How is the value of bitcoin calculated

[gravitate]

Is it just by exchanges who change the prices based on how much money they want to make? This is one thing I am concerned about bitcoin by. How is the value calculated?

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[Peter Lambert]

Is it just by exchanges who change the prices based on how much money they want to make? This is one thing I am concerned about bitcoin by. How is the value calculated?

The people who have bitcoins offer them for different prices, the people who want bitcoins offer to buy them for different prices. When a bid and a sell offer coincide that is the price of a bitcoin.

It is not the exchanges who set the price, it is the individual users who agree on the price. The exchange just brings buyers and sellers together in one place.

[gravitate]

Is it just by exchanges who change the prices based on how much money they want to make? This is one thing I am concerned about bitcoin by. How is the value calculated?

The people who have bitcoins offer them for different prices, the people who want bitcoins offer to buy them for different prices. When a bid and a sell offer coincide that is the price of a bitcoin.

It is not the exchanges who set the price, it is the individual users who agree on the price. The exchange just brings buyers and sellers together in one place.

I dont agree with this. The people sell their bitcoins based on what the exchanges say. YOu buy based on what the exchanges say too. I cant go out today and buy a coin for 20 pounds because the exchanges have valued them at 80 pounds. I cant sell a bitcoin at 200 pounds because the exchanges say 80 pounds etc etc.

I was passionate about bicoin until I realised this. I even started a business with them. But now after this stark realisation I think I will be sticking to pounds.

[knight22]

I dont agree with this. The people sell their bitcoins based on what the exchanges say. YOu buy based on what the exchanges say too. I cant go out today and buy a coin for 20 pounds because the exchanges have valued them at 80 pounds. I cant sell a bitcoin at 200 pounds because the exchanges say 80 pounds etc etc.

I was passionate about bicoin until I realised this. I even started a business with them. But now after this stark realisation I think I will be sticking to pounds.

No.
You can't agree or not. Peter Lambert described well how it works and it works just like that. It's free market which decide the price of bitcoin.

Check this video at 1min for more explanations
http://www.youtube.com/watch?v=lCFoKZypAKs

[MoreFun]

Behind the exchange are people's bids and asks.

Why would anyone buy from you for $200 if he can buy the same for $100 from other people? Why would anyone sell to you for $20 if he can sell it for $100 to others?

[gravitate]

bitbargain you can only sell at prices based on the apparent value from the main exchange mtgox price. hmmm

[phatsphere]

you have to realize, that there are several different exchanges and on each of them, there is a different price. second, every time a trade happens, the price might change a bit (could happen several times a second).

i suggest you to go to this page:
http://trading.i286.org/
and look at the column in the bottom right. that's the list of recent trades.

to understand the sell and buy price, you have to look at the top of the first two columns. at the top is a graphical representation …

[HeliKopterBen]

The Last stated price on an exchange was the price at which a buyer agreed to purchase from a seller.  The exchange itself is not offering to buy or sell anything.  They just match buyer with seller.

[Chalkbot]

Gravitate,

I'm not sure I understand why you came here to ask a specific question (it seems) and then argued with the people who provided the answer.     notsureiftrolling.gif

If the exchange had control over the price of bitcoin (which they certainly do not), can you explain why they wouldn't simply hike it indefinitely and relentlessly? Why would they ever drop the price?

You can buy or sell a bitcoin for any price you want to, nobody is enforcing exchange prices, but if your desired price point is too far from those of the exchange, you'd have a hard time finding a buyer/seller who would rather do business with you than simply trading on the exchange for a better deal.

[Peter Lambert]

If the exchange had control over the price of bitcoin (which they certainly do not), can you explain why they wouldn't simply hike it indefinitely and relentlessly? Why would they ever drop the price?

You can buy or sell a bitcoin for any price you want to, nobody is enforcing exchange prices, but if your desired price point is too far from those of the exchange, you'd have a hard time finding a buyer/seller who would rather do business with you than simply trading on the exchange for a better deal.

Remember also that there are many bitcoins exchanged in places other than on the exchanges. So if one exchange was trying to manipulate the price then people would just work around them and arbitrage the price and the manipulator would run out of money.

[johnyj]

Is it just by exchanges who change the prices based on how much money they want to make? This is one thing I am concerned about bitcoin by. How is the value calculated?

That's an interesting question. I think the exchange price is a mix of supply/demand and psychology

Fiat money worth nothing because it cost nothing to make, but they do worth something on the exchange because there is a supply and demand balance, and that supply and demand balance is maintained by a psychology. If all the people would lose the confidence of a currency and start to convert them to physical goods, the supply and demand balance will be broken and it will lose most of its value quickly

[notme]

Is it just by exchanges who change the prices based on how much money they want to make? This is one thing I am concerned about bitcoin by. How is the value calculated?

That's an interesting question. I think the exchange price is a mix of supply/demand and psychology

Fiat money worth nothing because it cost nothing to make, but they do worth something on the exchange because there is a supply and demand balance, and that supply and demand balance is maintained by a psychology. If all the people would lose the confidence of a currency and start to convert them to physical goods, the supply and demand balance will be broken and it will lose most of its value quickly

Fiat money costs future money.

[adamstgBit]

How is the value of bitcoin calculated

how/what do you value your coins at?

[thezerg]

I think he may basically understand supply and demand but what he's saying is that the exchange could fake the order book (the list of buyers and sellers and what price they want). 

gravitate,  the options for the exchange to fake this are limited.  And we have many exchanges and lots of in-person trading.  The divergence between Mt. Gox and the rest is essentially proof that the markets are independent.

Why can't the exchange set the price?

Example: lets say the exchange wants to push the price up from 99 to 110.  And I wanted to sell 100 btc at 100 USD each.  Ok so I put up my 100btc for sale, and the exchange tries to drive the price from 99 to 110.  It can:

1. Buy my coins. (ok so that was a valid purchase.  The exchange paid me $ for the coins.  There's no manipulation here)
2. Ignore my sell order (but I would complain on forums like these so the manipulation would rapidly become obvious)


When people talk about exchanges manipulating the price to make $, they are talking about something a lot more subtle than that. 

Basically let's say the current price of BTC is 89, so there are sellers on the exchange willing to sell at prices between 90-110.  Now someone makes a big buy.  The exchange "sees" the big buy and knows it will drive the price to 105 so it quickly injects its own purchase to grab all coins for sale from 90-91 (for example).  Next, it lets the large buy through and so the price of BTC rises to 105.  Buyers see this move but they still want coins so they increase their bids up to 100.  So the exchange got coins at 90 and can now slowly unload them at around 100.  Or wait for a big seller and do the same thing in the other direction.  This is called "front-running" the market.

But as you can see the exchange is not really able to set or manipulate the price; it can only grab a bit of dishonest profit for themselves by reacting to early information about other people's buy/sell action.  Who loses?  Well, the buyer got cheated a little; he was expecting some coins at 90 but his lowest coin purchase was 91.

[notme]

When people talk about exchanges manipulating the price to make $, they are talking about something a lot more subtle than that. 

Basically let's say the current price of BTC is 89, so there are sellers on the exchange willing to sell at prices between 90-110.  Now someone makes a big buy.  The exchange "sees" the big buy and knows it will drive the price to 105 so it quickly injects its own purchase to grab all coins for sale from 90-91 (for example).  Next, it lets the large buy through and so the price of BTC rises to 105.  Buyers see this move but they still want coins so they increase their bids up to 100.  So the exchange got coins at 90 and can now slowly unload them at around 100.  Or wait for a big seller and do the same thing in the other direction.  This is called "front-running" the market.

But as you can see the exchange is not really able to set or manipulate the price; it can only grab a bit of dishonest profit for themselves by reacting to early information about other people's buy/sell action.  Who loses?  Well, the buyer got cheated a little; he was expecting some coins at 90 but his lowest coin purchase was 91.

Do you mean like market making bots with tiered order books?.... Like the big boys in Wallstreet?  You're right.  That would be terrible.

[Peter Lambert]

When people talk about exchanges manipulating the price to make $, they are talking about something a lot more subtle than that.  

Basically let's say the current price of BTC is 89, so there are sellers on the exchange willing to sell at prices between 90-110.  Now someone makes a big buy.  The exchange "sees" the big buy and knows it will drive the price to 105 so it quickly injects its own purchase to grab all coins for sale from 90-91 (for example).  Next, it lets the large buy through and so the price of BTC rises to 105.  Buyers see this move but they still want coins so they increase their bids up to 100.  So the exchange got coins at 90 and can now slowly unload them at around 100.  Or wait for a big seller and do the same thing in the other direction.  This is called "front-running" the market.

But as you can see the exchange is not really able to set or manipulate the price; it can only grab a bit of dishonest profit for themselves by reacting to early information about other people's buy/sell action.  Who loses?  Well, the buyer got cheated a little; he was expecting some coins at 90 but his lowest coin purchase was 91.

Do you mean like market making bots with tiered order books?.... Like the big boys in Wallstreet?  You're right.  That would be terrible.

Not just bots which anybody runs, bot run by the exchange itself which respond to orders before placing them on the exchange. Sort of an insider knowledge of upcoming trades giving them an unfair advantage.

This seems rather paranoid, but there is little you could do to prove it was happening.

[gravitate]

Also if bitcoin is virtually free to send why we're millions frozen from mt gox which they got In a few months. As it is unregulated there is no one to audit them or clarify this but the figures speak for them selves.

They need the crashes to buy up lots of bitcoins to sell again with the maximum profit for their big houses and farraris.

When you realize this bitcoin is really not as revolutionary as you think .  It is not regulated so can fly up or down. The people who control it's value are fat cats scooping up the cream.
I am starting to think the pound is better. You are getting shafted but at least you can rely on a bit of stability.

Please someone prove me wrong? However I don't think anyone can

[SGExodus]

Also if bitcoin is virtually free to send why we're millions frozen from mt gox which they got In a few months. As it is unregulated there is no one to audit them or clarify this but the figures speak for them selves.

They need the crashes to buy up lots of bitcoins to sell again with the maximum profit for their big houses and farraris.

When you realize this bitcoin is really not as revolutionary as you think .  It is not regulated so can fly up or down. The people who control it's value are fat cats scooping up the cream.
I am starting to think the pound is better. You are getting shafted but at least you can rely on a bit of stability.

Please someone prove me wrong? However I don't think anyone can

Sorry, most of us aren't train to educate mentally challenged people.

I suggest you start taking up some online course on Economic so that you can help yourself. Khan Academy will provide what you need.

[gravitate]

I see so just some condecending comments with actually no basis. There is no need for this level of immaturity when I am hoping someone will correct me in what I am saying. I was not expecting that! You are not representing bitcoin very well anyway

[andrewsg]

I see so just some condecending comments with actually no basis. There is no need for this level of immaturity when I am hoping someone will correct me in what I am saying. I was not expecting that! You are not representing bitcoin very well anyway

No, not just condescending comments, you actually got some really good answers in this thread about price discovery in a free market and the role of exchanges. Those answers are valid whether you are talking about bitcoin, fiat currency, commodities, etc, basically anything you trade on an exchange. If you still do not understand how the price is determined then the next step, as suggested, is to take a course on economics, it would really benefit you regardless of your views on bitcoin. Exchanges do not dictate the price, buyers and sellers do. Yes, bitcoin is unregulated. Most of us see that as a good thing. Yes, the price can go up and down, a lot more than the "pound". Yes, exchanges could be acting as buyers and sellers for their own accounts. Yes, like any other buyer or seller they have a limited influence on the price, which is proportional with the holdings they are willing to risk. Yes, bitcoins are almost free to send. Yes, some fiat is stuck with MtGox. These two statements are also completely unrelated. Bitcoin IS revolutionary in many ways. None of which break basic economic principles. Take more time to think about the answers you have been provided. Try to disprove them, it may prove educational.