Topic: Price has inertia, bitcoin price has upward inertia - page 2. (Read 1270 times)
I think theory of bitcoins movement is not fully correct. Can you explain why prices came down from around 1000 to 200 range? You said that it will go up more and come down less.
Random walk theory indicated that most daily buyer and seller actions cancel each other on the market, so long term wise the price would be stable without major change in market condition, e.g. price have inertia
Another explanation: Most of the people have no idea if an exchange rate is right or wrong: Why should gold cost 35.5K dollar per 1000g? No one knows, it is just a price they get from the exchanges, and they suppose this is the right price decided by market supply and demand
However, once they have this price information, when price rise fast, they will see it is more expensive now, they profited quickly, they will sell some. And when price dropped, they will think it is cheaper now, and buy some. Those actions will keep the price balance at a stable level
Bitcoins exchange rate can rise dramatically during a major rally. However, when the rally is over, it will usually stay at a much higher level, even without all the capital inflow support from the rally
This is because: When exchange rate is rising, mining margin is getting bigger, miners will add more hash power, that will raise the difficulty, and raise the cost of the coin, and the price become more reasonable
However, when rally is done, exchange rate is falling, there won't be same amount of mining power going offline, simply because they have already ROIed, or not everyone will sell their coin immediately for profit/loss. As a result, the network difficulty and the cost of mining now stays at a much higher level than before, which created a "it cost much more to mine now" feeling for every one, so people are less willing to sell
I found out that most of the people's market decision is based on their psychology, and cost is no doubt the most strong psychology support for valuation. This is not saying that the difficult and cost would never go down, it is just they don't go down as fast as they go up
Another explanation: Most of the people have no idea if an exchange rate is right or wrong: Why should gold cost 35.5K dollar per 1000g? No one knows, it is just a price they get from the exchanges, and they suppose this is the right price decided by market supply and demand
However, once they have this price information, when price rise fast, they will see it is more expensive now, they profited quickly, they will sell some. And when price dropped, they will think it is cheaper now, and buy some. Those actions will keep the price balance at a stable level
Bitcoins exchange rate can rise dramatically during a major rally. However, when the rally is over, it will usually stay at a much higher level, even without all the capital inflow support from the rally
This is because: When exchange rate is rising, mining margin is getting bigger, miners will add more hash power, that will raise the difficulty, and raise the cost of the coin, and the price become more reasonable
However, when rally is done, exchange rate is falling, there won't be same amount of mining power going offline, simply because they have already ROIed, or not everyone will sell their coin immediately for profit/loss. As a result, the network difficulty and the cost of mining now stays at a much higher level than before, which created a "it cost much more to mine now" feeling for every one, so people are less willing to sell
I found out that most of the people's market decision is based on their psychology, and cost is no doubt the most strong psychology support for valuation. This is not saying that the difficult and cost would never go down, it is just they don't go down as fast as they go up
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