Why bitcoin's exchange rate won't drop too much

[deisik]

The problem with such logic is that it is not only you who mines bitcoins. Though a feeling of being involved at issuing "money" can inflate one's ego somewhat, I doubt it will be enough to actually go and try to stabilize bitcoin exchange value (since you would inevitably incur losses on yourself). If what you say were true, it would have been done so long ago by those who have big wallets. If they haven't already done this, why should they do it right now or later?

I'm confident that there are many miners already doing this, include me (maybe even some mining companies). And it does not incur any loss, that's the reason after each bitcoin hype, it crashed to a new higher low

For example, I have sold 10 coins with an average price of $800, received $8000. Now if bitcoin price crashed to $400, I need only $4000 to buy back all the coins I sold, thus there will be no net sell pressure from me and I still made $4000. I can even spend $6000 to buy 15 coins thus both of my bitcoin holding and fiat money holding increased after the crash

Sorry, but this doesn't work that way. If you sell something dear and then buy cheap, it is called speculation. If you sold some coins at $800 and received $8000 in return and bitcoin price then crashed to $400, it means that some poor wretch has lost $4000. I just can't fathom how this could possibly be called support for bitcoin price...

[johnyj]

The problem with such logic is that it is not only you who mines bitcoins. Though a feeling of being involved at issuing "money" can inflate one's ego somewhat, I doubt it will be enough to actually go and try to stabilize bitcoin exchange value (since you would inevitably incur losses on yourself). If what you say were true, it would have been done so long ago by those who have big wallets. If they haven't already done this, why should they do it right now or later?

I'm confident that there are many miners already doing this, include me (maybe even some mining companies). And it does not incur any loss, that's the reason after each bitcoin hype, it crashed to a new higher low

For example, I have sold 10 coins with an average price of $800, received $8000. Now if bitcoin price crashed to $400, I need only $4000 to buy back all the coins I sold, thus there will be no net sell pressure from me and I still made $4000. I can even spend $6000 to buy 15 coins thus both of my bitcoin holding and fiat money holding increased after the crash

Sorry, but this doesn't work that way. If you sell something dear and then buy cheap, it is called speculation. If you sold some coins at $800 and received $8000 in return and bitcoin price then crashed to $400, it means that some poor wretch has lost $4000. I just can't fathom how this could possibly be called support for bitcoin price...

Why those poor guys lost $4000? Because they want to sell the coin at a lower price, if they don't sell, I won't be able to buy coins at $400. So their loss purely comes from their lacking of confidence of their investment, if they never sell any coin, they won't have any loss, and I don't need to support the exchange rate either

From the view of the central bankers, they normally don't care about the loss or profit, those are trivial things comparing to their large holding of fiat money and foreign currency reserve, the exchange rate is the only concern

[johnyj]

This is all there is to it:



The supply and demand schedules are determined by underlying preference curves that we might not necessarily know with any kind of omniscience, but we can infer their behavior from the price signal.

There is no "won't drop too much" in any of this. The price holding actually has to happen for us to infer something about the underlying demand preference curves, we can't just assume that on an a priori basis because the only way we know anything about the demand function is through price discovery.

This chart applies to any consumable goods/services, but not for capital goods (investments). For capital goods, usually the demand depends on the appreciation speed of the goods

In Bitcoin's case, it is even more special, since supply is fixed. S will be a horizontal line. And D will rise when price rise, and since D can never get higher than S, the end result is any increase in D will just raise the price, thus D will eventually going horizontal closer and closer to S



Maybe this is not a very good chart, I think a 3D chart might be better, you need another freedom to describe the speed of P's increase

[deisik]

I'm confident that there are many miners already doing this, include me (maybe even some mining companies). And it does not incur any loss, that's the reason after each bitcoin hype, it crashed to a new higher low

For example, I have sold 10 coins with an average price of $800, received $8000. Now if bitcoin price crashed to $400, I need only $4000 to buy back all the coins I sold, thus there will be no net sell pressure from me and I still made $4000. I can even spend $6000 to buy 15 coins thus both of my bitcoin holding and fiat money holding increased after the crash

Sorry, but this doesn't work that way. If you sell something dear and then buy cheap, it is called speculation. If you sold some coins at $800 and received $8000 in return and bitcoin price then crashed to $400, it means that some poor wretch has lost $4000. I just can't fathom how this could possibly be called support for bitcoin price...

Why those poor guys lost $4000? Because they want to sell the coin at a lower price, if they don't sell, I won't be able to buy coins at $400. So their loss purely comes from their lacking of confidence of their investment, if they never sell any coin, they won't have any loss, and I don't need to support the exchange rate either

From the view of the central bankers, they normally don't care about the loss or profit, those are trivial things comparing to their large holding of fiat money and foreign currency reserve, the exchange rate is the only concern

But this in no case means that you're "supporting" the value of bitcoin. If fact, I would even call such stance hypocritical to a degree, since you're in the first place undermining its value by selling coins at $800 and then pretending to support it by buying it at $400 . This is plain old speculation, nothing beyond that really...

If you only bought bitcoins when the price went down (and spent it on goods or services), that would go for support

[johnyj]

Why those poor guys lost $4000? Because they want to sell the coin at a lower price, if they don't sell, I won't be able to buy coins at $400. So their loss purely comes from their lacking of confidence of their investment, if they never sell any coin, they won't have any loss, and I don't need to support the exchange rate either

From the view of the central bankers, they normally don't care about the loss or profit, those are trivial things comparing to their large holding of fiat money and foreign currency reserve, the exchange rate is the only concern

But this in no case means that you're "supporting" the value of bitcoin. If fact, I would even call such stance hypocritical to a degree, since you're in the first place undermining its value by selling coins at $800 and then pretending to support it by buying it at $400 . This is plain old speculation, nothing beyond that really...

If you only bought bitcoins when the price went down (and spent it on goods or services), that would go for support

Since bitcoin's total supply is limited, if I do not create net sell pressure on the market, I would indirectly support its exchange rate

Of course I can't always sell high and buy low, I might even do it with a small loss, but the result is the exchange rate get supported and majority of the bitcoin's value kept high

If every bitcoiner realize this, that will be the biggest support behind bitcoin. Unfortunately most of the people are short sighted and only care about their own profit, so they are destined to be ruled by a few bankers who can see a larger picture

[deisik]

But this in no case means that you're "supporting" the value of bitcoin. If fact, I would even call such stance hypocritical to a degree, since you're in the first place undermining its value by selling coins at $800 and then pretending to support it by buying it at $400 . This is plain old speculation, nothing beyond that really...

If you only bought bitcoins when the price went down (and spent it on goods or services), that would go for support

Since bitcoin's total supply is limited, if I do not create net sell pressure on the market, I would indirectly support its exchange rate

Of course I can't always sell high and buy low, I might even do it with a small loss, but the result is the exchange rate get supported and majority of the bitcoin's value kept high

If every bitcoiner realize this, that will be the biggest support behind bitcoin. Unfortunately most of the people are short sighted and only care about their own profit, so they are destined to be ruled by a few bankers who can see a larger picture

If what you say were true, then any speculator selling high and buying low would be "supporting" price (bitcoin or no bitcoin) which is obviously not the case, since for every deal there are two parties, one selling and the other buying. The only direct way to support currency would be to buy it when prices are falling...

[johnyj]

If what you say were true, then any speculator selling high and buying low would be "supporting" price (bitcoin or no bitcoin) which is obviously not the case, since for every deal there are two parties, one selling and the other buying. The only direct way to support currency would be to buy it when prices are falling...

I think majority of the speculators can not sell high and buy low accurately. My example just showed that if they successfully did that, their action will support the exchange rate without incur a loss. And there are some experienced institutional traders, they are usually the driven power of price development

Unlike gold, bitcoin's supply is limited, for each coin you buy or hold, you reduce the sell pressure on the market by 1 coin permanently. It does not take too much fiat money to drain out the coin supply on market at today's exchange rate

[johnyj]

I always watch this chart: Although price crashed, the ASK sum is still in a downward trend, means less and less coins are for sell on the market, and this will continue

[infinitybo]

BTC's value is based more on market sentiment than any rational basis.

[greenlion]

This chart applies to any consumable goods/services, but not for capital goods (investments). For capital goods, usually the demand depends on the appreciation speed of the goods

Time preference is already built into the preference curves that produce supply and demand. For example, we already see this in real life practice as far as Bitcoin payment accepting businesses offering goods at BTC discount. The asymptotic nature of supply in Bitcoin specifically is not necessarily relevant to the OP's point being discussed, because it does not really factor into price discovery in the sense of determining the equilibrium point. (I.e. the exact shape of supply and demand curves is immaterial to the underlying mechanism).

I'm going to take your comments with a grain of salt because you drew the graph wrong.

it is supposed to look like this:

This is semantic nonsense based on how Alfred Marshall arbitrarily decided to draw the graph in the first place. There is no clear causal case for what represents the dependent and independent variable ("price" is just another kind of quantity, the supply and demand graph is actually a quantity graphed against a quantity). I'm gonna go ahead and take your comments with a grain of salt because you didn't know where the graph even comes from.

[deisik]

If what you say were true, then any speculator selling high and buying low would be "supporting" price (bitcoin or no bitcoin) which is obviously not the case, since for every deal there are two parties, one selling and the other buying. The only direct way to support currency would be to buy it when prices are falling...

I think majority of the speculators can not sell high and buy low accurately. My example just showed that if they successfully did that, their action will support the exchange rate without incur a loss. And there are some experienced institutional traders, they are usually the driven power of price development

Unlike gold, bitcoin's supply is limited, for each coin you buy or hold, you reduce the sell pressure on the market by 1 coin permanently. It does not take too much fiat money to drain out the coin supply on market at today's exchange rate

On the contrary, if you buy and hold coins, this diminishes liquidity and thereby increases volatility. How could you possibly stabilize the exchange rate through increasing volatility? It is liquidity that supports exchange rate, leveling off speculative component from it...

And gold supply is limited too (somewhere around 2-3% annually)

[johnyj]

On the contrary, if you buy and hold coins, this diminishes liquidity and thereby increases volatility. How could you possibly stabilize the exchange rate through increasing volatility? It is liquidity that supports exchange rate, leveling off speculative component from it...

And gold supply is limited too (somewhere around 2-3% annually)

Yes, the volatility will be high, maybe that will always be a character for bitcoin during its life time (The recent crash again proved this). So it is best suitable as a medium of long term saving and investment, not for daily transaction. If your exposure on bitcoin is 10% of the risk capital, then the yearly return will be 500% and the risk is 7%, still astonishing. Of course when current wave of mining equipment upgrade finished, the volatility will drop

If the gold price rise 5x in a year, then there will be gold mines opening everywhere and the gold supply will increase immediately

[deisik]

On the contrary, if you buy and hold coins, this diminishes liquidity and thereby increases volatility. How could you possibly stabilize the exchange rate through increasing volatility? It is liquidity that supports exchange rate, leveling off speculative component from it...

And gold supply is limited too (somewhere around 2-3% annually)

Yes, the volatility will be high, maybe that will always be a character for bitcoin during its life time (The recent crash again proved this). So it is best suitable as a medium of long term saving and investment, not for daily transaction. If your exposure on bitcoin is 10% of the risk capital, then the yearly return will be 500% and the risk is 7%, still astonishing. Of course when current wave of mining equipment upgrade finished, the volatility will drop

If the gold price rise 5x in a year, then there will be gold mines opening everywhere and the gold supply will increase immediately

Gold already rose something like that within a decade, and I don't see gold mines opening everywhere. The answer is quite simple though. Gold volatility is somewhere in between bitcoin and dollar volatility, i.e. it is too volatile and those mines would be at a loss most time of their operating life...

[johnyj]

On the contrary, if you buy and hold coins, this diminishes liquidity and thereby increases volatility. How could you possibly stabilize the exchange rate through increasing volatility? It is liquidity that supports exchange rate, leveling off speculative component from it...

And gold supply is limited too (somewhere around 2-3% annually)

Yes, the volatility will be high, maybe that will always be a character for bitcoin during its life time (The recent crash again proved this). So it is best suitable as a medium of long term saving and investment, not for daily transaction. If your exposure on bitcoin is 10% of the risk capital, then the yearly return will be 500% and the risk is 7%, still astonishing. Of course when current wave of mining equipment upgrade finished, the volatility will drop

If the gold price rise 5x in a year, then there will be gold mines opening everywhere and the gold supply will increase immediately

Gold already rose something like that within a decade, and I don't see gold mines opening everywhere. The answer is quite simple though. Gold volatility is somewhere in between bitcoin and dollar volatility, i.e. it is too volatile and those mines would be at a loss most time of their operating life...

There were many gold mines opened in china recently and since last year it is the biggest gold producer in the world

Volatility is not a problem for investors, they can always adjust the exposure to reduce the volatility, but it will be a problem for daily spending

[deisik]

Volatility is not a problem for investors speculators, they can always adjust the exposure to reduce the volatility, but it will be a problem for daily spending

Some small change was absolutely asking for...

[johnyj]

Volatility is not a problem for investors speculators, they can always adjust the exposure to reduce the volatility, but it will be a problem for daily spending

Some small change was absolutely asking for...

Investors have faith, speculators don't

That faith coming from the understanding of most of the bitcoin related technical aspects, and more importantly, understanding of the fatal flaw in today's fiat money system, that will take many years of independent research

For example, bitcoin keeps dropping towards $100 for 12 months, then all the speculators will run away, but investors will buy big

[deisik]

Volatility is not a problem for investors speculators, they can always adjust the exposure to reduce the volatility, but it will be a problem for daily spending

Some small change was absolutely asking for...

Investors have faith, speculators don't

That faith coming from the understanding of most of the bitcoin related technical aspects, and more importantly, understanding of the fatal flaw in today's fiat money system, that will take many years of independent research

For example, bitcoin keeps dropping towards $100 for 12 months, then all the speculators will run away, but investors will buy big

Speculators can earn on falling asset as much as on growing, unlike investors that have only faith remaining (if ever) in such a case. Don't have illusions on this account. All speculators need is volatility...

[johnyj]

Speculators can earn on falling asset as much as on growing, unlike investors that have only faith remaining (if ever) in such a case. Don't have illusions on this account. All speculators need is volatility...

Easier said than done. Almost everyone who have ever tried to short bitcoin were wiped out since they can never predict how high the market will go before a crash

[deisik]

Speculators can earn on falling asset as much as on growing, unlike investors that have only faith remaining (if ever) in such a case. Don't have illusions on this account. All speculators need is volatility...

Easier said than done. Almost everyone who have ever tried to short bitcoin were wiped out since they can never predict how high the market will go before a crash

Simple question, how do you know?

[johnyj]

Speculators can earn on falling asset as much as on growing, unlike investors that have only faith remaining (if ever) in such a case. Don't have illusions on this account. All speculators need is volatility...

Easier said than done. Almost everyone who have ever tried to short bitcoin were wiped out since they can never predict how high the market will go before a crash

Simple question, how do you know?

The time that market crashed is a very small part of the total bitcoin price history, means majority of the time the shorters were squeezed, unless they can call the top, but a top is only identified after a crash