Topic: Bitcoin , Exchanges and the problem of the price/value of a Bitcoin (Read 1985 times)

Not comparable.

We are talking about Bitcoin, not petrol or gold or pizzas.

Bitcoin can be used as a currency, as a share and as a commodity so, taing this into account, a price criteria only based on exchanges are wrong, of course you have to take exchanges into account , but not as the only way to measure. There's another 90% of activity outside to measure

Aren't you aware that all currencies are sold on exchanges?

Also, pizza may not be sold on exchanges, but corn, soybeans, soy products, wheat, pork, cattle, butter, milk, cocoa, coffee, cotton, orange juice, sugar, crude oil, heating oil, diesel, refined petroleum products, gasoline,  electric power, coal, natural gas, copper, aluminium, lead, zinc, nickel, tin, steel, gold, silver, platinum, and palladium are.

I have to agree with the OP. Exchanges are a very bad way to set the price. Yes gold, shares and other things use exchanges, but BTC is a currency. Imagine if pizza was sold on exchanges? It would cause havoc to the price with margin trading etc.

Even with greater adoption, we will always face this problem so long as the volume on exchanges is a small fraction of what is being traded worldwide. Is this just a fact we must face?

You are right right on all points except for the third. 

Buying mining hardware never puts any pressure on Bitcoin price, and exchanges don't need to see those purchases. 

However, electricity for mining always goes trough the exchanges, and difficulty leveling out simply means that the power consumption is at the highest level it can be, so that is the point at which the downward pressure on the Bitcoin price is the highest.

Like exactly now, or in the next couple of months.

That's what I think.

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

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

 

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.

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.

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

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.

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.

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.

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.

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 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%.

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.

I don't really see what the problem is.

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

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.