The real bitcoin value

[BioMike]

With the markets being volatile as hell, it is a nightmare for people actually selling goods.

I came up with the following idea, but would like to know how other people think of this.

Some merchants already provide goods against a fixed price, some adjust against the markets quickly.
My focus is on the ones that provide against the fixed price. One could value their goods in USD and see
how many bitcoins they want for that. From that you can calculate a price per bitcoin. If you would average
all these rates (from the different merchants) out, you would IMHO get a more realistic price of how much
a bitcoin would be worth.

If more and more merchants would stick to that calculated price it would reduce its volatility even more and the
exchange markets might move towards that same value.

Every month the price would be recalculated depending on the trades that took place during that last month.

Is this doable and would this work?

[skittixch]

I had an idea not unlike this a few days ago that I think offers a similar, but different take on things.

Hey all. I had an idea that might be useful for merchants to start accepting bitcoins as money.

It's an api or standalone application that store owners can run to effectively turn their bitcoins into recordable cash, easily and beneficially, as well as tracking their growth.

The system would record how many bitcoins they got for what they sold vs how much the bitcoins were worth at the time of sale.  That way, when someone makes a purchase online, it's the for exact same amount as it would have sold for in USD (or other currency).

Easy to read graphs show them how much money they've got available in their wallet, and how much it's growing by riding the bitcoin economy. As they make more money, some of them are going to start buying things with bitcoin, and the whole goods/services economy would experience the rapid growth it desperately needs.

Let's say you could order groceries, or electronics, and instead of paypal, you'd choose something like "bitpal", that would accept the bitcoins, alert the merchant that an order had come in, and logged the transaction at the highest bid (taking depth of bids into acct) in USD.  The merchant would then have control over when they cash out. They could simply get their money from a market like mtgox (but not limited to mtgox) right then, or they can save it and see if it grows in value.  It could be advertised as a method of deflationary insurance.  If USD goes bottom up, at least your company has made an investment in a currency that operates with different rules.  This would mean that bitcoin could potentially move into the mainstream with an economically viable purpose.

I think as long as store owners can easily track their money, they're going to be more open about using a service that offers a very positive track record in valuation.  It's got to be a standalone, easy to use application. These are business owners, not computer nerds.  As far as scalability goes, I think something like this used on a wide scale could make our economy even more valuable.

thoughts?

I think the main difference between your idea and mine is the fact that yours tries to smooth out and control the volatility of the market, whereas mine thrives on it.  Merchants should see their investment in bitcoin for exactly what it is; a gamble.  Right now, I'd say it's a good gamble, as prices have risen astronomically since it's inception.  This can be used as a selling point for more merchants to try it.  I think tying it into a peerfinding system like (but not limited to) MtGox to allow them to pull their money out instantly is crucial. 
I'm really interested in the proliferation of this kind of technology, and I don't think I'm alone when I say the future viability of bitcoin may depend on these types of systems being in place.

[ploum]

I've the same problem as BioMike. Not being a gambler, I would like to see stuffs stabilizing a bit. I have some idea about that but, basically, I agree with BioMike here.

[BioMike]

I think the main difference between your idea and mine is the fact that yours tries to smooth out and control the volatility of the market, whereas mine thrives on it.  Merchants should see their investment in bitcoin for exactly what it is; a gamble.  Right now, I'd say it's a good gamble, as prices have risen astronomically since it's inception.  This can be used as a selling point for more merchants to try it.  I think tying it into a peerfinding system like (but not limited to) MtGox to allow them to pull their money out instantly is crucial. 
I'm really interested in the proliferation of this kind of technology, and I don't think I'm alone when I say the future viability of bitcoin may depend on these types of systems being in place.

In the end I think most merchants don't want bitcoins. They want their USD or other fiats. Bitcoin is just a way of payment they want to use, not a goal on itself. If prices for bitcoin rise a lot, they can also fall a lot. This would mean they would have to sell at the same time they get the bitcoins, which might not be possible at that time or the price has dropped within the time of start from purchase by the customer and having the bitcoins sold again on the market by the merchant. For expensive sales this could cause quite a loss for the merchant.

[FreeMoney]

Merchants don't have to ride the coin at all. Make the sale, get the coins, sell the coins at the market rate. This can be automated easily. Ta-da you just used bitcoin as a payment method for whatever currency you want to hold. Now you don't have to worry about your currency increasing in value while you sleep.

[mpkomara]

In the end I think most merchants don't want bitcoins. They want their USD or other fiats.

It's nice to not have to know what merchants want or will want.  Maybe it's USD, maybe it's EUR, maybe it's food on the table or a yacht in the harbour.  Money is useful in helping merhcants obtain what they want.  Bitcoin is good as money.

[tomcollins]

With the markets being volatile as hell, it is a nightmare for people actually selling goods.

I came up with the following idea, but would like to know how other people think of this.

Some merchants already provide goods against a fixed price, some adjust against the markets quickly.
My focus is on the ones that provide against the fixed price. One could value their goods in USD and see
how many bitcoins they want for that. From that you can calculate a price per bitcoin. If you would average
all these rates (from the different merchants) out, you would IMHO get a more realistic price of how much
a bitcoin would be worth.

If more and more merchants would stick to that calculated price it would reduce its volatility even more and the
exchange markets might move towards that same value.

Every month the price would be recalculated depending on the trades that took place during that last month.

Is this doable and would this work?

There's no need to look at the last month.  If you want dollars, look at the exchanges, figure out how many Bitcoins you need, and request that many.  Then sell instantly on the exchange.  I've already written code for this and it's super trivial, even to do the trades (assuming mtgox is not being attacked).

[eleuthria]

Merchants don't have to ride the coin at all. Make the sale, get the coins, sell the coins at the market rate. This can be automated easily. Ta-da you just used bitcoin as a payment method for whatever currency you want to hold. Now you don't have to worry about your currency increasing in value while you sleep.

Exactly what FreeMoney said.  I'm implementing a BitCoin currency option on my website.  The whole site switches into only displaying BTC prices, calculating the exchange rate at 1500 depth into the MtGox bids.  I go 1500 deep to get a stable snapshot of the current value, without being influenced at all by small (1-10 btc) transactions occurring on the exchange.  A 5 minute window before the page fetches new rates while browsing, and a 30 second window while in the checkout page.

Once they checkout, an automated MtGox exchange is performed to cashout the BitCoins for USD.  Unless 1500 bitcoins are sold in the 30 second window for exchange rate polling, I will always get the USD$ I'm expecting, regardless of market volatility.

[Garrett Burgwardt]

I'm a fan of a 7 day moving average from the exchange, with many sites using that method, exchange rates should stabilize a bit.

[xf2_org]

There's no need to look at the last month.  If you want dollars, look at the exchanges, figure out how many Bitcoins you need, and request that many.  Then sell instantly on the exchange.  I've already written code for this and it's super trivial, even to do the trades (assuming mtgox is not being attacked).

Protip:  if you sell instantly, you are throwing a bit of money away.

Big buyers still exist, so set an 'ask' a bit above current market price, and wait for the next wave of buying.

You'll get more for your BTC, than if you had simply filled the X highest bids (selling instantly, at current market).

The current market tends to sit at support level X, blasting higher when a buyer appears, then settling back down to X.  If you sell instantly, filling current bids rather than waiting for the next big buyer, you will sell below X.

[tomcollins]

There's no need to look at the last month.  If you want dollars, look at the exchanges, figure out how many Bitcoins you need, and request that many.  Then sell instantly on the exchange.  I've already written code for this and it's super trivial, even to do the trades (assuming mtgox is not being attacked).

Protip:  if you sell instantly, you are throwing a bit of money away.

Big buyers still exist, so set an 'ask' a bit above current market price, and wait for the next wave of buying.

You'll get more for your BTC, than if you had simply filled the X highest bids (selling instantly, at current market).

The current market tends to sit at support level X, blasting higher when a buyer appears, then settling back down to X.  If you sell instantly, filling current bids rather than waiting for the next big buyer, you will sell below X.

I'm guessing most merchants don't want to get into a currency speculation/trading game.  Otherwise they'd be currency speculators rather than merchants.

[ne1]

I've been thinking a lot about this, the fundamental values of btc and how to manage profit margins for the small business using bitcoin.  I'm glad to see others are as well.

cheers

[infra172]

The only measurement of value for a thing is what another person is willing to pay for the thing.

If people are paying $3 for a Bitcoin, then Bitcoins are worth $3. If, the next day, people are only willing to pay $0.50 for one Bitcoin, then Bitcoins are worth only $0.50.

Fixing prices never works. Ever. Graves all around the world are filled with people who died to prove that. Have some respect.

[ryepdx]

Some merchants already provide goods against a fixed price, some adjust against the markets quickly.
My focus is on the ones that provide against the fixed price. One could value their goods in USD and see
how many bitcoins they want for that. From that you can calculate a price per bitcoin. If you would average
all these rates (from the different merchants) out, you would IMHO get a more realistic price of how much
a bitcoin would be worth.

And that's as far I would personally like to follow the idea. Fixing prices really does not work. However, if one were to calculate the price of bitcoins using the method described above, it might yield a useful metric for measuring the health of the economy. It would certainly yield a much smoother chart than the one at Mt. Gox.

I've actually been thinking for a while about implementing this idea using Bidding Pond sales. Glad to see that others are thinking of doing the same.

If I were to start a GitHub project for this and if I were to provide a server to host it, how many of you would be interested in contributing? Would you all be cool if we built the core in Django, or would you prefer a PHP framework of some sort?

[abyssobenthonic]

Probably the best strategy for a merchant to use when it comes to accepting bitcoin (assuming that their main cost inputs are in another currency, which at least for now is probably a safe assumption):

* Figure out what your USD/EUR/GBP/gold/whatever cost on the sale is.
* Convert enough BTC to the other currency to cover that cost so you can pay your bills
* Keep the rest (the profit or some approximation thereof) in BTC, selling a fixed number of BTC (or possibly a fixed percentage of your BTC balance) every so often at market prices or asking just above

(there may be tax advantages involved in this scheme that I won't elaborate on...)

As and if the BTC economy grows to where merchants can pay for more of their costs in BTC, then the importance of the exchange rate in setting prices will shrink.

One possible test for whether merchants are "true believers" in bitcoin is the extent to which their prices track the exchange rate.  If their prices are exactly matching the exchange rate then I'd suggest that that's evidence that they're converting BTC into USD etc. immediately (and thus, I'd argue not really believers in bitcoin).  While I don't think that it's reasonable to expect merchants to trade at a loss to show devotion (which is potentially the case if a constant BTC price is demanded of a merchant whose costs are largely not in BTC), one thing that I think would establish bona fides is pricing within the following framework.

* Set a sort of minimum USD... price that you'd accept (hopefully something above your fully-computed USD... cost)
* Convert that price continuously (if you'd like) to BTC at the current rates
* Add a fixed BTC profit-margin to that price

E.g. for an item that you wouldn't accept less than US$30 for and want a 10BTC profit, at a USD/BTC rate of 3, you would charge BTC20.  If the rate goes to 5, then you charge BTC16; if it's 0.50, then you charge BTC70.

The merchant is effectively buying BTC low and selling BTC high... the USD price when the rate is 3 is 60, a rate of 5 is a price of US$80 and a rate of 0.50 gives a price of US$35.  It would be reasonable to expect that you'd have more sales when the rate is low than high and thus accumulate BTC when BTC are cheap... combine with a plan to sell a fixed quantity or percentage every so often and you'd be net-buying when BTC were cheap and net-selling when they were expensive.  It may also result in times where you get a better price by buying in BTC or in USD depending on the exchange rate which may also affect demand for and thus (ceteris paribus) the price of BTC, generally in a moderating direction.  Further exchange rate stability will also help acceptance (by both consumers and producers) of BTC, I would think.

[skittixch]

And that's as far I would personally like to follow the idea. Fixing prices really does not work. However, if one were to calculate the price of bitcoins using the method described above, it might yield a useful metric for measuring the health of the economy. It would certainly yield a much smoother chart than the one at Mt. Gox.

I've actually been thinking for a while about implementing this idea using Bidding Pond sales. Glad to see that others are thinking of doing the same.

If I were to start a GitHub project for this and if I were to provide a server to host it, how many of you would be interested in contributing? Would you all be cool if we built the core in Django, or would you prefer a PHP framework of some sort?

I can't offer any insight into the nuts and bolts of the framework, but I think the ability to measure arbitrary averages vs a "payout now" amt would be a huge selling point.

I'm guessing most merchants don't want to get into a currency speculation/trading game.  Otherwise they'd be currency speculators rather than merchants.

I really don't think we can make this assumption.  Merchants want to make money. If playing the bitcoin market can provide a way to do that, even minimally, I think there would be a large market for it.

[abyssobenthonic]

I'm guessing most merchants don't want to get into a currency speculation/trading game.  Otherwise they'd be currency speculators rather than merchants.

I really don't think we can make this assumption.  Merchants want to make money. If playing the bitcoin market can provide a way to do that, even minimally, I think there would be a large market for it.

Most businesses nowadays that operate in multiple currencies (including retailers e.g. Carrefour, Tesco, Wal-Mart, H&M, etc.) trade currency derivatives (generally futures & options).

BTC/USD futures may need to be developed as a feature in getting merchants to accept BTC payments.  If your expenses are in USD you can still keep a fixed BTC price if you have an agreement to exchange up to 1000 BTC for USD at US$3/BTC on 31 May.

[tomcollins]

I really don't think we can make this assumption.  Merchants want to make money. If playing the bitcoin market can provide a way to do that, even minimally, I think there would be a large market for it.

Businesses like to stick to their core competencies.  If they were experts at trading currency, they'd do that.

Most businesses nowadays that operate in multiple currencies (including retailers e.g. Carrefour, Tesco, Wal-Mart, H&M, etc.) trade currency derivatives (generally futures & options).

BTC/USD futures may need to be developed as a feature in getting merchants to accept BTC payments.  If your expenses are in USD you can still keep a fixed BTC price if you have an agreement to exchange up to 1000 BTC for USD at US$3/BTC on 31 May.

This is a good idea too, having options in place, then switching the exchange rate at various times when you run out could work.

[edd]

I ran a small business for years and I don't see bitcoins as that daunting. Yes, one could follow the currently volatile market and adjust prices accordingly, or one could do what retail businesses have always done - watch your competitors' prices and patterns in your sales. If sales suddenly drop, I know that either someone else is offering a greater value (which, of course, may or may not be only a perceived increase), or other economic factors are influencing the demand. Either way, a successful business adjusts as necessary or rides out the slump.

[bearbones]

I have thought about this a lot over the past week or two, while preparing bitmunchies for launch.  Honestly, I think you're all over analyzing this.  Even at the total present market value of $18-20m, this is still in hobby land.  Sure, there are probably some unrealized millionaires somewhere around here.  With as many people as are using bitcoin, it spreads out pretty damn thin.

I think bitcoins are a fascinating commodity.  I'd like to accumulate a few, and play with them.  I don't mean that in a callow sense.  I love economics and programming, so I wrote the code to open a shop that will trade in a unique market.  For the business to work, I need to be able to be able to convert most of my revenue into USD within a week.  I've carefully researched the available demand, and I think it is safe to risk a week's revenue at the prices I've set.  That would be the worst case scenario, and it isn't too hard to compensate for the risk.  Hopefully, I'll slowly make back the relatively modest investment I've made in bitmunchies.  I intend to split the profits between USD and BTC.

That being said, I intend to hold half the profits in BTC.  I don't expect that I'll sell them any time soon.