What kind of signal is the price premium for localbitcoins?

[Cryddit]

Everybody can see that the price of bitcoins at localbitcoins is consistently higher than the price elsewhere.

In some weeks it is much higher.  In others, not so much.

The amount of the price premium is without a doubt some kind of signal.  It says something about the market.  Localbitcoins is considerably less easy to use than the various online exchanges for both seller and buyer.  The sellers are clearly motivated by the price premium to go there instead of elsewhere. 

The buyers used to be motivated by increased privacy, or so I thought, and therefore treated the price premium an index of buyers' fear of economic interference.  But that's not really applicable anymore with localbitcoins doing all the reporting they're doing now. 

Still the patterns haven't changed much.  I guess I was wrong about the buyers' motivations, and therefore wrong about what the price premium for localbitcoins.com means.

So what does anyone else think it means?

[Nagle]

Right now: Lowest price on localbitcoins $513.06. Bitstamp: $518.00.

All exchanges have sell offers at higher prices than the current price. It's just that localbitcoins shows them on their front page.

[abercrombie]

LBC is a niche market, buyers pay a premium for immediate access to Bitcoin vs. the Coinbase 4 day wait, and privacy from invasive KYC requirements.

Volume is a paltry 20k BTC per month, less than half of Bitstamp on a typical weekday.  Given the tiny volume, I wouldn't give much weight on how it figures into the grand scheme of pricing.

[Carlton Banks]

This interests me too. ATH on Localbitcoins is $5000, and that was in May 2014 when Bitstamp was still in the $450-$600 region. My guess is it's a trust thing; whoever's willing to pay that much isn't willing to trust anyone except their regular trading partner, and the trading partner really doesn't want to sell. Which begs the question, why would someone need the BTC so desperately that they'll pay ~10x the going rate? It's tempting to suppose it's a sole highly paranoid (and dependent) silk road user, but maybe that's too easy a conclusion to jump to. Such an explanation requires these people to be rich as well as paranoid if that really is the case.

Even despite that outlier (and it actually happened twice in May 2014), the price stats are permanently higher on Localbitcoins. November-December 2013 saw $2000. So it's difficult to explain away with only the anonymous-market-user angle, but it's got to be driven by behaviour that has no intention of profiting from the trade in money terms.

[gentlemand]

I've bought most of my coins from there. In general I noticed premiums became ludicrous during the boom times. I guess it was a mini bubble in its own way.

Once the overall price settles or falls they can be on a par with Bitstamp et al.

[counter]

Supply and demand will dictate the price.  For example if you don't have many options for sellers in your area you can likely expect their to be a premium I'd think.  If the price is going up then many people would likely want to get some coins which would lesson the availble supply and adding to a higher premium.

[AceWallen]

a couple things to note here. 1) buyers on LBC pay premiums in order to deal with reputable sellers and in lieu of fees/time risk of sending money to exchanges. i would imagine that an index of seller premiums would rise with any sustainable BTC rally. 2) anything on LBC can be faked. i can set up an escrowed transaction right now for $5000 per BTC and trade with myself. so take it with a grain of salt.

[Carlton Banks]

2) anything on LBC can be faked. i can set up an escrowed transaction right now for $5000 per BTC and trade with myself. so take it with a grain of salt.

Ah, that sounds like the best explanation, sellers trying to push the perceived price upwards. And buyers are not in the best position to do the opposite, as they're either consuming or hoarding. Consumers have no bitcoin left to do phantom trades with, and hoarders incentives eventually resemble those of the sellers.

[Cryddit]

I have observed ridiculously high prices on LBC from time to time - mostly with very small (<$US50) volumes, and mostly within one minute following a lower-than-market-price sale.

So that's consistent with a market manipulation strategy; someone trying to create a perception of higher value using the market where they can completely determine both sides of one sale and timing that sale to quickly erase a lower price from the frontpage and index.  

But I've also seen consistent 15% premiums over the course of entire months, with substantial amounts traded.  

Of course sellers who have to give up the coins immediately charge more than sellers who get to ride the float for four days, and of course that premium is higher when prices are rising.  That makes sense.  

I guess when it comes down to it It may be just the delay involved; if someone wants to be able to sell within hours, or possibly minutes, after making the buy, LBC or other private-treaty sale is their only option.  But people who want to be able to sell within minutes of buying are plainly speculating on short-term movements rather than investing.  If the price premium is driven by speculation on short-term investments, I'd expect it to vanish, or nearly vanish, during long periods of relative price stability - like now.

[brewsterz]

i never used localbitcoins but i thought lbc just let buyers find sellers? what reporting do they do? does lbc require scanned ID like exchanges?

[reg]

i never used localbitcoins but i thought lbc just let buyers find sellers? what reporting do they do? does lbc require scanned ID like exchanges?

lbc itself only requests id in a dispute case. I am afraid its the hackers again who want other peoples money for nothing. sellers are now often requesting id for doing a trade. However I see little point in that if its a scam the hacker is providing false id and bank details to buy btc!.  The solution I use is my trading history which is trust based and shows the seller he can deal with me.                           

[itsAj]

LBC is a niche market, buyers pay a premium for immediate access to Bitcoin vs. the Coinbase 4 day wait, and privacy from invasive KYC requirements.

I think this is the explanation. The price that liquidity providers have is actually tied to the price on the exchanges (I believe it is bitstamp) and will adjust automatically. People that buy on LBC likely will only want to purchase BTC one time or are willing to pay for the privacy as mentioned above.

It is important to note that the price to sell BTC is also usually the same percentage (~) lower below the market rate. Now if the premium to buy were to grow larger then the discount to sell then it would be an indication of overall buying pressure.

[GangkisKhan]

The premium on localbitcoin has more to do with blocked transfer and regulation than anything else.

Eventually, all sellers on localbitcoin will just disappeared due to licensing restriction.