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Author Topic: How to calculate supply vs demand very easy (inflation vs tradevolume)  (Read 1156 times)
gustav (OP)
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September 23, 2014, 12:49:47 AM
Last edit: September 23, 2014, 12:48:59 PM by gustav
 #1

Had an idea few days back. How to calculate supply/demand of a coin in minutes:

Take timeinterval x (1 day / 7 days / 30 days / ...)
Take how many coins have been traded during that time and divide by the number of coins that have been minted in the same time.

The number you get is how many times the network output of new coins was turned over in timeframe x
A rough indicator for supply/demand especially useful on larger timescales.
Very good for fundamental analysis of coins and also very good for direct comparison of very different coins.

Inflation vs tradevolume indicator. Almost too easy to believe this wasn't noticed by many people earlier.
As a serious longterm-trader and investor you will come to love it.

Enjoy your new tool.  







hint: look at Unobtanium to find the god-coin in the game of supply/demand indicator
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September 23, 2014, 01:44:13 AM
 #2

wow. Great find. Thanks for posting op!
JimboToronto
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September 23, 2014, 04:13:28 AM
 #3

Take how many coins have been traded during that time and divide by the number of coins that have been minted in the same time.

So how do you figure out how many coins have been traded?

Please don't say that you base that on exchanges. A large number of coins (perhaps the majority) are traded off-exchange.
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September 23, 2014, 04:25:16 AM
 #4

Bitcoin Days Destroyed might be a good place to start for measuring demand.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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September 23, 2014, 07:50:08 AM
Last edit: September 23, 2014, 09:51:46 AM by EuroTrash
 #5

Bitcoin Days Destroyed might be a good place to start for measuring demand.

BTW: This paper relates BDD with speculation and says it has a 1% (negative) correlation with price.

Thanks for making me want to Google around and read something interesting Smiley

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zetaray
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September 23, 2014, 09:22:14 AM
 #6

You cannot quantify demand solely by the traded volume, IMHO you can only estimate it by the bid and offer wall on exchanges over a period of time.

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gustav (OP)
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September 23, 2014, 12:24:33 PM
Last edit: September 23, 2014, 12:55:59 PM by gustav
 #7

Take how many coins have been traded during that time and divide by the number of coins that have been minted in the same time.

So how do you figure out how many coins have been traded?

Please don't say that you base that on exchanges. A large number of coins (perhaps the majority) are traded off-exchange.

tradevolume devided by average price if no more accurate data is accessible.
OTC-trades can't be fully included of course since we don't know about them. They are a grey zone. The demand by the general public will be 99% on exchanges, though. Is it known what parts are transaction is done off exchange? If you would know OTC-trades are around a certain percentage of the on-exchanges stuff you could include it in the calculation. But if you take it as a fixed metric you can aswell leave them out. Just forget about them. Not important if they aren't more than 50% of trades. They don't move the market. Satoshi could sell his 100k btc (or whatever he has) OTC to someone else who could be holding them for 10 years. You'd be noticing nothing. OTC isn't even relevant. Make it x. x can be averaged over time and thus left out.


The metric introduced here is mainly useful for comparing alts which aren't traded off exchange much.
It also helps to understand the impact of the inflation of the coin you are holding which seems to be a blind spot of people. Everyone looks for demand but pressure by supply is underestimated. So here you have probably the only way to make sense of supply and demand and even combine those two numbers into one. What else can you ask for? Please deliver a better approach if you can.
You got a new metric here that could be worth including in coinmarketcap or a similar page. Changes in this metric will be visible before pricechanges take place. So having that calculated in realtime can give you a considerable advantage. I hope someone can make a page with realtime tickers for this.

Again: this is useful in many cases. Just think about it. I am sure there are usecases i haven't thought of yet and i am also sure this can be developed and fine tuned further.
I found it very useful to determine the outlooks of different alts. Would you have guessed unobtanium with 5 btc volume strikes a higher number than bitcoin currently does with this metric? Would you have guessed vertcoin would take 50 times the tradevolume to achieve the same? There is a lot to discover there.
Price is set by supply and demand. Not only by demand. Please show a way how to better make supply vs demand visible if you can.

Again: tradevolume can be deceptive. Very good example Uno vs VTC. VTC is destined to decline further with a volume 10 times as big as uno while the later is rising on a tenth of the volume? Isn't it interesting LTC nearly strikes on the indicator twice as high as bitcoin does? Would you have guessed that from the volume alone? Now you can compare all the coins on the same level.
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September 23, 2014, 01:36:40 PM
 #8

Very good thread (and idea), OP. Always happy to see some serious discussion of modeling the market other than bulls and bears going into shouting matches.

Completely agreed on your main point: don't just look at demand, but also supply. But also, as you already mentioned, mainly useful for alts (which I don't trade - I only buy a handful out of my long-term fundamental estimates), and not so directly applicable to Bitcoin for two reasons:

- reward halving happens rarely, so in effect, the supply side for a "price era" is more or less constant.

- difficulty estimating on-exchange volume across eras and exchanges. Across eras, because I don't think the base volume  stays constant as price increases, and across exchanges, because zero fee and non-zero fee volume are qualitatively different imo and shouldn't simply be added up. (I have a so far relatively crude method to normalize volume, but it still needs fine tuning and testing).

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September 23, 2014, 02:27:49 PM
 #9

Futile

Supply and demand come in pairs, like 2 for 400, 1 for 500. New coins could be offered on the market for a lower price, or not. In the end it is all about the preference to hold bitcoin on part of the actors, and their offers on the market.

Anyway, we knew from the start about the new coins. If anything, anywhere, is already priced in, it is this.
gustav (OP)
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September 23, 2014, 04:43:07 PM
 #10

Very good thread (and idea), OP. Always happy to see some serious discussion of modeling the market other than bulls and bears going into shouting matches.

Completely agreed on your main point: don't just look at demand, but also supply. But also, as you already mentioned, mainly useful for alts (which I don't trade - I only buy a handful out of my long-term fundamental estimates), and not so directly applicable to Bitcoin for two reasons:

- reward halving happens rarely, so in effect, the supply side for a "price era" is more or less constant.

- difficulty estimating on-exchange volume across eras and exchanges. Across eras, because I don't think the base volume  stays constant as price increases, and across exchanges, because zero fee and non-zero fee volume are qualitatively different imo and shouldn't simply be added up. (I have a so far relatively crude method to normalize volume, but it still needs fine tuning and testing).

the good thing here is you have an indicator that is independant from the price of the coin and also from the $-worth of the tradevolume. All it does is compare supply to tradevolume - nothing more. How many dollars the tradevolume is worth or the costs for a  single coin are doesn't matter in that.

With a halving of blockreward that number jumps up by 100% if volume stays the same of course.
I think the indicator can also help with trading bitcoin since it will enable better estimates what a reasonable price is after a halving and where the dump from the halving-rally could settle.
It's also of great help to determine if a coin is over or undervalued.

Next thing is it can combine a lot of data and compress things into a single number. Data you would normally take up to 30 minutes to analyse and click between 10 tabs and still wouldn't have anything exact.

As i said: there are a ton of usecases. It's the first method i have seen so far that manages to actually put the supply in relation to the demand/tradevolume. The idea is new and could be useful. Currently people just look at tradevolume and that's it. The indicator shows more than just tradevolume. So people using that likely will have a little edge over people not using it... i mean, look how many are still supporting VTC when the indicator is on 3 when they could be just holding btc which has far better outlooks. Look for how long they have been doing it. They do it because they see others do it and they have no way of connecting the oversupply to their situation other than guessing. They are just surprised why it suddenly drops so low.The last big decline of VTC could have been totally predicted with this thing well in advance. Same goes for myriad decline or rise of uno. These things show up cristal clear days and weeks before price moves.

Can also be applied to bitcoin. You'll be able to compare action before and after halving to each other and determine if price is reasonable or not. I'd expect this indicator to always gravitate towards the same level over time (which one i will find out in the future). Because if price is too high and demand not great enough to sustain it, indicator will be low and rising with pricechange again until it reaches a certain point where inflation and demand keep each other in check.
If demand rises you see the indicator rise and once it has reached a critical point price will change to the upside until the indicator normalizes back to that level where inflation and demand keep each other in check. So, no matter what price. Indicator too low for some time: pricechange to downside and it settles around the correct level in the end. Indicator too high for some time: pricechange to the upside until indicator settles around the same level (normilized level) again. Just that point where inflation and demand keep each other in check.
Kind of like a wave on an axis. This is the axis. Yoyo back and forth. Once you know it, it'll be of tremendous help.
If widely used and tested this could lead to greater pricestability aswell since people would learn not to move against it in a big way. Just some thoughts. Well, feel free to play around with it and please report if you find something useful to do with it.
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