StableCoin

[yogi]

I believe the volatility of BitCoin is off-putting to many people, especially retailers, as they will need to constantly change their prices.

Now a number of exchanges are offering a form of BitCoin shorting.
So, would it be possible to create a StableCoin that is made up of 50% BitCoin and 50% BitCoin shorts?

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[worldinacoin]

IMHO, it is really too early for Bitcoin to talk about derivatives when the essence of a currency, that of transactions and storage of value is still being built up in Bitcoin.

[P4man]

I believe the volatility of BitCoin is off-putting to many people, especially retailers, as they will need to constantly change their prices.

A retailer just have has to implement a merchant tool that automatically converts his dollar/euro/whatever price in bitcoins, and on top of that can protect him from exchange rate fluctuations. Check out for instance bit-pay.com

[Iseree22]

Stability will come from consistent economic growth of the Bitcoin economy. This would be best achieved by creating a mining pool that spends their Bitcoin's on Bitcoin Businesses. This will stimulate demand within the Bitcoin economy, and lead to economic growth and currency stability.

[P4man]

You realise a growth in bitcoin economy will lead to anything but stability? Ignoring speculation it would cause a constant rise in the value of bitcoins. But anything that rises will invite speculation causing bitcoin's value to go all over place with bubbles and bursts. Stability is not going to be achieved until bitcoin is as commonplace as euro's or dollars.

[Iseree22]

So the recent volatility is due to the growth in the bitcoin economy?

Economic growth will most likely cause the price of bitcoin's to appreciate, but at a stable rate. Compared with the unstable movements of the recent past.

Economies are cyclical so bubbles and bursts are an inevitable regardless of the underlying medium of exchange.

[P4man]

So the recent volatility is due to the growth in the bitcoin economy?

No. I would guess 99% of the current bitcoin price is speculation, 1% trade. But if bitcoin would gain considerable traction, you can imagine what that would do to expectations, and therefore price. IT will go off the charts, before plunging down again. Rince repeat.

Economies are cyclical so bubbles and bursts are an inevitable regardless of the underlying medium of exchange.

I think thats more a result of our current financial system than anything else. but thats another discussion.

[Iseree22]

So the recent volatility is due to the growth in the bitcoin economy?

No. I would guess 99% of the current bitcoin price is speculation, 1% trade. But if bitcoin would gain considerable traction, you can imagine what that would do to expectations, and therefore price. IT will go off the charts, before plunging down again. Rince repeat.

But aren't bubbles caused by speculation? If you are going to omit price rise caused by speculation, then is your analysis still useful?

Economies are cyclical so bubbles and bursts are an inevitable regardless of the underlying medium of exchange.

I think thats more a result of our current financial system than anything else. but thats another discussion.

I partially agree, I think that bubbles are primarily the result of human behavior and distorted financial systems exacerbate the effect.

[P4man]

But aren't bubbles caused by speculation?

? Yes obviously.

If you are going to omit price rise caused by speculation, then is your analysis still useful?

Not sure what you mean. The current price is speculation. But its very uncertain if bitcoin will ever become more mainstream, which puts a cap on its price. If that really begins to happen, if bitcoin gains traction,  speculation will increase manyfold. Imagine newegg or something begins accepting bitcoins, you would see a spectacular rise in bitcoin value that is wholly disproportionate with the trade bitcoin will achieve on newegg.

[Iseree22]

You realise a growth in bitcoin economy will lead to anything but stability? Ignoring speculation it would cause a constant rise in the value of bitcoins. But anything that rises will invite speculation causing bitcoin's value to go all over place with bubbles and bursts. Stability is not going to be achieved until bitcoin is as commonplace as euro's or dollars.

So the only way to achieve stability, is not through economic growth but when bitcoin is commonplace like euro's or dollars?

And of course along the way to bitcoin becoming commonplace there will be an increase in demand that will cause the Bitcoin price not to increase.

So do you realize that as bitcoin becomes more accepted, the resulting demand will drive up the price of Bitcoins relative to other currencies? Therefore the stability of bitcoin will only be partially affected by its acceptance.

[P4man]

 Today even mid term expectations range from bitcoin becoming worthless  to bitcoin becoming the next paypal (some like Bruce Wagner even thinking it will become the next dollar/euro) and everything in between.

Price stability will only be achieved if speculators' expectations of BTCs future value are more in line with each other and do not change with every minor event. Bitcoin being hacked/outlawed or for whatever other reason become useless could achieve that.  National banks buying bitcoins as reserve currency could achieve that. A slightly growing bitcoin economy will not achieve that, as both opposites of the spectrum of expectations will remain plausible, or at least possible.

[Iseree22]

Today even mid term expectations range from bitcoin becoming worthless  to bitcoin becoming the next paypal (some like Bruce Wagner even thinking it will become the next dollar/euro) and everything in between.

Price stability will only be achieved if speculators' expectations of BTCs future value are more in line with each other and do not change with every minor event. ........ A slightly growing bitcoin economy will not achieve that, as both opposites of the spectrum of expectations will remain plausible, or at least possible.

So a growing bitcoin economy will cause volatility? So you propose that the Bitcoin economy should not grow and somehow convince everyone that using Bitcoins is still a good thing. Must be a new field of economics. My understanding is that people must have a reason to purchase Bitcoins and I'm certain that purchasing the unit of exchange for a stagnant economy is not going to be an attractive investment.

[P4man]

So a growing bitcoin economy will cause volatility?

No, the extremely uncertain prospects (in either direction) of bitcoin causes volatility. A growing economy that its at no more than 0.00001% of its theoretical potential does little to change that. The spread between speculator expectation would remain huge. A little uptake could be interpreted as the beginning of a new world currency to some, it could mean nothing to others. And those opinions could change and swing on every snippet of news.

So you propose that the Bitcoin economy should not grow and somehow convince everyone that using Bitcoins is still a good thing.

Im not proposing anything like that, where did you read that? Im just telling you this volatility is something you will have to live with for a long time to come. Its not impossible to handle volatility. We have price volatility in oil and so many other things, its not a problem, you handle it.

[penix]

I agree that stability will only occur after more widespread acceptance. I believe a big part of this is to not only have vendors accept Bitcoin as payment, but to calculate the price in Bitcoin rather than USD->Bitcoin. Right now everything bought with Bitcoin is based on the rapidly fluctuating exchange rate.

[annelions]

Euros and dollars aren't completely stable, either, you realize. It's UNLIKELY that a Euro will be worth $2 on Monday and $4 on Tuesday, but such dramatic fluctuations can and have happened. If I remember correctly, for years, a Canadian dollar was worth about 1/2 to 3/4 of a US dollar. It's only relatively recently that the two currencies have achieved parity.

[FreeTrade]

Now a number of exchanges are offering a form of BitCoin shorting.
So, would it be possible to create a StableCoin that is made up of 50% BitCoin and 50% BitCoin shorts?

That's an interesting idea - I guess the problem might be that the shorting would require a trusted counterparty who would essentially be backing the currency.

[yogi]

That's an interesting idea - I guess the problem might be that the shorting would require a trusted counterparty who would essentially be backing the currency

Yep, that's a problem.

But it might be possible to incorporate a type of shorting mechanism directly into the client.

[Etlase2]

So the recent volatility is due to the growth in the bitcoin economy?

Economic growth will most likely cause the price of bitcoin's to appreciate, but at a stable rate. Compared with the unstable movements of the recent past.

Bitcoins might appreciate at a stable rate in the far, far future when the currency is reasonably distributed. However, as bitcoin is attempting to replace fiat currency, a stable appreciation is highly unrealistic until it is already mostly adopted by those who would adopt it.

Economies are cyclical so bubbles and bursts are an inevitable regardless of the underlying medium of exchange.

Actually, the great depression has its roots in the underlying medium being too "hard" like bitcoin, and the recent recession definitely has its roots in being too "soft" like current fiat currency (mostly because of 10% fractional reserve, but also because of deregulation). Hard currencies are open to manipulation by wealth-holders--incur deflation by hoarding, spend cheaply. Soft currencies are open to manipulation by governments and banks. The austrian school of thought wants to remove government manipulation as they believe this is the cause of the business cycle. Mises recognized that a hard currency had many faults, he just believed it was better than soft currency managed by government.

Why not get rid of both problems?