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Author Topic: Would it be possible to create a distributed bitcoin price stabilizer?  (Read 1890 times)
Elwar
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May 07, 2014, 04:07:48 AM
 #21

Why would 1000$ be a good price? If it needs to be higher the selling wall will end up disappearing and the price will go up again; the process will just have take the coins out of the members who participated

There is no substitute to the market and competition

I am about as pro-market as anyone, and I am just floating this idea as a stabilizer to deal with the pre-IPO/small market we currently have which is why the price jumps all over.

Why $1,000. Because it was an example using an easy number.

You all seem to miss the part where I said the price moves with the market. As people start buying up the higher wall, the lower wall moves up...so $1001, $1002, etc...as the buy wall gets bought up the price moves back down $1002, $1001, $1000, $999...etc.

What we have right now is market manipulation by people who build walls solely for the purpose of affecting the price, not from a supply/demand stand point but a panic/fear standpoint. How is that better than if that same person created a huge wall on each side did it for the purposes of stability? It would still be as free of a market as we have right now.

It probably would have been more necessary when the price would go from $7 to $3 then up to $5 in a few hours when Bitcoinica was manipulating the market to kill people's long and short positions. That was the free market too, just being manipulated for someone's own gain.

I would rather not have the market manipulated and have such high volume that the movement of 1% in a day would be significant. But we are not there yet and still at the whims in the short term by people with enough money to manipulate the market.

Why not work toward stopping the manipulation that causes volatility and fight fire with fire to manipulate toward stability?

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June 02, 2014, 05:15:28 AM
 #22

This would work to prevent the price of BTC from rising too quickly, but you would need a massive amount of fiat to prevent the price of BTC from falling.

In theory this software could "print" BTC and sell the BTC when the price rose too quickly, however real fiat would need to be used when the price of BTC is falling too quickly, and users of the exchange would need to be able to withdraw the fiat to their bank accounts.

This would also create one problem that BTC attempts to solve, centralization. By pegging the price of BTC to a certain range on only one exchange will cause even more volume to be attracted to that exchange.
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June 02, 2014, 05:23:30 AM
 #23

This is similar to central bank's intervene, it is happening on the FOREX exchange all the time, central banks around the world use this and other method to keep their currency's exchange rate stable

A good example is the exchange rate between Swiss franc and euro, it stayed in a very narrow range during summer 2012 because of this kind of action



Bitcoiners advocate free market, but if one large entity have enough fiat money reserve, he essentially can manipulate the price and cause large price swing, like we saw last year in china (Chinese have a huge fiat money reserve). Because majority of the coins were hoarded, the number of coins circulating on exchanges are much lower and vulnerable to price manipulation

So, some kind of price stabilizing mechanism can be established to reduce volatility. Due to bitcoin's networked nature, it should be as efficient as central bank, because all the bitcoiners will be informed online instantly and take action accordingly

I was thinking about the same thing and have done some practice and research on my trades, some observations:

1. You can limit the downward price movement, but you can never limit the upside movement, because you can have large fiat money reserve but impossible to have large bitcoin reserve, so the large price swing to the upside would still happen

2. If you put all the orders around one price and make one huge wall, and that wall is eaten at once, then you are left with no reserve. So these walls must be flexible and setup at multiple price pivot and be able to adjust itself depends on the current wall's thickness, this is basic market making dynamics

3. The arbitraging from other exchanges will affect the wall, so it is better to setup the wall at several large exchanges so that arbitraging from other small exchanges won't affect too much


If we could get enough amount of bitcoiners reach such an agreement with enough fiat money reserve, then we can defend the lower bound for bitcoin's price. People has always been asking the question about who is backing bitcoin, now we can give them the answer: The bitcoiners back bitcoin. Today we have bitcoin foundation to coordinate the technical aspect of development, we could also have a bitcoiner's association to back bitcoin's value. Bitcoin is advocated to be people's money, so people should back it, not central banks or governments

Currently there are only 12 million or so coins out there, and maximum only 10% of that is in circulation, about 1 million coins. If there is one million bitcoiners back it, each one promise to put in $1000 to the buy wall, then the price will never get below $1000.

Usually the required fiat money reserve is much less, since the price is decided by the daily coin supply, which is around 5000 to 20000 coins, and the daily purchase of 5-20 million USD will keep a price of $1000, requiring only 5-20 USD per day from each bitcoiner, if there are one million of them


You cant quote eurchf or usdjpy because its going to have negative consquences... already did with usdjpy... it hit lows even after intervention.. and eurchf will fall below the floor because there are too many stop losses luring banks and funds into it.

Market controls NEVER work, get it NEVER... its only a temp fix. JPY will now devalue on the other end of the spectrum. Forex is completely different, BRIC currencies have been devalued vs USD and consequently EUR because of the plaza accord signed around mid 1980s that basically signed an agreement that the US will let themselves devalue USD while raising the value of their currencies... ofcourse with no foresight these countries agreed but now see the ramifications of those actions today. The 25 year cycle is up and now something has to change or we enter a severe global depression (something alot of people consider already happening).

In the end only liquidity will stabilize bitcoin price and that means once there is sufficient liquidity between intervals of price it will naturally gravitate within those increments. Think of a pip in forex being 1mBTC in bitcoin or something... as more money is exchanged every day the price stabalizes because more people are willing to buy/sell and mor emarket makers are making the price... the 1%-2% dips are then seen as severe price corrections instead of 10%-50%.

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arbitrage001
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June 02, 2014, 05:54:08 PM
 #24

Free market implies price can be anywhere from 0 to very big number.

Having a stabilizer or imposing any rules mean we are violating the spirit of bitcoin.
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