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