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Author Topic: Why is bitcoin now so absurdly stable when priced in USD?  (Read 4408 times)
bitlizard
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May 29, 2012, 06:52:05 PM
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Bitcoin has been trading at very close to $5.10 US for 2 months now. Why so stable? bitcoin has previously been characterized as being a highly volatile commodity, store of value, currency, investment, call it what you will. If someone had predicted in 2011 that the price would stabilize at X price and not move for months we all would have laughed. What are the factors that contribute to the stability of bitcoin? I think it might related to the unprecedented liquidity of bitcoin. I guess the market is prepared to buy 100% of the btc for sale at $5.10ish but not pay a nickle more. Why is this? Does bitcoin posses some quality that makes it inherently stable?

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DeathAndTaxes
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May 29, 2012, 07:02:52 PM
 #2

I guess the market is prepared to buy 100% of the btc for sale at $5.10ish but not pay a nickle more. Why is this? Does bitcoin posses some quality that makes it inherently stable?

That is an incorrect assumption.

Price is always dependent on volume.  There are enough buyers and enough sellers that any trade which isn't an outlier to current daily volume can be absorbed without any significant change in price.

That doesn't mean the market is willing to absorb an unlimited volume without more slippage.  Try dropping $1M USD or 250K coins on to the market and I guarantee you the market will move.  Not only will it move directly (you simply sucking up the supply or demand) others will jump in and attempt to capitalize on that momentum. 

The "calm" is simply a metric of depth vs volume.  Depth has grown faster than volume (likely as many chased "free profits"). Today it takes "more" to move the price compared to a year ago.  Volume while it has grown, it hasn't grown by a comparable amount.  If volume quadruple and depth didn't increase you would see volatility take off again.

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May 29, 2012, 07:06:18 PM
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Thank pirate for the stability.
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May 29, 2012, 07:19:41 PM
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My theory:

Besides the growing depth of the market I also think it's all the various tools available to speculators to make bets about the exchange rate in any possible direction. We had bitcoinca where people could hedge or go long on a margin, we have several exchanges that offer arbitrage opportunities and we're getting more and more of these services which allow game theory to fully develop and that's really what is happening IMO game theory fully playing itself out between all the players.

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May 29, 2012, 07:23:23 PM
 #5

buyers = sellers

thats it.

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May 29, 2012, 07:35:09 PM
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buyers = sellers

That's obvious, the question is why buyers = sellers for past few months.

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May 29, 2012, 07:40:02 PM
 #7

Nobody can answer this question.

You can only guess or speculate.

If youre happy with it, go on :

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May 29, 2012, 07:52:23 PM
 #8

buyers = sellers

That's obvious, the question is why buyers = sellers for past few months.

There was a report a few months ago that brokers from the London exchanges were becoming interested in Bitcoin.
I wonder if they are using their money to buy/sell within a limited range (5.00 - 5.20)? I mean, maybe they are not interested in buying and keeping BTC but they use their money to profit from the price movements. If a lot of them are doing this this would increase the depth like an above poster said.

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May 29, 2012, 08:01:17 PM
 #9

Perhaps one of the early adopters is using their pile of bitcoin to manage the rate ?

Imagine you have a large number of bitcoin and, for whatever reason, want to stabilise BTCUSD.

When the rate rises to, say, $5.10 you start selling from your pile to kill the momentum.
It trends down to $5 again.

All systems have volatility.
Imagine it blips down to $4.90. You start buying Bitcoin with the USD you got from your $5+ sales.
The downward trend is stopped.

You have just bought low, sold high = profit.

You have also set a price anchor $5 = 1 BTC which is conveniently easy for everyone to remember.

I suspect we will never know if this is the case though.

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May 29, 2012, 08:20:08 PM
 #10

One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

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May 29, 2012, 08:27:23 PM
 #11

One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

There is no reason to assume that every single miner sells every single bitcoin mined every day.

Still around.
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May 29, 2012, 08:52:48 PM
 #12

One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

There is no reason to assume that every single miner sells every single bitcoin mined every day.

Sure there's a reason to assume that - to make it seem like demand is really high.
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May 29, 2012, 08:55:15 PM
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One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

There is no reason to assume that every single miner sells every single bitcoin mined every day.

Yeah I've been mining for a year and half and haven't sold any.

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Saturn7
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May 29, 2012, 09:01:29 PM
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Perhaps one of the early adopters is using their pile of bitcoin to manage the rate ?

Imagine you have a large number of bitcoin and, for whatever reason, want to stabilise BTCUSD.

When the rate rises to, say, $5.10 you start selling from your pile to kill the momentum.
It trends down to $5 again.

All systems have volatility.
Imagine it blips down to $4.90. You start buying Bitcoin with the USD you got from your $5+ sales.
The downward trend is stopped.

You have just bought low, sold high = profit.

You have also set a price anchor $5 = 1 BTC which is conveniently easy for everyone to remember.

I suspect we will never know if this is the case though.

I suspected that as well.   
If you treat Bitcoin as a product/service as the creators/investors/super early adopters the best feature you could offer to entice mass adoption is price stability.



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May 29, 2012, 09:10:53 PM
 #15

All markets tend toward stability, volatility will always fall in the long-run.

So, it's possible this amazing stability of the past 3 months is just a natural occurrence with no specific reason. However, I am honestly suprised such stability has been achieved this early. It's a very good sign, indeed.

With that said, when the price breaks out of this range, we could see another long period of volatility while a new equilibrium price is discovered.  All the people who, last year, said Bitcoin would never see stability have been proven wrong, big time.
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May 29, 2012, 09:18:48 PM
 #16

I suspected that as well.  
If you treat Bitcoin as a product/service as the creators/investors/super early adopters the best feature you could offer to entice mass adoption is price stability.

Especially if you aren't particularly innovative or risk prone.  The "service" that is easiest to provide without any particular skill or niche would be to dampen volatility.  That produces value for everyone using it to conduct transactions.  Higher real value means higher long term appreciation which means a more likely exist scenario for a bitcoin millionaire.
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May 29, 2012, 09:36:23 PM
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One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

A lot of people mine and keep their coins like me. Also when I sell my btc i usually try to first buy something from a user in the forum. There is probably thousands of dollars worth of computer hardware on the forum. When people buy from the forum it helps keep some of the btc out of the exchanges lowering the volume of bitcoins on them.
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May 29, 2012, 09:49:06 PM
 #18

One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

If the influx in capital into the market keeps pace with the new 7200 BTC produced every day, there is no need to buy up all those daily 7200 BTC. It is my understanding, that the named influx has risen over the past year along with bitcoins rising awareness.
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May 29, 2012, 10:23:54 PM
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One thing to consider is that, for the price to remain stable, someone has to buy up all of the 7200 Bitcoins produced every day.  I imagine that that is the answer to your question.  Someone who holds a lot of dollars, a wealthy investor or perhaps even a bank or government, has decided to buy a large volume of Bitcoins over a long period of time.

Also, the options exchanges have contributed hugely to price stability.

If the influx in capital into the market keeps pace with the new 7200 BTC produced every day, there is no need to buy up all those daily 7200 BTC. It is my understanding, that the named influx has risen over the past year along with bitcoins rising awareness.
Don't you agree that the influx of new capital should be considered more volatile with regard to pricing? Maybe these months of stagnation were only purposed to tie funds to temporally binding investions?
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May 29, 2012, 10:55:38 PM
 #20

Offer and demand of bitcoins is mainly speculation (gambling) instead of a real use of the currency. This way the behavior of the price is uncertain (some periods of high volatility, others of high stability).

In order to fix this problem we need more entrepreneurs, engineers and developers (real work), and less economists, speculators and gamblers (zero-sum game).

There are millions of ideas, projects and systems that were infeasible before Bitcoin (due to transaction costs) but now are fully feasible. The success of Bitcoin is our responsibility.


I think things are moving in this direction.
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