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Author Topic: Bot to operate a price bloc to stabilize price of BitCoins  (Read 5112 times)
Revalin
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September 04, 2011, 05:39:19 AM
 #61

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No one is going to pay $10.00 local fiat to convert money into another format to buy M&Ms at a store that already accepts local fiat.  Simulating them at a fixed value isn't fine, since the value of BitCoins isn't fixed.

Exhibit 1: Goods priced at a fixed USD value, sold in BTC, that can be purchased locally in fiat; yet somehow people choose to shop there.  It's mostly for novelty, but so is most of the bitcoin economy right now.

http://bitmunchies.com/product_info.php?cPath=29_27&products_id=202

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No, you miss my point.  The market doesn't have one person with a monopoly on bid or ask prices.  Not even close, actually.  And the bot uses fiat, not Coins.

Do I?  I specifically said we'd trade it out to multiple players of each class until we have a functioning economy.

If the bot is trading, by definition it's using both fiat and coins.

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At any given moment you'll have a fixed floor based on how much capital the bot has access to.
No, my model takes any amount of donations and uses them to determine the floor.
Isn't that what I just said?

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The floor price is only fixed as long as no one in the market moves capital in or out of the bot.  I'm not saying people should contribute a total of nearly the market cap for a theory - I'm saying that whatever fiat people put in to generate the floor will eventually cause the price to move towards that relatively stable value.

No, I don't have the misconception that the bot has to be fully funded from the get-go.  I understand your dynamic floor.

What I'm saying is that the bot won't be relevant until the backing capital is a substantial portion of the market cap.  If the capital pool is only 5% of the market cap, it's not going to prevent panic selloffs - someone with USD$100k invested in BTC isn't going to be reassured that your bot guarantees it won't fall below USD$5k value.  An 85% guarantee would be wonderful!  But that requires people donate 85% of the market cap.

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Only if these rational buyers take your asks offers.  Without your asks being met, no transfer of Coins occurs, meaning the market price doesn't ever change at your whim alone.

People are buying bitcoins at $8.5 right now.  Smiley

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If I corner the BTC market,
A huge "if", I might add.
For a single player?  Sure.  But I consider the market currently "cornered" by speculators and early adopters.  They've locked up a large percentage of the commodity, so only a small percentage is in circulation, and anyone who wants to do business with it is doing so at a very high price/BTC.

I would simulate that by having one guy buy up 90% of the coins and holding them forever.  Don't get hung up on the market spike that causes; that's temporary, and the price will settle out when he's done.  What I'm concerned about is if people are still using RC to do business, the coins are going to be used at a much higher value since the supply is limited to 10%.

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There are no forex guys in the market right now - only speculators.
There's a difference?  Smiley

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Yes, we'd clearly have to simulate a few of each class of player, all competing, if it's going to be at all realistic.
And more importantly with the correct number of players it wouldn't resemble your example in the slightest way.  The market would compete and people would get a better price than the artificially high one you set your ask at.
That's what I just said.  Read those two quotes again.

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You can only force the price to any amount higher than the current high bid if you control all the BitCoins, and refuse to compromise to make a sale indefinitely.  This is also not the way the free market works.
No?  I think you're really not listening to anything I'm saying.  This is exactly what I address in this next quote:

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 What if I just waited for your price to approach the backed value, which is less than $1.00?
If I'm forcing the price high by limiting supply, the buyers will eventually buy at that price so they can complete their transactions.  Sure, I'd love to hold out for $0.10 bitcoins to buy bitmunchies...  But if I want my bitmunchies today, I have no choice but to pay $8.50/BTC.  And I will, since it doesn't affect the cost to me, which remains the same in USD.

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The people trying to buy M&Ms still have the option to just buy in fiat.  why would they jump through additional hoops and transaction fees to buy a grossly overpriced commodity and try to use that as a currency when they have a valid currency in their hands?

Indeed, why should people use BitCoins for anything at all, since they have perfectly good fiat currency?

They do it because it's an easier way to send money over distance, because Paypal sucks, for novelty, for speed, for anonymity, and who knows what else. They do it because BitCoin's properties are different from cash, and sometimes people prefer BitCoin's properties for a transaction.

Eventually we might have a native economy in BitCoins, but for the foreseeable future BTC is mostly a proxy for fiat currency.

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This is what I mean about not understanding the theory.  The bot doesn't require a fund of any amount - it just becomes a more powerful market force as that fund approaches the market cap.  The market price will move towards the backing floor, and the closer the floor is to current the market price, the less distance it has to move.
By "More powerful market force", do you mean it will raise the floor?  If so, yes, I get it.

If you mean you're trying to maintain a soft floor that's higher than the (total donations / total BTC in circulation), your bot is going to be trampled by smarter bots; if you're really unlucky it will be actively exploited by other bots.

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Once BitCoin is adopted as a currency it gains real value outside of the backing fund, negating it's need for stabilization, and therefore freeing up the funds, should users wish to remove them.  The purpose is to back the BitCoin until it becomes stable enough to be treated as a currency.  Why does no one get this?

I get it!  Really!  I think the reason you don't think I get it is because I'm drawing different conclusions than you do, and so you think I must not understand.

The "continual funding" problem I'm talking about is a short-term one, not a long-term one.  If you got $7M in donations, you'd be able to back at $1...  Which won't have an appreciable effect on the market.  If you get $30M, you'll have a credible backing at about 50% of market cap.  It'll boost confidence a fair bit.  Then the market trades up to $25.  At that point, your backing has become essentially irrelevant again, but it's still way too early for BC to be considered a stable, established currency.  So what do you do?  Either your bot remains irrelevant, or you have to seek out more donations.  And it'll take a whole lot of these cycles before BC becomes so established that it's no longer necessary.

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
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September 09, 2011, 05:43:05 PM
 #62

The "continual funding" problem I'm talking about is a short-term one, not a long-term one.  If you got $7M in donations, you'd be able to back at $1...  Which won't have an appreciable effect on the market.  If you get $30M, you'll have a credible backing at about 50% of market cap.  It'll boost confidence a fair bit.  Then the market trades up to $25.  At that point, your backing has become essentially irrelevant again, but it's still way too early for BC to be considered a stable, established currency.  So what do you do?  Either your bot remains irrelevant, or you have to seek out more donations.  And it'll take a whole lot of these cycles before BC becomes so established that it's no longer necessary.

I don't know, I think backing at $1.00 might be a good thing at this point.  You're still wrong about the math ($21,000,000.00 is required to back BitCoin to 1$), however.

I'm actually just here to comment that someone else anonymously generated 5 BitCoins to this project  Of course, that's only $25.00 USD today, since the market is so unstable.

Oh well..

Signatures are only used for 2 things - Advertising, like this one, and teenagers on social networking sites that feel a need to waste your time, which is fundamentally what all advertising does.  Abolish signatures on message boards.
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September 09, 2011, 07:38:34 PM
 #63

There are only 7.2M in circulation right now, so USD$7.2M would let you back it at $1 per.  As more are mined you would need additional donations of course.

If you did that in this market, people would sell into it heavily and you'd end up holding a lot of coins and a little fiat.  It would certainly hold the price rock solid at $1 for a long time since you'd presumably also keep an open sell order at $1 and it'll be quite a while before you sell them all off again.

So, two things:

1) where will you find someone willing to donate millions for this project?

2) Who can be trusted to run an account this large?  I think it can't be distributed because that would allow people to pull out their funds - you'd have speculators "backing" it as a pump tactic, but as soon as the price fell to $1.20 they'd pull out before having to actually use their money.  What centralized authority can be entrusted with that much?  Is that even a good idea?

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
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September 09, 2011, 08:00:47 PM
 #64

What road will get us there?  Letting it sit as a speculation market with no hope of enough stability to be used as a currency?  Or trying to stabilize it to facilitate it's use as a currency with real consistent value determined by the market?  How will we make it stable enough for businesses and John Q Public to accept it's use as a currency?

There's your problem.

What you don't realize yet is that Bitcoin is not a very good currency right now, but rather it is a speculative commodity.

See the following:

The role of a currency is to be both a long-term store of value, and a short term medium of exchange.  To be a store of value it needs to have stable prices, and to be a medium of exchange it needs to be easy to use and exchange.

If it's worth 0.01 US cent, it doesn't matter, as long as it retains that value over a long period of time and people use it in exchanges.

Right now we have neither:

The money supply is inflating, last I checked, by around +37% a year (as of a few days ago; obviously that number will converge to zero as the months go by, but 37% inflation is still significant).  At the same time, Bitcoin is getting all kinds of positive and negative publicity, resulting in fluctuating demand.  Right now we're in a deflationary period as a result of all of the bad publicity.  This rapid inflationary pressures and fluctuating deflationary pressures means the currency can't hold a stable price.  Security issues are also at the forefront as no significant third-party solutions have come forth and I haven't seen much commitment from the developers.  In the future when inflation dies down and demand stops fluctuating so wildly, we'll see significant price stabilization.

As a medium of exchange, it's also weak: there's little to actually buy and the services available to facilitate those transactions are untrustworthy at best, outright frauds at worst.  Basically what we have is a bunch of lone techies writing code in their basement, not professional companies creating products; this does not mean we won't have reliable facilitators in the future, but the fact is we just don't have any now (in my opinion).

Bitcoin isn't useful as a currency now.  The most investment and focus by third parties is in BTC mining and exchange right now, as is to be expected and as is necessary, as developed mining and exchange is absolutely necessary for the short, medium, and long term prospects.  When the economy has developed enough to allow convenient BTC purchases in supermarket stores I think Bitcoin will be just about 'ready' to move from a mining-based, long-term investment to an exchange-focused currency.
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