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Author Topic: Value Stabilization  (Read 1369 times)
lathomas64
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August 29, 2011, 07:18:41 PM
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What is needed to stabilize the value of bitcoin(beyond a larger market)

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August 29, 2011, 07:32:01 PM
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Nothing, just the larger market.

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August 29, 2011, 08:59:31 PM
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Options on BTC-to-fiat exchange rates (coming soon from both MtGox and TradeHill apparently)
Cash-settled futures and options on commodities (everything from precious metals to oil and soybeans) priced/settled in BTC

I'm working on a couple of other BTC-related things that actually bring products and services into the BTC economy instead of shuffling around BTC and fiat right now.  If no one's done the latter by the time I'm done with those things, I'll start working on it.  I think both of these are necessary to reduce volatility, and I think the first is necessary for wider uptake.

On that note, it could be especially helpful if after options on BTC-to-fiat are implemented, merchant solutions would have the ability to automatically price in and purchase put options on BTC in order to preserve the transaction's value in fiat and encourage merchants to keep their money in BTC for a longer period of time, thus driving up the value of BTC.  Also, it might be good if the merchant solutions would be able to immediately trade (or hedge with puts) enough of a transaction to cover the fiat costs while keeping all or part of the profit margin in BTC (perhaps forwarding to a "savings account" address or something similar).

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August 29, 2011, 11:25:35 PM
 #4

Options on BTC-to-fiat exchange rates (coming soon from both MtGox and TradeHill apparently)
Cash-settled futures and options on commodities (everything from precious metals to oil and soybeans) priced/settled in BTC
 

Agreed options will let much more information get priced with much lower transactions cost and much less money tied up to express the same positions.

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August 30, 2011, 01:07:53 AM
 #5

As many miners will sell their entire mining proceeds and the amount of true Bitcoin commerce remains at minimal levels, Bitcoins are primarily held by investors and traders.  Just as with other currencies and other investments, the exchange rate will fluctuate both in advance of and in response to other events -- even those which wouldn't seem to be related.

For instance, some investors might be lightening up after seeing the FinCEN ruling on "prepaid access" -- something that is just a few weeks away from going into effect but could significantly impact bitcoin's prospects if the action by the U.S. government does indeed apply to bitcoin transactions.  That is an event external to bitcoin that would still cause volatility whether or not we have an options market or whether or not we've finally reached a point that bitcoins are useful by themselves without needs to exchange them out to fiat.

When demand warrants, more and more methods for hedging will appear so that exposure to those exchange rate fluctuations can be minimized.

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August 31, 2011, 04:50:59 PM
 #6

Here's link to the Federal Register ruing on pre-paid access.
http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pdf
I'm still not convinced this applies to Bitcoin because there are some thing about it that don't meet the definition.
Such as this part
Quote
Section 1010.100(ff)(4)(ii) provides
factors for determination of the provider
of prepaid access in the event that no
participant in the prepaid program
registers as the provider. Determining
the provider of prepaid access in such
a situation is a matter of identifying the
participant with ‘‘principal oversight
and control.’
’ The determination of
which participant in the prepaid
program has principal oversight and
control will be a matter of facts and
circumstances.

No one has principal oversight and control of bitcoin i.e. no one can shut it down or limit access.
indio007
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August 31, 2011, 04:58:28 PM
 #7

Also this







Quote
DATES: Effective Date: This rule is
effective September 27, 2011. <--- my birthday Cheesy
Compliance Date: The compliance
date for 31 CFR 1022.380 is January 29,
2012.
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September 03, 2011, 07:12:26 AM
 #8

What is needed to stabilize the value of bitcoin(beyond a larger market)

Less speculators.  It's my opinion that speculation is 99% of the current price.

I consider this to be a serious downside to BC being a deflationary currency: it encourages speculation and hoarding, which cause the price to fluctuate as speculators flip-flop between "up up up the value will be huge when BC gets adopted for everything!" overoptimism and the current "I'm losing everything but maybe I can hold on a little longer and it'll come back...  maybe I'll sell a little so I can eat" foolishness.  (No, you'll lose it all if you keep that up.  It's frustrating watching people who've never experienced a speculative asset before.)

There really isn't a floor on the price until actual commerce takes control back from the traders, and there's no guarantee that will ever happen: while I believe there's a future for distributed e-currency, it might not the the BC.  Something else could replace it.

I'm giving serious thought to how to create a currency that allows some inflation to keep the value stable.  That part's easy to do through a number of mechanisms: the obvious one to me is to hand out more coins per mined block whenever the price goes too high.  I have a lot of thoughts on how to do that fairly and rationally, but it really doesn't matter unless there's a way to solve the harder problem: how to inject some deflation whenever the price goes too low.  You can't do the reciprocal of extra mining rewards easily.  You can't just tax everyone's wallets and destroy those coins.  (That would keep the price stable, but my goal is to keep a wallet's value stable.)  I'm not sure there IS a way to solve that problem.

For now, I'm encouraging everyone I do business with to use BitCoins.  I want a stable BitCoin, and with the current design, a real commerce base is by far the greatest source of long-term stability.

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September 03, 2011, 01:58:07 PM
 #9

I don't think you'll see the markets allow options until the price stabilizes. I agree that the bitcoin market being as... exciting... as it has been for the past 5 months, options might go a long way to stabilize the market. The issue right now is that the market is too easily manipulated by a large influx/removal of capital. To the point where you could hold several deep in the money call contracts, somehow manipulate the market with a large sell and while it tumbles further, you call your contracts. Then re-invest your capital, sell your covered calls in the money.

Wash, rinse, repeat.

Also, I doubt with the volatility that mtgox would allow people to trade on margin, because collecting on a margin call would be a nightmare unless they implemented the same requirements as any other brokerage house has when you're approved for option level 1 or higher.
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September 03, 2011, 02:03:09 PM
 #10

What is needed to stabilize the value of bitcoin(beyond a larger market)

time is needed.
not sure how many people realize that bitcoin is much more stable than a year ago.
here is a chart of the volatility :
http://bitcoincharts.com/charts/mtgoxUSD#vzm1g10zm2g25zxzi1gCVolatility

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September 03, 2011, 02:14:02 PM
 #11

time is needed.
not sure how many people realize that bitcoin is much more stable than a year ago.
here is a chart of the volatility :
http://bitcoincharts.com/charts/mtgoxUSD#vzm1g10zm2g25zxzi1gCVolatility
Nope. Disregarding the first spike, volatility has actually overall increased in 2011. It will probably take an extremely long time for the market (especially in "internet speed") to equilibrate due to the immense holdings of some early miners, if at all.


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