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Author Topic: 3 is the magic number, and the magic number is 3  (Read 7089 times)
deepceleron
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November 08, 2011, 08:26:10 AM
 #41

Trading on volatility is all fine and good, until the market leaves you behind.



In July, 14 might have been a good place to play volatility, until you bought at 13.5 with it never to return. In September, 5 could have been the new 14, until you bought in at 4.5 with the price never to return. At a certain point you have to "margin call" yourself and take a loss on a downturn to get liquid again if you still want a tenth of a point every day. Most people don't mind a position of being all-in dollars, but being all-in BTC (or any foreign currency market) doesn't help pay the rent.

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November 08, 2011, 08:55:15 AM
 #42

Also, speaking for myself, if the price does approach $4, I'll liquidate my long position into the rally to dampen it.  Likewise, if the price nears $2, I'll send more cash to the exchanges to help soak up the excess coins on the market.

This looks more like the OPEC model of setting prices, not a free market price, and your graphs aren't meaningful when prices are subject to collusion.  Anyone else want to join the Organization of Bitcoin Purchasing Speculators (OBPS)?  Target price is $3 right now, and we could all agree to raise it at some point in the future, perhaps after the holidays, but I'm certainly not going to help with a run-up to $6-$10.

Just something to think about:  as long as the price is at $3, we're paying $21,600 per day to miners.  Do the fundamentals support that price?  If not, the OBPS will have to shoulder a large portion of that $21,600/day in order to keep the price propped up.

Price manipulation takes more than collusion: it also requires money.

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November 08, 2011, 10:04:04 AM
 #43

Trading on volatility is all fine and good, until the market leaves you behind. ... At a certain point you have to "margin call" yourself and take a loss on a downturn ...

Not exactly.  When you're market-making you don't focus on where you bought in.  You keep repricing your orders to keep them at your preferred point above the spread, regardless of how much you originally paid for your BTCs.  My algorithm sells at more aggressive prices when the market's headed down to try to reduce my losses, but it never places market orders to liquidate my position.  That would be foolish!  I'd lose all my inventory and therefore my ability to capitalize on the next uptick.  (Note, right now I actually have liquidated and I'm not market-making, for unrelated reasons.)  Doing it right, the profits you're making on volatility outweigh your losses due to price shifts.

If conditions are too bearish (like now), hedge your positions!  Sell short to cover your average BTC inventory.  A faster SMA reduces currency risk; a slower one reduces your excess trades and improves your profits.  Pick the level of risk you enjoy and go back to trading the spread!

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mobodick
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November 08, 2011, 10:48:33 AM
 #44

If the market wants to move in a certain direction, you and a couple of others will not be able to hold it up. Bitcoin is no different to other financial markets from a technical / charting perspective.
If the market wants to move up or down, but there is a wall put down that laughs at the exchanges volume then the market is stumped and any movement drowned.
It means that a single bid or ask can decide if the price changes or not.
In this respect bitcoin is very different from other, more liquid and voluminous markets.
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November 08, 2011, 11:48:26 AM
 #45

Of course it is.  Sunk cost economics (either that, or I've been drinking and don't care about the thousands I've spent - mostly before I started mining)

But then your distribution of the pie is always going to shrink when the supply is fixed and others are spending thousands on mining rigs to out-compete each other. By them spending money it costs you money. No matter what you lose.

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November 08, 2011, 12:09:28 PM
 #46

You wouldn't happen to also be an engineer dabbling in a new crypto-currency, would you? Smiley  There's room for many players, and I'm not active every day even if I were a big player (I don't think I am, really, it just happens to be a big month for me).

I'm more of a physicist, but I did think about a trust-based distributed payment system before Bitcoin came up. I stopped doing that, since I think it's better to unite on one crypto-currency than to fragment the market right now.

Eh, it's all arbitrary, why not pick an easy to remember number?  Your strategy reminds me of avoiding the cracks when walking down a sidewalk - there seems no logical reason to me to avoid whole numbers, which people intrinsically like.

Ever hear of Benford's law? https://secure.wikimedia.org/wikipedia/en/wiki/Benford%27s_law
It's more likely for the price to end up in the $x.1y range instead of $x.9y range.  Strange but true.  And I guess this argues in favor of your desire to keep away from $3.00+-$0.06 (which would dip into the 2.9x range), and go for something like $3.06 +- $0.06.  Hmm....

I don't really want to avoid round numbers, I only do it because it helps statistically when everybody else prefers them for no reason.

I believe there's a fundamental error in how your proposal treats likely prices. Just because the price is more likely to go to a certain position, it is not necessarily the best idea to bet this way. To give an extreme example, let's assume the price will drop by 0.10 USD with 80% probability, and rise by 0.90 USD with 20% probability. Both reach the same "magic value" behind the comma, whichever it is. But the expectation value of profit on holding a Bitcoin would be +0.10 USD! The correct decision would be to buy, which pushes away from the magic number.

Now, if you approach the magic number very closely, such a scenario becomes more and more likely. "Real price", as in the natural one, is decreasingly likely to be within a small corridor produced by people trying to enforce a certain number.

In short, just because something is likely or usually easy to maintain, it is not already a good speculation method. Speculators are there to determine the real price, not try to enforce their own.
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November 08, 2011, 02:57:06 PM
 #47

How with $0.07 do you have a small margin?  Are you using the electricity to arc weld the hashes into aluminum sheets?

At 2.0MH/W & $0.07 per kWh = $1.01 electrical cost per BTC (current difficulty).  66.7% gross margins is barely profitable?
At 2.5MH/W & $0.07 per kWh = $0.80 electrical cost per BTC.

hardware is free?

Capital costs are not included in GROSS MARGINS.  Depreciation affects net margins. With 3 year (or even 2 year) depreciation electrical costs still make the lions share of operating costs.
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November 08, 2011, 03:42:31 PM
 #48

Capital costs are not included in GROSS MARGINS. 

Neither is NET PROFIT.

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With 3 year (or even 2 year) depreciation electrical costs still make the lions share of operating costs.

Really? What backwater math do you have to use to come to this conclusion? $0.07/kwh, let's say it's putting out 200Wh (5870 about 2.0mh/w). 144kWh/month = $10.08/month x 3 years = $362.88. $362.88 vs $350 is the lion's share? It isn't too fair to say that the value of the video card depreciates when the value of the electricity converted into bitcoins doesn't, so that is fricken moot. Assuming BTC value stays the same, your non-upgraded video card is going to be fighting for a smaller share of the payout as other people upgrade.

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November 08, 2011, 04:08:04 PM
 #49

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Really? What backwater math do you have to use to come to this conclusion? $0.07/kwh, let's say it's putting out 200Wh (5870 about 2.0mh/w). 144kWh/month = $10.08/month x 3 years = $362.88. $362.88 vs $350 is the lion's share? It isn't too fair to say that the value of the video card depreciates when the value of the electricity converted into bitcoins doesn't, so that is fricken moot. Assuming BTC value stays the same, your non-upgraded video card is going to be fighting for a smaller share of the payout as other people upgrade.

Well
1) $0.07 is extremely low and OP reported that his actual electrical consumption is higher.
2) At end of 3 years the card isn't worthless.  It still has some value so you can't consider it $350 in depreciation.
3) Including only the power consumption of the card and not total electrical costs (rest of system, PSU inefficiency, airconditioning, etc) is weak.

So lets say $0.10 per kWh. 
Card is worth $50 at end of 3 years ($300 depreciation). 
2.0MH/W card is actually pulling more like ~180kWh per month at the wall (including share of system power & PSU inefficiency).
1/3 of the year AC is needed at 30% electrical overhead so annual energy consumption is ~2400kWh per year.

So $300 in capital costs over 3 years vs $0.10 * 2400 * 3 = $720.  Operating costs are roughly $1000 over cards effective lifetime.  70% is electrical.   $0.10 per kWh is below national and global average so higher cost shifts electrical costs to an even larger %.  People in areas with higher summer time temps will have higher cooling costs and need AC for longer portion of the year.   Many miner are using dual purpose rigs (more powerful CPU, HDD, RAM, low efficiency PSU ,etc) leading to even higher electrical load per watt.

While we can't say exactly what % of Bitcoin production costs comes from electricity it likely is HIGHER than 70%.  So yeah the lions share of cost comes from electrical cost.
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November 08, 2011, 08:16:38 PM
 #50

Also, speaking for myself, if the price does approach $4, I'll liquidate my long position into the rally to dampen it.  Likewise, if the price nears $2, I'll send more cash to the exchanges to help soak up the excess coins on the market.

This looks more like the OPEC model of setting prices, not a free market price, and your graphs aren't meaningful when prices are subject to collusion.  Anyone else want to join the Organization of Bitcoin Purchasing Speculators (OBPS)?  Target price is $3 right now, and we could all agree to raise it at some point in the future, perhaps after the holidays, but I'm certainly not going to help with a run-up to $6-$10.

Just something to think about:  as long as the price is at $3, we're paying $21,600 per day to miners.  Do the fundamentals support that price?  If not, the OBPS will have to shoulder a large portion of that $21,600/day in order to keep the price propped up.

Price manipulation takes more than collusion: it also requires money.
My best guess is that 1/3 of mined coins are immediately sold, which is down from 1/2 of coins it was back at $5.  The marginal miners that need to pay the power bill have been forced out of the market, and some miners are deciding to speculate with their mined coins (ie wait for a better price) rather than sell immediately.  My sold vs. mined ratios are made up, obviously, but whatever the actual numbers are, it seems clear that the supply of bitcoins is dependent on price.

Based on 1/3 of coins being sold, $21k/day becomes $7k/day, and $210k/month.  I'm bullish enough to pony up > 1% of that per month, and if the price nears $2, not only is my buying power increased by 50%, but I get more bullish and would be >3%.  I have yet to build up a long position, and these cheap coins will only last until the block size change in a year.

Also a factor is that there seems to be an occasional whale that comes through Mt. Gox weekly and buys up $10k-40k worth of bitcoins, and we're no longer seeing any matching bitcoin dump events, nor do these coins appear to be re-listed on the sell side of the exchange.  Yet another reason why I think the $2-$3 range will hold.

Looking at your formula, I think speculation volume is at least 10x the volume of goods and services purchased for BTC, so I don't think it will apply until there's a functioning economy (which there isn't).
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November 08, 2011, 08:16:57 PM
 #51

Of course it is.  Sunk cost economics (either that, or I've been drinking and don't care about the thousands I've spent - mostly before I started mining)

But then your distribution of the pie is always going to shrink when the supply is fixed and others are spending thousands on mining rigs to out-compete each other. By them spending money it costs you money. No matter what you lose.

That's funny - hash rates have fallen 30% to 40% since June and I'm doing better than before.  And at us$3/coin and my high local power rates, it's around breakeven, although I generally sell higher than that, and the extra coins provides me with some extra liquidity.

Also, if I chose to I could depreciate my computer equipment as I also use some in my work.  I have some specialist bits and pieces, including a $6000 scanner that will provide a $2k/year tax credit.  But I only have something like five computers that I claim tax credits for (and they are not miners).  if I sold my miners into a captive company, then I would be better off, but on less stable ground with the tax department Smiley
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November 10, 2011, 04:54:07 AM
 #52

Trading on volatility is all fine and good, until the market leaves you behind.



You made a fatal mistake with your graph there.  You should have used a log scale so that the drop from $18 to $3 doesn't look so scary  Cheesy

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November 10, 2011, 05:01:53 AM
 #53

All of you perpetual bears will look very foolish when the market leaves you behind.  Just today okpay began accepting btc and I wouldn't be surprised if more online payment processors follow.

(BFL)^2 < 0
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November 10, 2011, 05:08:54 AM
 #54

All of you perpetual bears will look very foolish when the market leaves you behind.  Just today okpay began accepting btc and I wouldn't be surprised if more online payment processors follow.

Comrade, you take the words from my mouth. As well as OKPAY, I am currently in the loop and know that there are many of us working to bring Bitcoin to the island nation of Nauru.

Всегда вперед!

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November 10, 2011, 05:38:28 AM
 #55

Isn't this a thing of beauty? The bars are getting shorter, the swings less pronounced, and very little panic selling happened when the price dropped $0.20.



The last time the market was this stable was for five days in mid-to-late June. Smiley



I picked up a bunch of coins in the $2.8-$2.9 range.  With all the coins available at $3 to $3.20 on both Mt. Gox and Tradehill, I don't see the price jumping up to $4 anytime soon.  To hedge and keep the price above $2, I took out a 4-digit short on the market early today.  Now, we wait, and I hope it's a long wait before anything of interest happens.
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November 10, 2011, 06:14:30 AM
 #56


...

I picked up a bunch of coins in the $2.8-$2.9 range.  With all the coins available at $3 to $3.20 on both Mt. Gox and Tradehill, I don't see the price jumping up to $4 anytime soon.  To hedge and keep the price above $2, I took out a 4-digit short on the market early today.  Now, we wait, and I hope it's a long wait before anything of interest happens.


My hat is off to you and the more mature and responsible side of me is rooting for success here (the other side being stimulated by big action no matter which direction it is.)

I've got a nagging suspicion that some people want out and have not gotten their way yet.  Part of it is from the depth charts which have a sordid history of being manipulated, but another part is just a sense about how the pieces landed after the jar was shaken in the exchange divergence over the last few days.

If my sense is true, I hope that the people who want out are patient enough to sit tight for some time else I could see that big route that lots of people are purporting to suspect coming to pass.  I may re-load my cash position tomorrow just in case the long awaited opportunity to back up the truck for another load of BTC comes by.


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November 10, 2011, 06:31:28 AM
 #57


The last time the market was this stable was for five days in mid-to-late June. Smiley

This would be due to the Gox hack! Wink

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November 10, 2011, 09:35:40 AM
 #58


...

I picked up a bunch of coins in the $2.8-$2.9 range.  With all the coins available at $3 to $3.20 on both Mt. Gox and Tradehill, I don't see the price jumping up to $4 anytime soon.  To hedge and keep the price above $2, I took out a 4-digit short on the market early today.  Now, we wait, and I hope it's a long wait before anything of interest happens.


My hat is off to you and the more mature and responsible side of me is rooting for success here (the other side being stimulated by big action no matter which direction it is.)
Why thanks... it's not completely altruistic: whether the market goes up or down, I make money.  If the market drops, I'll likely liquidate the short and I keep the stranded long position, and come out even.  If it goes up enough, I'm Zhoutong'ed and lose the shorted position entirely, but the long coins will push me into profitable territory.

Here's a quick chart for 1000 btc long & 1000 btc short (at 5x leverage on bitcoinica), as well as a bonus of what it looks like with 1000 btc long and 1500 btc short (all assuming buy-in at 2.9).  X axis is USD btc price, Y axis is profit, in USD.


I didn't bother to factor in Bitcoinica's spread, which shifts the lines slightly, but the basic idea is clear: if long position is same size as short position, then you don't lose if the market goes down, but you share in the winnings if it goes up (albeit slightly less).  The only way you can "lose" is if the market doesn't go anywhere, and since I'm looking for market stability, I win there, too (though you could argue that I've lost because I've tied up my cash, but whatever, there are worse things to do with money).

Also, at long=1000 and short=1500 (which is closer to the ratio of my action position), it's a win for me if the market drops, a win if the market is stable (as that's my goal), and a win if it rises.  It's an elegant situation.  So, everyone, feel free to ignore me and drive up the price, or crash the market - I'll win no matter what happens. Smiley

Quote
I've got a nagging suspicion that some people want out and have not gotten their way yet.  Part of it is from the depth charts which have a sordid history of being manipulated, but another part is just a sense about how the pieces landed after the jar was shaken in the exchange divergence over the last few days.

If my sense is true, I hope that the people who want out are patient enough to sit tight for some time else I could see that big route that lots of people are purporting to suspect coming to pass.  I may re-load my cash position tomorrow just in case the long awaited opportunity to back up the truck for another load of BTC comes by.

You're may be right that there is a big player that wants to sell, there's no real way to tell if someone is just trying to discourage the market by piling up the sell orders at 3.x so they can buy cheap coins, or if they actually want to sell.

Either way, the lack of panic selling even with the disparity between the bid & sell sides is a sign of a healthier market.  I think sellers are seeing that being patient will likely be rewarded with a higher price when someone else decides they want to buy into this market.  This is the fourth time the market has moved past the $3 mark, and it helps that this is familiar territory.  Market patience that brings a stable price is also more likely to bring in more buyers, too.


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November 10, 2011, 12:04:59 PM
 #59

Looks like bitcoin has reached a plateau of high stability.

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November 10, 2011, 12:21:22 PM
 #60

Now, the market goes to 3.6, and then back down to 3. You are now at a 500 loss, even though you had your hedging…

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