Bitcoin , Exchanges and the problem of the price/value of a Bitcoin

[Srbotones]

I was having a conversation in other topic in my regional subforum about a problem that I think the actual Bitcoin economy have and actually I didnt have a convincing answer, thats the reason why I open this topic, may be some one with more knowledge could bring some light for this question....

First of all, my apologise, english is not my native language so I'm sure that I will have some bad expressions, if there's something that some one not understand... I'll do my best to try to fix it, the topic is a bit complex to explain. So, lets go.

Well, as the title of the topic says, the topic is about exchanges and their correlation to the price and value of Bitcoin.

In my opinion, the current way to measure and evaluate the price of a Bitcoin and the way that all of the exchanges works and their correlation with the price and value of bitcoin are a wrong system, and not very well fitted to cryptocurrencies.

As all of us knows... nowadays , exchanges works in the same way as a stock market exchange. There is a "meeting" of ask/bid and an orderbook to place the orders.

The people who wants to buy Bitcoin can place limited orders or simlpe orders. If some one choose a buy limited order, he/she will put a (big or small, depending of the quantity of fiat) "wall" below the current price and will work as a support of the price (if there is an acummulation of fiat in a specific price. If the perosn want to buy as the current prices... just put a simlpe order and thats it, the exchange will buy, dependeing of the density of the orderbook and the quantity the person want to buy at the current price or if theres is not enough orderbook density to sustain the price, the price of a Bitcoin will increase.

The inverse thing is apply o the sellers but the only thing it change is that the sellers will put bitcoins beyond the current price if it is a limited order or sell at the current prices if it is a simple order.

Well, more or less this is how  the current exchanges works.

What's the problem then??

The problem is this (IMO of course): The exchanges only shows a limited part of the value and the demand of bitcoins. The exchanges, nowadays, works as their own, as a centralized spot of buyers and sellers but this doesnt cover all of the demand, all of the offer and just shows to us the struggle between the number of bitcoins the people nioside the exchange have put into the ask or into the bid... no more.

Exchanges works standalone and with no correlation of what happen to a Bitcoin network, the blockcain ... or whatever. In this way, we could say that Bitcoins of Huobi, bitcoins of Bitstamp an the other exchanges...are independant one of the others of the rest of exchanges, so, we can conclude that theres no only one "bitcoin-product" offered, we have Huobicoins, Bitstampcoins, btc-e coins and so on. The only relation, as far as we can name it relation, is a psychological one, because each exchange work alone. Centralized.

The fact is that we get noticed of this problem with Mt.Gox, and the named "goxcoins" when the problems of Mt.Gox appeared but the problem envolve every exchange.

If the exchanges dont have any kind of relation between the bitcoins they sell, the bitcoins they buy and the bitcoins that other exchanges are offering and selling and the bitcoins that are being selling and buying bypassing the exchanges and off-the-track.

The current ability to measure the Bitcoin network, one bitcoin price and the way it is expanding or retracting are null. We only can make assumptions about the struggle inside the limited way to measure of an exchange.

In the other hand, and going further the problem, may be the next pump of Bitcoin price could never happen. Let me explain this. May be the Bitcoin is currently pumping and we cant get noticed about it because the only way to measure is from the people who is buying bitcoins in the exchanges and the thing is that if no one put walls below the current price... the price of bitcoin could never go up despite of the very very positive good news we were having in the past 6 months and as we recently saw with Paypal news. Price pump for a while but the price fall again as fast as the price had rised.


So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.


That's it, hope you all understood the main ideas and what I consider it is a problem.

Cheers,

[1714928671]

1714928671

[yayayo]

I have to admit that I don't get the problem.

There are multiple exchanges which may somewhat differ in exchange ratio. There are also over the counter transactions that may differ in exchange ratio. The extent to which exchange ratios differ is limited by arbitrage opportunities between these markets. Overall, exchange ratio tends to converge between all exchanges. There can be fungibility issues (withdraw limits / delays) that limit arbitrage opportunities and can increase the difference between exchanges, but a bitcoin will still be a bitcoin once withdrawn.

So if there is a problem, it's a trust problem related to the ability of the exchanges to provide the Bitcoins on their sheets. You still can exchange Bitcoin in person to circumvent this trust problem.

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

Simply use an average price with data from all notable exchanges. Problem solved.

ya.ya.yo!

[pcshared]

There are many coin
And not only affect sales

[Srbotones]

I have to admit that I don't get the problem.

There are multiple exchanges which may somewhat differ in exchange ratio. There are also over the counter transactions that may differ in exchange ratio. The extent to which exchange ratios differ is limited by arbitrage opportunities between these markets. Overall, exchange ratio tends to converge between all exchanges. There can be fungibility issues (withdraw limits / delays) that limit arbitrage opportunities and can increase the difference between exchanges, but a bitcoin will still be a bitcoin once withdrawn.

So if there is a problem, it's a trust problem related to the ability of the exchanges to provide the Bitcoins on their sheets. You still can exchange Bitcoin in person to circumvent this trust problem.

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

Simply use an average price with data from all notable exchanges. Problem solved.

ya.ya.yo!

No, the problem is far to be solved using an average price of all the exchanges. The problem continues. Are every bitcoin in a exchange? No they dont, so there is a huge amount of bitcoins that are bypassing exchanges and they are not taking into account.

Even if we sum all the exchanges we are only taking into account a portion of the bitcoins offer or bitcoin demand so is fair to say that the actual price only correspond to that portion of bitcoins that are "in play" into the exchanges.

Every person who has Bitcoins can act as an exchange, thats the point and we only can measure, nowadays, the portion of demand and offer wich corresponds to the exchanges (like Bitstamp, Huobi and so on), no the global demand and global offer of Bitcoin (as a "product" itself).

[yayayo]

I have to admit that I don't get the problem.

There are multiple exchanges which may somewhat differ in exchange ratio. There are also over the counter transactions that may differ in exchange ratio. The extent to which exchange ratios differ is limited by arbitrage opportunities between these markets. Overall, exchange ratio tends to converge between all exchanges. There can be fungibility issues (withdraw limits / delays) that limit arbitrage opportunities and can increase the difference between exchanges, but a bitcoin will still be a bitcoin once withdrawn.

So if there is a problem, it's a trust problem related to the ability of the exchanges to provide the Bitcoins on their sheets. You still can exchange Bitcoin in person to circumvent this trust problem.

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

Simply use an average price with data from all notable exchanges. Problem solved.

ya.ya.yo!

No, the problem is far to be solved using an average price of all the exchanges. The problem continues. Are every bitcoin in a exchange? No they dont, so there is a huge amount of bitcoins that are bypassing exchanges and they are not taking into account.

Even if we sum all the exchanges we are only taking into account a portion of the bitcoins offer or bitcoin demand so is fair to say that the actual price only correspond to that portion of bitcoins that are "in play" into the exchanges.

Every person who has Bitcoins can act as an exchange, thats the point and we only can measure, nowadays, the portion of demand and offer wich corresponds to the exchanges (like Bitstamp, Huobi and so on), no the global demand and global offer of Bitcoin (as a "product" itself).

Your problem only exists in theory. It's true that not every Bitcoin is "in play" solely on the exchanges. But in practice everybody uses the prices from the exchanges as reference price.

The same is true for precious metals like gold and silver. For sure there are many traders of these metals outside the major exchange. But all of them use the spot price as reference for doing business.

ya.ya.yo!

[Srbotones]

I dont think that is just a theory.

A recently read someone in other topic writing something related about what I'm talking about.

its because people are thinking that all 13million bitcoins are being traded.

infact the majority are being traded on BTC-E, coinbase and bitstamp... and in many cases coinbase follows the pricing of the other two..

so if for instance btc-e went up, bitstamp would move too, and then coinbase would see a price change and follow suit.

its called "sheep following" prices.

the major problem is that on btc-e for instance most orders are $5(0.0015~) and so it only takes 100btc to make the price jump $70.

so that 100btc whale bite can make the entire market cap of bitcoin move from $5.2bill to $6.1bill market cap estimate.

yes you got it right 100bitcoins ($40k) can fool people into thinking the entire bitcoin market moved $1bill in value.

ill make it clear again. SHEEPLE are following statistics of small trades and FUD. and we all need to wise up and value bitcoins properly

Do you still thinking that the measure to valuate the market and price are corrects? I think that in this previous example you can see what I am talking about.

I have to admit that I don't get the problem.

There are multiple exchanges which may somewhat differ in exchange ratio. There are also over the counter transactions that may differ in exchange ratio. The extent to which exchange ratios differ is limited by arbitrage opportunities between these markets. Overall, exchange ratio tends to converge between all exchanges. There can be fungibility issues (withdraw limits / delays) that limit arbitrage opportunities and can increase the difference between exchanges, but a bitcoin will still be a bitcoin once withdrawn.

So if there is a problem, it's a trust problem related to the ability of the exchanges to provide the Bitcoins on their sheets. You still can exchange Bitcoin in person to circumvent this trust problem.

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

Simply use an average price with data from all notable exchanges. Problem solved.

ya.ya.yo!

No, the problem is far to be solved using an average price of all the exchanges. The problem continues. Are every bitcoin in a exchange? No they dont, so there is a huge amount of bitcoins that are bypassing exchanges and they are not taking into account.

Even if we sum all the exchanges we are only taking into account a portion of the bitcoins offer or bitcoin demand so is fair to say that the actual price only correspond to that portion of bitcoins that are "in play" into the exchanges.

Every person who has Bitcoins can act as an exchange, thats the point and we only can measure, nowadays, the portion of demand and offer wich corresponds to the exchanges (like Bitstamp, Huobi and so on), no the global demand and global offer of Bitcoin (as a "product" itself).

Your problem only exists in theory. It's true that not every Bitcoin is "in play" solely on the exchanges. But in practice everybody uses the prices from the exchanges as reference price.

The same is true for precious metals like gold and silver. For sure there are many traders of these metals outside the major exchange. But all of them use the spot price as reference for doing business.

ya.ya.yo!

[yayayo]

I dont think that is just a theory.

A recently read someone in other topic writing something related about what I'm talking about.

its because people are thinking that all 13million bitcoins are being traded.

infact the majority are being traded on BTC-E, coinbase and bitstamp... and in many cases coinbase follows the pricing of the other two..

so if for instance btc-e went up, bitstamp would move too, and then coinbase would see a price change and follow suit.

its called "sheep following" prices.

the major problem is that on btc-e for instance most orders are $5(0.0015~) and so it only takes 100btc to make the price jump $70.

so that 100btc whale bite can make the entire market cap of bitcoin move from $5.2bill to $6.1bill market cap estimate.

yes you got it right 100bitcoins ($40k) can fool people into thinking the entire bitcoin market moved $1bill in value.

ill make it clear again. SHEEPLE are following statistics of small trades and FUD. and we all need to wise up and value bitcoins properly

Do you still thinking that the measure to valuate the market and price are corrects? I think that in this previous example you can see what I am talking about.

I understand what you mean, but the same is true for the stock market and for almost any other market. Market price is determined by the transactions that took place, no matter if the volume is big or tiny. How do you want to prove that there is another "more true" market price than the one agreed on by buyers and sellers at the market?

The fact that the volume is tiny can only mean that the majority of market participants does not want to buy or sell at a certain point in time. There is no reason to assume that they wanted to buy or sell, but did not. So the current market price reflects all available information of the value perception of market participants. There is no better estimate available.

ya.ya.yo!

[zimmah]

I don't really see what the problem is.

Don't all exchanges work like this? What are the exchanges missing?

[iTRADEbtc]

Your "problem" is only a problem if you are not able to trust the exchange you are buying the bitcoin on. It is not efficient to have every trade have a corresponding TX on the blockchain, as there is no reason to make a trader wait 10 minutes for a trade to "confirm" when it is already know that both the fiat and bitcoin are under control of each user (via the exchange) participating in the exchange.

If you do not trust the exchange you are dealing with then you can simply (and should) withdraw any bitcoin that you purchase as soon as you can to an address that you control.

[Srbotones]

The amount of bitcoins that are inside an exchange (counting all of them) are nearly 10% of the total amount available.

The problem is the way we measure them.

We are extrapolating the value of just the 10% of the economy to the entire Bitcoin economy and that's not correct. There is another 90% of the cake that is not inside any exchange.

With the current method we are assuming that all of the bitcoins are available at an exchange like if theres no other thing we can do with our bitcoins and thats not true.

The most common way to measure a bitcoin is to think in the same way we measure a listed company share or the way we measure fiat currencies in Forex but there are so many differences between them and Bitcoin (and every cryptocurrency) to reconsider the methods we use. You can't go to a grocery or a supermarket with a couple of shares and buy things and in the same way, you can't go to the supermarket with a pack of eur/usd and buy things and with Bitcoin we can.

And because of we can do lots of more things than the traditional financial products, the way we have to measure it needs to be different because if we dont do nothing, what happen in the near future is the more useful the Bitcoin is and evolving to more and more activities outside the exchanges, the lower the prices will be (in the exchange).

People day by day are more independant to an exchange and thats a new issue that never happened before. Few years ago, when the only possible and remarkable activity was to trade them in a exchange, the way we measure the bitcoin market, conjuncturally, was correct because the only thing you can do with your bitcoins was to trade them in a exchange but nowadays taht activity just represents the 10% of the total activity of Bitcoin, so we have a 90% of Bitcoin activity that it is not measure in any way....and thats the real problem.

All of the exchanges works in the same way, independently one of the others but not in a decentralized way, they work as a centralized institution, and again, this is a wrong way to operate because we have dozens of independant offers and independant demands corresponding to each exchange but because they work independant one of the others, the final result is like if we had dozens of differents products called Bitcoin because depending on wich exchange (or not) you store them you have differents behaviors , differents offers and differents demands and the only thing this way do is disolving the bitcoin product, not decentralizing it.

I dont know if to taking into account the blockchain is the solution or maybe as a somekind of sidechain or something like that... I don't know, there are technical things that are far from my knowledge but the problem is what it is.

I'm only describing the problem and to be fair, I really don't know how we can solve this to make a more accurate valuation of the bitcoin market, the only thing I know is that the current way discriminate the 90% of the activity and put the value of the 10% of the bitcoins to the rest 90%.

[odolvlobo]

There is no "the value" of a bitcoin. Each person has their own idea of what the value of their bitcoins is to them, and exchanges provide an indicator of the aggregate. A more accurate indicator doesn't exist. The exchange rate indicator could be improved by providing better access to exchanges, but it would still be an indicator of aggregate value and not individual value.

[Srbotones]

There is no "the value" of a bitcoin. Each person has their own idea of what the value of their bitcoins is to them, and exchanges provide an indicator of the aggregate. A more accurate indicator doesn't exist. The exchange rate indicator could be improved by providing better access to exchanges, but it would still be an indicator of aggregate value and not individual value.

The inexistance of a better indicator to measure the price/value doesn't mean that can't be created a better indicator to measure it.

One thing is our hopes and wishes (what you or me think a bitcoin worth)...and the other thing is the "index"(we can name it like this if you prefer) like SP500, DAX, IBEX35 and so on wich can reflect and indicate nothing objective or specific of the economy but we can use it as an indicator of how healthier or not the market it is.

[Ektra]

The problem is that the BTC economy is not self contained enough yet. Dollars are freely traded similar to bitcoins but for US citizens they are to some extent buffered from this because there is a strong circulation of currency that takes place without having to exchange. Same for £ etc. We don't have that yet.

You can't force people to stop using traditional exchanges. The model works and people will continue to buy and sell where they can get the best deal. The only thing that will cure this problem is more circulation of coins between people who never cash out - then the price will scale more smoothly with the number of users.

[odolvlobo]

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

It appears to me that you feel that an exchange that fixes the exchange rate to a value that the exchange believes is correct is better than an exchange that allows the buyers and sellers to determine the exchange rate.

That kind of exchange will not work. It will lack either sellers or buyers, depending on its rate vs. the free exchange rate, due to arbitrage and trader preference.

[Srbotones]

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

It appears to me that you feel that an exchange that fixes the exchange rate to a value that the exchange believes is correct is better than an exchange that allows the buyers and sellers to determine the exchange rate.

That kind of exchange will not work. It will lack either sellers or buyers, depending on its rate vs. the free exchange rate, due to arbitrage and trader preference.

I was talking in my specific country subforum and a have some conclusions, may be I'm not talking about an exchange... may be a was talking about an index, more closer to SP500, DAX, IBEX35 than a exchange. I named it exchange because in fact I dont know how to call it but it more closer to an index.

An index in wich you can include every company that pass some requirements ,of course , to protect the investors.


In this way you are measuring the whole companies and the entire economy and no excluding the 90% of the bitcoins that may be are invested in companies that no one are taking into account because we haven't any way to measure them.

[odolvlobo]

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

It appears to me that you feel that an exchange that fixes the exchange rate to a value that the exchange believes is correct is better than an exchange that allows the buyers and sellers to determine the exchange rate.

That kind of exchange will not work. It will lack either sellers or buyers, depending on its rate vs. the free exchange rate, due to arbitrage and trader preference.

I was talking in my specific country subforum and a have some conclusions, may be I'm not talking about an exchange... may be a was talking about an index, more closer to SP500, DAX, IBEX35 than a exchange. I named it exchange because in fact I dont know how to call it but it more closer to an index.

An index in wich you can include every company that pass some requirements ,of course , to protect the investors.


In this way you are measuring the whole companies and the entire economy and no excluding the 90% of the bitcoins that may be are invested in companies that no one are taking into account because we haven't any way to measure them.

SP500, DAX, and IBEX35 all use exchange prices. They are not what you want either.

[Srbotones]

Represents groups of companies and those companies represent the index as well.

Yes, it is what I am searching.

All companies , all bitcoin investmets regrouped and representing one bitcoin index.

[GoldSeal]

Mining is expanding with more and more BTC ASICs being deployed everyday. This will only stop when we reach saturation with regard to facilities or utilities. Because of the mining expansion crowding out existing miners, there is a constant selling pressure from miners who sell new coins immediately to pay expenses in order to avoid the forex risk associated with holding coins for any period of time. It's this simple.

The selling from miners outpaces the buying demand from consumers. Ultimately this will taper off or reverse when:

1.) consumer demand for bitcoin increases
2.) miners control less new coins - ie. more halving
3.) mining capacity takes a break from expanding and levels out

That's it folks. It's not magic.

[Srbotones]

The production of new coins never goes up from 3600BTC / day and even if we supose that miners are selling the 100% of their production in the exchanges, that's only represents a fraction of the day volume.

What I'm trying to say is that if a person want to access to the Bitcoin market, there is no needing in buy them compulsory in a exchange, even they dont't necessarily have to buy Bitcoins. They can be a part of the market just crowfunding an startup or investing in companies, contributing to expand the Bitcoin market and bypassing our "indicators" and that's what it is happening now.

Last 6 months were best news Bitcoin ever had before and if there is no correlation with a response in the price it is because may be is happening 2 things:

- January bubble doesnt capitulate yet
- The tools what we use to measure the economy are incorrect or inaccurate.

IMO the second option is the correct one. I said before that the bitcoins inside the exchanges are 10% of the total amount, the 90% left are invested in companies or kept in users wallets and thats because I think Some kind of "SP500" (Including just companies that pass positively certain requirements) for Bitcoin could be a good option to measure the global bitcoin economy.

The way we measure the market now is like (for example) if in a supermarket of china people met to buy and sell products, and just with the activities of that supermarket you extrapole that demand, that offer to the prices of the rest of the supermarkets of the world, even when that supermarket of china just represent a tiny % of the global activity in the supermarkets

 

[shawshankinmate37927]

So, summing up: IMO we need to create a kind of new type of exchange that can correlate the entire activity inside the Bitcoin economy to have an appropiate value and price of it.

We need a decentralized peer-to-peer exchange/order book where  BTC is exchanged for cash.