard' currencies to go away, right?

That would be the ideal case, but that will take a long time to happen, or it will never happen.

Till then, we have to deal with exchange rates, speculations, and conspiracy theories.


They aren't theories if they are really happening. Wink

Proverbs 12:1
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July 15, 2013, 10:38:33 PM
 #18

With a constant influx of 10M per month (or really any number), and which is staying in BTC, no amount of money in the world is enough to keep the price below 200 (or another number).

Proof: with a constant influx of 10M/month a price of 200 is reached sooner or later. Then to keep the price down you need to buy at 200+x and sell at a loss for 200, losing x*50000 each month. x will be rising, because less and less sellers are available. Remember all the previous buyers stay in BTC, so supply is shrinking. x will skyrocket and likely cause bankruptcy of anyone trying this, but sooner or later you run out of sellers due to the limited amount of BTC even with infinite funds. As a hypothetical upper limit after 21000000*200/10000000/12 = 35 years there are no BTC left for you to buy and resell.
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July 15, 2013, 11:31:53 PM
 #19

With a constant influx of 10M per month (or really any number), and which is staying in BTC, no amount of money in the world is enough to keep the price below 200 (or another number).

Proof: with a constant influx of 10M/month a price of 200 is reached sooner or later. Then to keep the price down you need to buy at 200+x and sell at a loss for 200, losing x*50000 each month. x will be rising, because less and less sellers are available. Remember all the previous buyers stay in BTC, so supply is shrinking. x will skyrocket and likely cause bankruptcy of anyone trying this, but sooner or later you run out of sellers due to the limited amount of BTC even with infinite funds. As a hypothetical upper limit after 21000000*200/10000000/12 = 35 years there are no BTC left for you to buy and resell.


Not quite.

Not all transfers occur on exchanges (almost none of mine for example, as I primarily use bitcoin in commerce rather than as investment).
If one were only to buy (or trade to acquire) off exchange and only to sell on the exchange, this depresses the exchange pricing.  Additionally a large mining concern that sells all it mines and only sells via exchanges, can depress pricing (and also keep the cost to depress the price down if they are using the exchange price to set the price).

The point being, the answer is not knowable mathematically in the way you describe without accounting for all the off-exchange transactions. 

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July 16, 2013, 12:11:30 AM
 #20

With a constant influx of 10M per month (or really any number), and which is staying in BTC, no amount of money in the world is enough to keep the price below 200 (or another number).

Proof: with a constant influx of 10M/month a price of 200 is reached sooner or later. Then to keep the price down you need to buy at 200+x and sell at a loss for 200, losing x*50000 each month. x will be rising, because less and less sellers are available. Remember all the previous buyers stay in BTC, so supply is shrinking. x will skyrocket and likely cause bankruptcy of anyone trying this, but sooner or later you run out of sellers due to the limited amount of BTC even with infinite funds. As a hypothetical upper limit after 21000000*200/10000000/12 = 35 years there are no BTC left for you to buy and resell.


Not quite.

Not all transfers occur on exchanges (almost none of mine for example, as I primarily use bitcoin in commerce rather than as investment).
If one were only to buy (or trade to acquire) off exchange and only to sell on the exchange, this depresses the exchange pricing.  Additionally a large mining concern that sells all it mines and only sells via exchanges, can depress pricing (and also keep the cost to depress the price down if they are using the exchange price to set the price).

The point being, the answer is not knowable mathematically in the way you describe without accounting for all the off-exchange transactions. 

It does not matter where you buy. You will run out of people who can sell to you eventually, because there is a limited amount of bitcoin in existence. You can never* buy and resell more than this amount, regardless how high your subsidy.

*) Assuming rational people do not sell to you for less than they bought from you. If they sell to you for  equal or more than 200/ your proposed net influx is not maintainable.
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