Topic: Handle the 21M Limit (Read 10311 times)

But your buy and upward price action might attract more ask depth.  It depends how fast the market reacts.  A better experiment is to execute part of your order at the ask qty 170 and put some or all of the rest of it on the book and see if that attracts execution.   I get your point that trading is thin but I'd like to see some of the tape.  I'm sure there are examples of both execution strategies in the tape somewhere.  http://www.mtgox.com/trade/history last 47 hours doesn't work for me today either.  If you have some sections of the tape that illustrate please copy-paste the in.

Exchanges typically solve this by requiring market makers to post bids and asks of a minimum size always, and they have a minimum number of market makers (at least 2 or more). Let's say it is minimum qty 100 and 2 makers, that means there is always qty 200 ask and 200 bid at any time.  So you can execute that and obviously they will raise and widen spread but they compete for the next execution (as you work through the remaining 800).   In order to comply they either have to have short facility or maintain enough inventory on both sides of the trade as a % of daily volume to allow enough time to replenish inventory if one side gets drained.  Which is exactly what you want. The other solution is to go to an auction market.

I'm not sure you can look at previous market depths.  You can look at the current depth, though.  They do only show 125 orders closest to the highest bid/lowest ask prices.

The spreads are sometimes small, but sometimes huge.  Even when the spread is small, there are often only a few bids or asks at those prices. 

If I wanted to sell 1000 BTC immediately, the last trade was 3.441.  The current highest bid is also 3.441.  If I sold, the price would drop to 3.301.  Fairly significant for not really that much to sell.  If I wanted to buy 1000 BTC, the lowest ask is 3.462.  So only a 2 cent spread, which is nothing.  But at 3.441 the bid is for 171 coins, and the ask is for 2.84.  To go up to that 171 coins, I'd have to move the price to 3.51, so it's closer to 7 cents.  Not that bad, but it's only for a super tiny order.  For 1000 BTC, I would need to drive the price all the way to 3.5699 to get enough asks to cover my order.

3.559 vs. 3.301 is a 26 cent spread for a fairly small order.  Pretty significant.  Now add in a single investor that wants $10,000 of action.  To buy, I'd drive the price to 3.65, I'd end up with 2784 coins at a price of $3.59 on average).

To sell $10,000 worth, I'd drive the price to 3.14, selling 3046.35 coins at an average price of $3.28.  So that's a $.31 spread in a fairly large order.

I haven't been able to get on mtgox last night, it hangs.

Do you have some section of tape showing trade history where small trades are at huge spreads and wide volatility?  Do they tape their whole order book, or just time/price/quantity?

While margin and short selling should add liquidity, it is controversial whether it decreases or increases volatility.  It would have to be tried. Narrow spreads that you talk of seems counter to a thin market.  Options require active committed market makers, if we don't have a strong market in the underlying not sure that will help.  But mtgox had an "options coming soon" note on their site.

Just look at the market depth.


Yes.  You can see every trade that has happened.

Market makers have no incentive to be there due to the low volume and spread.  Perhaps adding options or other more advanced features will help.

I explained in depth how commercial trade usage would create sell side pressure in other posts that I thought you were monitoring. I can dig back and repost.

Do you have tape showing the price movement on 20k BTC trades you mentioned? Can you post some piece of it?  I have looked at mtgox before but assumed that is only a fraction of the market since the depth is rediculously small.  You can't tell the true depth anyway because obviously large liquidity is not going to be posted in the order book.  I also assumed that there are other markets and the largest volume is OTC.  Bitcoin encourages OTC by its very nature, more so than most other trade I can think of. So some ticker examples of lack of elasticity would support the point since it should draw liquidity away from OTC and other venues if only temporarily.

Does mtgox publish its complete historical tape?

I can think of all the usual methods for promoting liquidity but they are controversial in the real (old?) world as well. Such as steps to encourage more market makers, rules for minimum liquidity, facilities for margin and short selling, rules for pricer discovery, etc etc etc I'm sure you're familiar with the litany.  Need to think about how to do some of that p2p.

Yes.  And that's a good thing.  I can put the value of a house in a backpack and carry it easily.

Ok, so you are agreeing with me, that it is not the best suited for small transactions.  But you do realize BTC can be split up 6 more decimal places?  Right now it makes no sense (who buys something for 1/1000th of a cent?), but if the value goes up, we shift the decimal in the client, and boom goes the dynamite.  If we shift the decimal all the way over, and the smallest purchase that makes sense is still too large, then making a "silver" that is just an extra few decimal places makes great sense.  But by then, a trivial purchase (say $.01 in today's market) would need to be the smallest Bitcoin value (.00000001BTC).  So if Bitcoins ever are worth $1,000,000 each, I am all for Silver BTC!

Gold is one of the heavier metals around, 19,3 tons per cubic meter. Lead for an instance is just 11,34 tons.

What happens to gold is that it's high valuable per gram, unlike lead which is cheap - not by "intrinsic value" (since there's no such a thing and if we measure it by usability, copper or silver (as it is the best electrical conductor) would be the most expensive and even lead would be more worthy than gold, which only good property is to be immune to erosion).

Why gold never drop to 0? Because it was seconded by the other metals market, gold alone would be a huge problem, as due to its value you would need nano-chips of gold to buy a coffee, would become useless for daily life, up to speculation and would make the market hang without a reliable and usable currency. And this is a problem with btc, we've ONLY gold.

Of course having it scarce makes it valuable.  That's kind of the point.  Scarcity is pretty important for a currency to work.  It's not the only thing, though.

No idea how many users, but my guess is under 10,000.

mtgox.com.

Market cap ~$20M.  You can buy all the coins on the market for under $30k (at least last time I checked before they went down).  That jumps the price tremendously.  Try to sell 20k bitcoins, and the price drops tremendously.  Try selling $30K of any stock on a major index.  See what happens to the price.  Try buying $30k of stock, see what happens to the price.  It barely moves.  Because the market is well-traded.

How would this create "sell side pressure"?  It would make people try to spend them to get rid of whatever they could by making them worthless?  Perhaps.  Try to actually explain your arguments instead of state assertions.

Gold is too heavy?  Are you kidding?  The currency is too good?  I can buy a house out of gold I could carry in a backpack with ease.  It's not that heavy.  If anything, it's too light, as it's hard to do small transactions with it because you start dealing with tiny specs of it.  That's the biggest drawback to gold IMO, is small transactions.  Which is why silver was useful.

People used other currencies when their governments mandated they had to.
Strange, I didn't know Gold's value dropped to 0 because it was so awesome at money.  You learn something every day, I guess.

I have no idea what you are saying.

Well no shit it's just speculation.  There is nothing to buy.  It takes time to get there.  It's a chicken and egg problem.  No one uses it, therefore no one sells anything with it, therefore no one uses it.  Until it has a market where it is forced to be used, or it is advantageous to use it (black markets), why use it?


Sure, if you say so buddy.

My theory is that the cause of the volatility and strong deflation seen recently is that many newcomers are buying into BTC attracted to the notion that it is "scarce".  I am not alone in this, many have posted similar sentiments on various threads. This phenomena is driven by recent press coverage and the fact the idea really clever.  Any move to increase the supply of such bitcoins will tend to dampen this source of investment demand and stabilize prices.

I agree we need more merchants and more real economy, and I believe that would also create sell side pressure and stabilize the market, and have posted such previously.

Now some facts would be interesting:  

You stated "few users".  How many users are there?  

You state  "huge speculation" and "super thin market".  Please point me to some market depth and trade data that supports this.

Ever wonder why people stop using gold for trade? Well one point BTC doesn't have, is that it's heavy, but mostly due to its high value. It's the so called "too good currency = bad currency". This is what is happening to BTC, it is becoming "gold", a currency "so good" that nobody will expend it once it triples the value in a week. - Eventually, as no economy develops out of it and it gets stuck in a money exchange without anything else it will suddenly drop to... zero.
But back on the why "not gold", people started to use other "currencies", "worse currencies", and when they did it, gold hasn't lost its value, nor gold was put out of business, simply was moved to "big deals".

Turns funny to see the fear of another "mining pool", this resembles so much the old pre-Fed/Central Banks fractional and distributed reserves. Normally a banker or even an economist would be doing the math and tell everyone to run away, but these "miners", "exchangers" and "speculators" aren't either of them, so they will fall to the very same mistakes they did on the past believing to come out "unscratched".

So, that's it, you already get a currency for speculation, this BTC; in order to do two things, very important things, create an economy and actually stabilize and strengthen bitcoin, you need a "worse" bitcoin, and can't be this one already, as this one is already "bullion". Also can't be "forked out" btc, because that wouldn't be creating an "alternative lesser-valued bitcoin" but another concurrent bitcoin as whole. "The sharks" that are pushing btc up already have their pool, this one, the other can fly under the radar for a while... until a yet lesser may be need, in total 3 or 4 block chains can keep up the supply and the different kinds of business.
It could be even created over 3 separate GUI's, 1 dealing with "Au" only, other with both and yet another for Ag only.

As for fixed vs floating, I expect already huge resistance from the current miners (even if they're more part of the problem than the solution), and would expect more if it was somehow fixed or regulated. It doesn't quite matters if today you need 1000 silver to 1 gold, and tomorrow 10,000 Ag:1Au, as long as the prices of Ag doesn't spike and come back, let the Au handle speculation and "investors".
You're not, in this process, make the community bigger or smaller, just making it usable.

I keep hearing this argument, but it's just assertions.

"We need stability".  Ok, I understand.  Economy needs to grow for that to happen.
"So we fork the code and make more bitcoins and make the economy smaller".  WAT?  It makes no sense.

Please for the love of God try to explain how having either more Bitcoins or similar Bitcoins makes things MORE stable.  If anything, it would make prices fluctuate more and make things unstable.

If you think otherwise, at least try to put forth your thought process so I can show you why you are wrong.

Prices are not stable because there is huge speculation and it is a super thin market (meaning there aren't that many coins traded close to market price, so any significant order moves the market big time).  Propose something that actually solves that issue.

I also disagree that merchants are not taking things because prices are unstable.  They aren't getting involved because the amount of work needed does not justify the increase in business they might get.  There are only a few users, most have access to USD or GBP or EUR or wahtever, and using cash or credit cards is less costly for them than going in and out of relatively small number of bitcoins.

If you want to fix things, make them useful for something!  Start your own store.  Have people pay in them.  Start trading them to people in person.  Expose more people to them so the economy grows.  Do not splinter an already tiny community any further.  Unless you can somehow show me how splitting up into two currencies somehow is helpful.  But I hear a lot of rambling and not any actual arguments.

A lot to chew on here, so I am not going to even try to quote anyone!

First, I am not a miner and don't intend to be. But even if I was, if I can mine Ag so can you (probably better than me). That is not the reason for proposing a second chain.

The problem I am trying to solve is how to get bitcoin to grow a real economy behind it. Remember that tulips were a great investment vehicle, right up until they weren't.   Right now bitcoin is primarily an investment vehicle because there is demand for something like it. That demand could be channeled into driving the growth of real economy, rather than waiting for the inevitable bursting.

In order to get a real economy growing, merchants and consumers need to increase their confidence in BTC as a trade currency.  I believe that the price instability, especially the very high volatility of the last four weeks, is a detriment to that goal.  I would be equally worried about severe inflation, in fact even more so than deflation.  For this reason I do not want to get too wrapped around discussion on the merits of deflation.  A moderate amount of steady deflation might be fine, but that is not what we are seeing.

A lot has been said about 8 decimal points and it is hard to deny that the micropayments could be solved.  But I am trying to address human psychology for casual users.  I went on some web sites yesterday and noticed they had not updated their BTC prices so it was much cheaper in USD. Casual consumers would just use dollars. We know the right thing is to go to MtGox sell your BTC and use the USD to pay, this closing the arbitrage gap.  But average people couldn't be bothered most of the time.  I have a friend that runs a major ecommerce site and she goes on for hours about how you get a higher take rate if you place the radio button on the left compared to the middle depending on country.  That is the reality.

Similarly merchants will not know the arbitrage has taken place and after a while just take down the BTC becau,se nobody is using it.  Also human nature. Yes their are cool solutions to automatically get quote feeds from MtGox but those are just more hurdles for people.

In sumary I strongly believe that stable prices are necessary. One solution would be to convince everybody to increase the 21M limit and increase the mining rate, but knowing human psychology that pig is not going to fly.  Hence I propose a second chain. 

I can see both sides of fixed vs floating Ag:Au rate.  You should not need a central bank but I admit I do not have all the details worked out. The idea is to use market arbitrage forces to perform that function, similar to the way ETFs use arbitrage to keep their trading price close to the NAV.  SOMETHING will have to be set arbitrarily in the system, such as the eventual Ag cap and mining rates.  The people that willingly download the AgAu console will all mutually accept those arbitrary settings.

I am very interested to hear opinions on how the floating rate would work, and what the arbitrage is.

Well, yeah, back before people interacted with each other.  Eventually all of those metals lost.

Of course trading money for money and that's it would not be a successful economy.  I haven't denied that once.  The bitcoin economy needs to grow to become useful.

However, going in and out of money might be sufficient for some economies (mainly black markets).  Most of the value now is speculation, that it will be useful for something down the road.  If it does, it's severely undervalued now.  If it's not, it's severely overvalued now.  That's why it is moving so much.  People are placing their bets.

Wrong! Prior to printed money you'd Silver, Bronze, Tin, Copper... even Iron in Sparta. Gold was an asset, used mostly for savings nobody was carrying gold along, unless was completely insane.

Again I'm NOT a miner... nor have equipment to compete with those miners.
Yes the AgBTC will start to be worthless... so was AuBTC... and yes, people will make Bronze, tin, copper... until they find one suitable for goods and services, one that is what BTC isn't: expendable. As this one ain't and probably Silver will have too much value, thus less than Au (not 50-50 market), within some time.

Up to this point, and even if at the beginning we'd some btc business enthusiasm with those pizzas, hosting, domains, etc , now all it resumes to Mt Gox, trading money for money. If you don't realize how hazardous is to keep trading money for money and that will render no more than yet another Ponzi (maybe the reason why the creator of BTC jumped of), than there's nothing I can do, enjoy it.
I keep saying that while BTC resumes to this, it's a threat and you'll find it out somewhat soon, nothing is being generated the only "business" is "mining", what you call "trading" is selling "mining". Maybe some drug dealers or people dealing with CP are adding value to this, I don't know, it may give it high value or justify its present value, but for the rest no added value is being given to BTC economy.

Wrong answer.  Until very recently, there was only one currency.  Gold.  This happened because it was the best currency, and it destroyed all competitors.  Governments finally changed this when they realized they couldn't print gold and realized the power of devaluing their own currency. 

Actually incorrect.  You can certainly do less.  And there is the power to do MUCH less (but having nano-transactions overhwelms the network and serves no purpose).


You have two options and only two.  An independent concurrent currency (that may be integrated into the client or not, doesn't matter), or some additional fixed rate currency (which means you just expand the number of Bitcoins, and give the new ones funny names).  Doing the first is possible.  Go for it!  The second one will crash Bitcoin to $0 (or would just be rejected by anyone who knows anything).


So fork teh code and create AgBTC.  Everyone will ignore your useless currency and you will see for yourself.  Or some people will flock to it, half people will use regular BTC, half will use AgBTC, and the value of each will be cut in half, until someone makes Bronze, Iron, Zinc, etc...

As for getting new people to join it, if there is free money, the people who are in best position to get to it will get to it.  New people aren't going to mine some random valueless currency at a greater rate than the people already involved in Bitcoin.  If it's easy to mine, it's because it's valueless.  If it becomes valueable, then people will just switch.

It seems your main complaint is "it's too hard to mine".  Well no shit, it's supposed to be hard to mine.  No one is supposed to get rich mining except maybe the early adopters who were just gambling anyway.  People should focus on getting Bitcoins by either buying them from people or by offering goods and services for them.  Mining is not adding much value to the Bitcoin economy.  If all we did was mine, it would be as pointless as http://progressquest.com (mining has value as a transaction logger, but if there were no transactions, it becomes pointless).

You claim you want stability and predictability in the value.  Why suggest things that would do the exact opposite.  Although adding new currencies that people are forced to redeem at a fixed rate would give stability and preditability- it would make the value 0.

No, Tom, ever wonder why we've so many forms of currency around? A: Diversity.
At this moment bitcoin is a failure on its main purpose, it's impossible to conduct micropayments with it, as 1 cent worth already 0.03 USD+ and this will probably go up.
The secondary bitcoin, which can be done within a dual-bitcoin holder (this and the other) - create a "fork" or a fork alone to deal with that secondary BTC would render just a concurrent currency. If some or a lot sticks to this BTC and refuse the other, fair enough, I don't see how to enforce people to accept this one, so I wouldn't see a reason or how to enforce people to accept the other.

I see an issue into force a conversion rate, as it would need some sort of "Central Banking" to enforce and control the supply of AgBTC... not quite possible within the BTC decentralization. But if a group decides to put that idea forward... as long as they've both sorts of BTC enough to hold it as so. But I believe for practical terms it will need to float in the market.

As for the "new mining rush", you must see it as a way to get more people to join BTC, not as "oh sh**! I'm f**ng greedy with the BTC I generated in 2010 and I'll not allow anybody else to touch it". Your AuBTC is safe, don't bother with it... you let some new folks mint their 50 AgBTC and get more supporters - thus some old miners may interest in mint Ag at the beginning making it less time-spawning as AuBTC in the beginning.

The quantity being small doesn't make a high price.  There is a small quantity of my turds that are framed, yet the price is strangely not high.  No one wants them.

If you had a fixed exchange rate, this means someone has to be forced to accept one kind of currency in place of the other.  Would the client force this to happen?  In that case, you really just have one currency and you created more Bitcoins.  If this were to happen, it would render Bitcoins valueless.  If you can arbitrarily add more and more Bitcoins at any point, it completely defeats the point, and the price would go to $0.  There would be no point in using it.

But if you let things float, sure, it could happen.  The market is so small, some people would go off looking at AgCoins and try to get in early on it.  But they wouldn't be worth much.  The Bitcoin price would also drop some due to uncertainty and having competition.  This is the biggest natural threat to BitCoin (you can make arbitrarily as many identical clones of it as possible, no longer making it scarce).

But again, what is the point of this?  Do you just want to artificially lower the price?  Get in on a second mining boom?  What problem with Bitcoin is actually being solved by forking/forcing the main client to deal with a fork?

I'm not sure we're on the same page regarding what it means to fix "x" where AgBTC:AuBTC = x:1 exchange rate.

The direction that people chose to exchange should be a function of which is easier to mine.  I am not sure that a fixed rate is practical, but let me restate the idea so that it can be examined.

The price of AuBTC and AgBTC in fiat currencies, say USD, would fluctuate independently according to the market.  This is necessary since they are separate chains and can be transacted independently.  Initially the quantity of AgBTC would be small helping to support a high price, plus it would be easy to mine. This would attract miners away from spending their CPU cycles on Au and into Ag mining since it is more profitable in USD.  Clearly there is an arbitrage opportunity if AgBTC/USD:AuBTC/USD < x people would sell AgBTC for USD and then buy AuBTC and then use the fixed rate x:1 to convert back to AgBTC.  This would force prices back to a ratio of x:1.  However even afer the arbitrage closes the gap, miners would still be attracted to AgBTC because it is less than 1/x times as costly at first. Eventually the cost of mining AgBTC would increase just above 1/x times AuBTC as more miners come in, and miners would switch back to AuBTC.

It seems that it would be intuitive to set the mining rate of Ag and the limit at x times Au. But I cannot think of why it has to be so.  Can you?

Another interesting question is this: Undoubtedly some Au enthusiasts will not want to deal in Ag.  That is their choice. Can an Ag-Au system co-exist nicely with a smaller Au-only system?

Even if you let gold BTC float vs. silver BTC, you'd still likely see silver BTC be worthless in gold BTC terms as time goes on.

There are implicit interest rates in silver and in gold.  Any interest rate, remember, can be expressed as a discount rate: the price of the future good in terms of the present good.  Ten minutes from now, there will be about 50 more [gold] bitcoins (ignoring bitcoins lost due to death of people and/or computers) out there with an increase approaching epsilon in their aggregate value so the value of each bitcoin will decrease.  A bitcoin ten minutes from now is worth about AuBTC 0.99999177 in current gold bitcoins.  Likewise there's a discount rate in AgBTC.  Let's say for argument that ten-minute AgBTC is worth 0.98 in current AgBTC (i.e. that AgBTC's supply is growing faster than AuBTC's).

There's also an exchange rate between AgBTC and AuBTC.  Since we can calculate the price of future AuBTC in present AuBTC, the price of future AgBTC in present AgBTC, and the price of present AgBTC in present AuBTC, we can calculate the price of future AuBTC in AgBTC.  The interest/discount rate in both currencies and their current exchange rate is a prediction market for the future exchange rate.  The future AgBTC/AuBTC rate predicted by the three rates will converge on the actual AgBTC/AuBTC rate as the future approaches (as time under consideration approaches zero, future and present approach parity).  This prediction is thus arbitrageable: if you know that your prediction of the discount rates is accurate, there's profit to be made.

We'll have the current AgBTC/AuBTC rate be 10.  Then 10 futureAgBTC is worth 9.80 presentAgBTC which is worth 0.98 presentAuBTC which is worth 0.980008 future AgBTC implying a future (mind you: future means 10 minutes from now) exchange rate of 10.2.  Silver has depreciated against gold but the interest rates in silver are markedly higher than they are in gold (the interest rate for lending 1 AuBTC for 10 minutes is .00082298% while the interest rate for lending 1 AgBTC for 10 minutes is 2.0408%).

The question now is, which would you rather hold?  Are you saying "look at that rate in AgBTC!  I should be in silver!"?  If that's what you say, you're not holding, you're investing/lending.  If you have the choice of investing/lending in AgBTC or AuBTC the choice is neutral if you accept the discount rates and exchange rate as accurate: the change in the exchange rate will cancel out the difference in the discount rates.

Investing/lending doesn't decrease the set of currency holders.  If you lend money to someone it's either because he wants to hold money, he wants to lend it to someone else who wants to hold it, or he wants to trade it for something else and the person he trades it with will then either hold it, or lend it, or trade it for something else...  at some point someone is making the decision to hold or "hoard" AgBTC or AuBTC.  Given that the value of 1 AgBTC in AuBTC is falling, it's fairly clear that these individuals should have a rational preference to hold AuBTC over AgBTC.

This results in exit pressure from AgBTC to AuBTC as the hoarders obey the incentive which puts more upward pressure on the AgBTC/AuBTC rate which increases the incentive for hoarders to hold AuBTC.  We have a positive feedback loop that continues until AgBTC is worthless, unless there is some external factor at play.

One of those possible external factors is that the lenders don't understand what's happening and thus make suboptimal decisions.  If AuBTC is predictably appreciating by 2% over AgBTC but the loan markets in both currencies predict only 1% appreciation (basically that AgBTC rates are 1 point higher than AuBTC rates) then you see lucrative investments in businesses whose only act is to hold gold and hedge it with the prediction of lower appreciation.  Eventually these investments crowd out all other AgBTC investments and the AgBTC rate is driven to 2 points over the AuBTC rate.

Another is that some party who creates present AgBTC to buy future AgBTC, thus disrupting the interest rate inputs.  The danger for this party, of course, is that they're not just creating present AgBTC to buy the future AgBTC generated by the appreciation in AuBTC.

In any case, speculators on these things can and will speculate, and the speculations boil down to long AuBTC and short AgBTC.  Again, the predictable appreciation of AuBTC over AgBTC generates predictable appreciation of AuBTC over AgBTC.  Monetary competition is fundamentally unstable: there's no negative feedback, only positive feedback.

Thus why fixing the exchange rate between AuBTC and AgBTC is doomed to failure: at some point there will be a jolt that is sufficient to start one currency appreciating and once that happens the appreciating currency will appreciate until the depreciating currency is worthless.  But even with floating rates, this phenomenon happens: the rational saver will rebalance into the rising currency and de-diversify out of the falling one (or at least, the sooner he figures this out, the better off he is).

This happens with non-fiat currencies all the time: thus far basically every commodity (barring a few exceptions like Pacific islands that use rocks) besides gold and silver has been demonetized and silver is almost totally demonetized (despite the word for money in a ton of languages being the word for silver...) relative to gold.

In the world of national fiat currencies, holders and users are not homogeneously distributed.  Most of the people for whom USD has intrinsic value (viz. the ability to keep the US government from kidnapping them, killing them, and/or taking their stuff) are in one area of the world.  Even if they keep most of their savings in something else (gold, bitcoin, swiss francs, shares of facebook, etc.) and use something else (possibly not the same thing) as a medium of exchange for buying food etc., they still need to buy and hold USD from time to time.  Is there a group of people that need AgBTC in order to survive or keep their stuff?