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Author Topic: liquidty and price  (Read 1242 times)
jubalix
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March 10, 2015, 12:14:19 AM
 #1

would it be fair to say we would only see decent liquidity when btc is around the 100K to 1M mark in today's buying power, as this is the kinda scale you need to be able to absorb buys and sell vs usage in other fora?

eg. at say 1M a btc there are far less actors that can just throw 100M at it then there are that can throw 100K.

At 1M the total market cap is  21T and that become quite a bit harder to shift, though remember the cap is sorta magnified by the slippage.

It looks to me that BTC needs to be 2.1T to 21T for liquidity to be essentially solved.

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March 10, 2015, 12:29:51 AM
 #2

would it be fair to say we would only see decent liquidity when btc is around the 100K to 1M mark in today's buying power, as this is the kinda scale you need to be able to absorb buys and sell vs usage in other fora?

eg. at say 1M a btc there are far less actors that can just throw 100M at it then there are that can throw 100K.

At 1M the total market cap is  21T and that become quite a bit harder to shift, though remember the cap is sorta magnified by the slippage.

It looks to me that BTC needs to be 2.1T to 21T for liquidity to be essentially solved.

The price of bitcoin has little to do with volatility of the market, the volatility is coming from those who control those coins, regardless of the price,
i would even say that if its making a difference, the bigger price makes it even harder to stabilise the price, since you need more fiat money to pass through the banks to make buying power.
To even consier such values, the mining reward must be insanely small, to eliminate large effects of miners dropping their shares, the time between traders decision to buy,to passing through banks to exchange must be minimal, and without regulatory issues, and overall bitcoin must be spread out and used in commerce, to furthermore smoothen out
price jumps and dives.
Theres a lot of things that bitcoin has to pass to dream of such numbers, and it wont happen soon, atleast i dont see how it could be done in 10 years..

cheers
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March 10, 2015, 01:38:00 AM
 #3

BTC is sufficiently liquid.


Depends for who, For people like you and me, sure, but for institutional investors - definetly not, every buy would increase the price and every sell would decrease it.
The market isnt mature, nor liquid enough for that, and thats when the next level for bitcoin will start.

BTC is not sufficiently demanded so that volatility can drop.  


Its not balanced, since at this point its mostely driven by speculation on both the buying and selling side.


A bit of a chicken and the egg.


Good analogy, but with bitcoin it doesnt matter, since whatever comes next of the two - liquidity or non-purely speculative demand, one will achieve the other,
atleast i look at it that way.


cheers
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March 10, 2015, 02:48:42 AM
 #4

would it be fair to say we would only see decent liquidity when btc is around the 100K to 1M mark in today's buying power, as this is the kinda scale you need to be able to absorb buys and sell vs usage in other fora?

eg. at say 1M a btc there are far less actors that can just throw 100M at it then there are that can throw 100K.

At 1M the total market cap is  21T and that become quite a bit harder to shift, though remember the cap is sorta magnified by the slippage.

It looks to me that BTC needs to be 2.1T to 21T for liquidity to be essentially solved.

The price of bitcoin has little to do with volatility of the market, the volatility is coming from those who control those coins, regardless of the price,
i would even say that if its making a difference, the bigger price makes it even harder to stabilise the price, since you need more fiat money to pass through the banks to make buying power.
To even consier such values, the mining reward must be insanely small, to eliminate large effects of miners dropping their shares, the time between traders decision to buy,to passing through banks to exchange must be minimal, and without regulatory issues, and overall bitcoin must be spread out and used in commerce, to furthermore smoothen out
price jumps and dives.
Theres a lot of things that bitcoin has to pass to dream of such numbers, and it wont happen soon, atleast i dont see how it could be done in 10 years..

cheers

I not quite sure volatility follows in quite that way, but sorta I am saying this would make it less volatile I suppose. I am maily interest in what sorta price we would need to say support large chunks of the economy of wealth transfer, eg Houseing  purchase in a situation where there is still a large FIAT based system.

Eg say 1000 houses sell a day (Which is kinda low ball) and this needed BTC exchange, that would be 1B and day which is 1/2000 th of  2.1T market cap but a hell of a lot more at the slippage front.

1B a day is not that much really

It says to me we need about a $21 T cap to make BTC workable for alot of transactions/companies etc/wealth transfer

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March 10, 2015, 04:20:26 AM
 #5

The price stability of the foreign currency market is actually manipulated by central banks (as soon as Swiss central bank gave up the control, it moves 40% in a couple of hours). Central banks usually have large amount of foreign currency reserve to absorb the movement of exchange rate, they can manipulate the exchange rate at will. A good example is 1985 Plaza Agreement, which depreciated the USD by 50% to stimulate US economy

But for bitcoin, there is no such kind of central authority managing the exchange rate, it is purely market driven without any regulation. Any kind of rogue trader from a large hedge fund could cause large swings, it is a heaven for speculators. However, over time there will be some players with large reserve absorb the price shock created by short term speculation. And, without the ability to print more bitcoin, they can only defend the lower bound of the price, not upper bound. The only one that can put a limit on upper bound is Satoshi, if he still have access to those 2009 coins

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March 11, 2015, 09:50:58 PM
 #6

What's the liquidity problem you're seeing? Are you having trouble getting the quantity you need? For majority of people I think there's plenty of liquidity available...plenty of supply, easy access to exchanges and sellers, etc.

Also, do you think people are influencing price with big trades (you referenced 100k)? Where do you see it happening?

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May 08, 2015, 06:09:40 PM
 #7

you need a high price for sure, to absorb instability, but i think that even at 100-500B you can absorb well enough any manipulation substantially

would it be fair to say we would only see decent liquidity when btc is around the 100K to 1M mark in today's buying power, as this is the kinda scale you need to be able to absorb buys and sell vs usage in other fora?

eg. at say 1M a btc there are far less actors that can just throw 100M at it then there are that can throw 100K.

At 1M the total market cap is  21T and that become quite a bit harder to shift, though remember the cap is sorta magnified by the slippage.

It looks to me that BTC needs to be 2.1T to 21T for liquidity to be essentially solved.

The price of bitcoin has little to do with volatility of the market, the volatility is coming from those who control those coins, regardless of the price,
i would even say that if its making a difference, the bigger price makes it even harder to stabilise the price, since you need more fiat money to pass through the banks to make buying power.

i don't agree, higher price means for sure higher stability and less volatility as a consequence, and you don't really needs more money, through the banks, to maintain the stability, because a higher price is only archiviabile by a massive adoption, so the fiat used is just spread across many more people, and not just few with more money
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May 08, 2015, 08:25:04 PM
 #8

The more Bitcoin is accepted by merchants and shops, the more the price declines. Why? Merchants usually exchange Bitcoins immediately into fiat money instead of hodling them. This increases the sell preasure and liquity and results into a declining price. So, it is not necessarily a bad sign when the bitcoin price declines.
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May 08, 2015, 08:43:01 PM
 #9

The more Bitcoin is accepted by merchants and shops, the more the price declines. Why? Merchants usually exchange Bitcoins immediately into fiat money instead of hodling them. This increases the sell preasure and liquity and results into a declining price. So, it is not necessarily a bad sign when the bitcoin price declines.

That's a common belief, but it is shortsighted and not a good explanation for the falling price. Sure, merchants usually sell the bitcoins they receive, shifting the supply curve and putting a downward pressure on the price.

But, you are ignoring the demand side. People buying with bitcoins have to buy the bitcoins, and that shifts the demand curve and puts an upward pressure on the price.

So, as Bitcoin adoption increases more merchants are selling bitcoins and more customers are buying bitcoins. The two cancel effectively each other out.

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May 10, 2015, 08:49:25 PM
 #10


Depends for who, For people like you and me, sure, but for institutional investors - definetly not, every buy would increase the price and every sell would decrease it.
The market isnt mature, nor liquid enough for that, and thats when the next level for bitcoin will start.

Institutional investors will always have liquidity problems. This isn't unique to Bitcoin though. Just about any investment vehicle large institutional investors choose has liquidity problems. They are market makers and they always will be.

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May 11, 2015, 09:47:15 AM
 #11

OP is correct, liquidity is essential. The reason is simply that if you hold something of value that you can not use directly, there is no point in holding that value at all if you can not easily transform it into something that has direct use value.

There is an interesting example from the world of equity, where shares of different classes have different value even when they represent the same share of the equity. The example is MAERSK-A and MAERSK-B. The B share class is the same as the A share, except with a B share you can not vote. For some reason the A share is less liquid (maybe the A share holders are in love with the company in some way, or may be they are long time holders and don't daytrade so much). Because of the liquidity difference, the B-shares have consistently a higher price than A-shares, even when they have less owner rights. It has been going on for decennia.

For money, liquidity is crucial, and it is also the reason that there can not be two, equally good, money at the same time. When one of them wanders off just a bit, one will have more liquidity, will therefore be more interesting to hold, will increase in value, and like an explosion, it will take on all value.



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Q7
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May 11, 2015, 12:35:40 PM
 #12

Are we short of supply? All i can see is oversupply and certainly not the other way round. With all the zero at the back i don't see it turning into liquidity issue. More over i can imagine when price per bitcoin becomes too high and i mean insanely high as what you mention, it turns into more liquidity issue than when it is low.

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May 11, 2015, 12:49:46 PM
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Are we short of supply? All i can see is oversupply and certainly not the other way round. With all the zero at the back i don't see it turning into liquidity issue. More over i can imagine when price per bitcoin becomes too high and i mean insanely high as what you mention, it turns into more liquidity issue than when it is low.

There is no issue, just that to convert bitcoins to consumable goods and services, you have to detour via fiat. My thinking is that even now when that is the case, for some types of trades bitcoin is useful anyway, and with current liquidity more people could use bitcoins for those types of trades if they knew.

So even at the current level of liquidity, usage could expand, therefore the liquidity could increase, making new types of trades effective using bitcoin.



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