Topic: Price stickiness at $5 USD/BTC? (Read 9724 times)

Yes BTC in a BTC economy, don't worry so much about what the fiat does. As long as BTC is climbing in value the risk is in holding dollars as I see it.

As for the thread topic it looks like it has settled down around 6-6.6 for a while. Wouldn't be surprised if it dipped down into the 5's with the euphoria gone though.
5 is the new 4, then in 6 months its 6.

right on, moonshadow.

There's no special meaning, just quoting the subject of the stories.

The US $ isn't stable relative to gold, oil or even the Big Mac index.  The perception of stability is relative to your base standard.  For Americans that standard is the US dollar itself, so of course most prices will appear fairly stable in a currency relative to itself, all the while the average guy blames (Bush/Obama) for the falling value of his house or the rising cost of gasoline.  Compared to gold, or even silver, the cost of a gallon of gasoline is roughly the same, if not a bit cheaper, than it was in the 1960's.

I doubt the exchange rate will ever be irrelevant, but I can see it being functionally irrelevant to some individual members of the economy. Obviously there's exchange rate risk between any two stores of value, based on supply, demand, and perception. However, the USD is very stable by any relevant measure. It is stable in a way that takes efficiency gains out of the accounts of those who store their wealth in it, but it is stable.

This is quite true, and before the Euro a great many businesses faced constant 'currency risk' of changing exchange rates between the time that a deal was struck and the time it was paid for.  The real issue is that bitcoin isn't big enough to buy the things one needs for a complete economy without said currency risks.  When I can buy gas & groceries (at a competitive cost) locally, and pay my electric bill online, with bitcoin; the voltility of the exchange rate will become irrelevent.

USD isn't stable - it depends on how do you measure its stability. If you look at gold or oil prices USD is not that stable. It's only retail price tags which are stable. Wholesale prices (especially on exchange traded goods) vary.

Inflation pushes you to buy now, deflation pushes you to save and buy later.

How big is this push/incentive? Probably depends on how big is the inflation/deflation, what products/services we're talking about..

I find it fascinating to think about these things, does anybody knows a book that discusses the implications of a deflationary economy?

I meant the stability comment to be more for the crowd here that refuse to admit any validity to USD at all.  I, personally, view BTC as a supplement of sorts to USD and not a replacement (but that's a different conversation).

But yes, they very nature of BTC makes it volatile in these early years.  It will be very interesting to see how the markets respond to the first block reward decrease

This is because USD IS very stable and BTC IS very volatile. While in a long-term monetary base sense, BTC is more stable, the current market valuation of BTC is incredibly volatile because it reflects the current BTC marketplace (small). In a long-term sense BTC are likely incredibly undervalued, but if anything that means that we should expect even more volatility in the future as the BTC 'GDP' grows and the market responds.

-bgc

I'd disagree. I think that, while it might get mentioned, the spike will become sort of a side-story after the price stays stable for a good length of time.  But, since we're talking about a future situation that cannot be resolved through math/science that'll just have to rest on a matter of opinion.

But why the quotes around $30 spike? Are you suggesting that the spike didn't happen, or am I misunderstanding your use of quotes?

Well the "$30 spike" stories are only going to stop after the price has been stable above $30 for a while.

He was using it as an example.  To the vast majority of people world wide, USD is very stable and BTC (to the extent they even know of BTC) is very volatile.  It's easy for people on these forums and others like it to start thinking as if everything they know is common knowledge.

You'll know that BTC is viewed as stable in the eyes of the main stream when news stories about BTC stop referring to the $30 dollar spike and subsequent crash in the first paragraph or two.

Are you suggesting that we use the Big Mac index as measure of volatility? Though I still prefer Pizza Purchasing Power: how many pizzas you can buy for 10000 BTC at a given point in time. It looks like we're up a few pizzas this week.

I'm too but average people don't give a f about inflation. All that they know is that price tags are not supposed to change. This feature of bitcoin slows its adoption.

Im for a currency that the government cant steal through inflation. I short fiat at any opportunity by purchasing bitcoins and shares on glbse.

The question is how a layman measures "fluctuation".

If he comes today 1 hamburger = 1 USD, and tomorrow 1 hamburger = 1 USD it means for him USD is stable. In this layman sense USD is stable against almost everything.

Is it possible to sell hamburgers today at the same price as yesterday if we use BTC? Will it be good for seller? for buyer?

People will have a hard time, then. Stability against a wildly fluctuation USD?

I have the feeling that most people with any BTC have some passing knowledge of the exchange rate.  We're still at the point where every news article and almost everyone on this board discuss BTC in direct relation to "fiat" money.  And would you spend 10 BTC on an item knowing that there is a chance that you could get the same item for only 9.5 or 9 BTC tomorrow?

It works both ways, for sure, and I'm not arguing that BTC isn't viable right now and that there isn't a market for BTC buying.

I'm arguing that it'd be better if prices were more stable.

I don't necessarily agree with you.  I for one have been operating a small bitcoin marketplace in the last few months and am planning on expanding operations soon.  I always do an immediate cash out (about 90%, the rest I leave for investment).  Yes it isn't as easy as accepting cash only, but you have a HUGE almost untouched market to deal with.  Being a miner myself, there are times I wish I could just grab something quick with BTC, instead of waiting for everything to transfer to my bank account (or taking a percentage hit by trying a more immediate option).  Also, if you offer products in BTC you can get the impulse buyers and people that haven't really connected the BTC exchange rate to actual USD.  All they know is they're making money by mining and want to spend it.  You have to realize that most people on this board and in this thread really care and pay attention to the exchange rate, but there are many people just getting into this and do it casually that don't really pay that much attention.

I guess we're talking about two different things. You are obviously a user who is very involved in the community and market to users who are likely very involved. I thought we were talking about widespread adoption of BTC to other merchants and more average users to grow BTC adoption. I didn't realize that you were arguing the "keep BTC niche" position.  My apologies.

Again, WE know that volatility hasn't been 10%.  But my most measures it's still pretty high.  A lot of people who don't yet use BTC but know OF BTC have the $30 spike/crash as a schema in their mind of what BTC.  Only long periods of slow change will remove that incident from the mainstream mind. 

Warning! Conflicting viewpoint! Danger! Cannot computer! Conclusion: must be troll

No son, a system that requires you to immediately move around your money and make conversions and pray to the god on Mt. Gox that prices don't drop .50 USD in the next 10 min is really actually a huge headache.  Of COURSE you're right that BTC as a system is way way better than Visa, etc. Don't ever believe I argued that, son.

But it'd be BETTER x2 with stability. I really can't believe that this point would cause you to flip out so much.

EDIT: And that's from the merchants point of view. As BTCCHINA pointed out, people like stability.  No one is going to want to spend BTC on anything if there is a high chance that price go down/BTC value goes up by 10% within the hour.

Because it isn't a very good selling point for BTC? "Hey, accept BTC so you can waste your time converting it to USD anyways! Oh, wait..."


It's good to hear common sense and real-life experience on these forums.  Too many people here think that everyone in the world thinks MARKETS!RALLYS!GOLDDOWNDOLLARUP! all the time.  People want stability and predictability in their financial planning. 

Exactly. But I'd go further and say that even if the media supports it such as a web store, the buyers would be confused by the quickly changing prices.

I can say from experience as I have tried running a web shop where the prices changed daily according a many factors such as market price and currency exchange rates.

The result was low sales, which immediately improved once I stabilized the prices and stopped treating my shop like a market and more like... a shop!

One of the issues I'd often run into was angry customers demanding a refund once they saw a price drop of something they had just bought.

I'd get an angry e-mail complaining why this price has fallen, I'd explain why it happened and that it could have gone up as well. They didn't care, they're not used to this. I could make them understand if the order had already been shipped out I couldn't do anything about it. But if the order had not yet been shipped, they'd demand a refund, period. And might or not use the money to order again and keep the difference.

Anyhow was a major annoyance. We initially thought our customers would enjoy a market-like shop, where they could get always the latest price for the goods, but most people didn't like this idea at all.

Hence my belief that exchange rate stability is important to make bitcoin more palatable to the average buyer.

My point is that USD/Gold is stable, but USD/Bitcoin is unstable so the USD/Gold example is irrelevant.

Today's gold instability is about 1.2% (1630 high 1610 low). According to my Bitcoin Analytics charts today's btc fluctuation is 6% for 1000 BTC volume (6.41 high 6.01 low) and 34.8 (8.09 high 6 low) for 10 BTC volume.

If 1.2% is "very unstable" how do you call 34%?

I do know some BTC merchants show BTC conversions relative to Mt. Gox, but with fluctuating prices they have to either immediately spend their BTC somewhere else or convert it into USD in order to not potentially lose everything.  That really isn't a good selling point on why merchants should except BTC.

It's not about pegging to fiat. It is about specifying price in advance.

a) Not all media support realtime tags. For example, grocery stores still have price tags physically printed and attached to goods. With BTC it is simply not possible - they have to reprint and reattach tags every hour or stop specifying prices at all - customers will have to use scanners to check the price. Few shops here in Ukraine have such scanners so you can use it to check the price against the latest database of the supermarket. But it's for doubtful cases only, having to do this to find any price is painful.

b) Not all contracts support immediate purchase. For example, if I call a taxi the operator can tell me the price in advance. But not in BTC. Let's say I have 10 BTC. The operator says the price for my trip is 3 BTC but mtgox crashes and at the end of my trip the price becomes 30 BTC. So either taxi company or the passenger have to lose. Same for many other options - ordering a pizza, train/airplane/football tickets etc.

The problem that if you displauy price in any commodity (gold, bananas, whatever) or in currency there are no need for realtime prices. With BTC such need arises and causes additional burden and expenses.

They couldn't because they are just vendors and not finance professionals. But their payment processor could. But at the moment there are no such processor.

Couldn't they hedge against the fluctuations?

My point was that any means of increasing market depth are good - being that money coming from merchants, producers, services, speculators, manipulators or hoarders.

It's not the case. Less than 1/3 of the miners do like this. See https://bitcointalk.org/?topic=86010 (people can put 2 check marks there so numbers don't add to 100). I pay my mining expenses from my pocket and don't spend my mined BTC.

Speculators don't bring more volatility but reduce it. If you buy low and sell high you shift the price closer to equilibrium, not away from it. And many speculators cannot pump price up - some will try to pump up, but other people will try to capitalize on that attempt. I think the only way of "artificially pumping" the price is one big manipulator putting his $200k+ at risk. A quite brave man indeed.

I think quite the contrary: I think the price was stable because the only people trading in those dark days were speculators, "the sharks" as someone put it. And teenagers and housewives were removed from the market and attracted to ZhouTong/SatoshiDice type of gambling which is more or less closed-circuit and doesn't affect the market.

Bitcoin is doomed to a steady exchange rate growth because of a) its algorithmically limited supply b) an irresistible temptation for Federal Reserve and European Central Bank to increase the supply of paper. Gold  prices in USD increased 580% in last 10 years, oil increased 320%, corn 400%.

We cannot have stable exchange rate as I described above but we don't need it either. We only need less volatility - 1% daily rate change must be quite acceptable for merchants and service providers. If we target less than 1% of daily growth we can afford to have up to 3800% yearly growth which is a quite high limit. To get less volatility we need to attract more hoarders (which remove USD from their mattresses and put them into bitcoin market) and more speculators (which extract profits from reducing volatility), not less. With more money in the market it's volatility will go down and BTC will be more attractive to real producers of goods and services. The inherent benefit to early adopters boosts Bitcoin, not suppresses it.

Why is the price stuck at $5/6?

It's been my impression that most miners are selling it for cost + small margin on top. I have recently begin mining and $5 was the price I needed to recover my costs within a year. So this price makes sense from my mining point of view.

The biggest source of volatility in the price of bitcoin, seems to be the speculation done by investors which pump the prices up.

I believe the prices have been stable for the last couple of months because of previous crash that might have scared away these speculators.

Honestly, I think it is better for the bitcoin future if the prices could be remain stable. Because then people would think of it more as a means of buying things rather then buying and holding the currency.

I don't think we're going to see another bubble like last year. As soon as price rises fast like yesterday, some will sell their holding for fear of a burst.

So bitcoin will rise in value as the bitcoin economy grows, but it will be a healthy growth

Also remember that we had a tiny bubble in autumn - the price rose from 3 to 7 and fell back to 5. I was unfortunate enough to buy at 6.4

^^^^ This is what I'm talking about, yo

Not really.

I can't wait to go to $10 and I bet others who bought last year at like $15 too.

For the record, I only bought at $0.58 back in May 2011 and sold at highs.

I can only feel sorry for the fools buying at $17 or $15 last year.

Can we have another bubble, PLEASE !?
 

I love the conspiracy theories in this thread.  You people can make conspiracy theories involving the lint in your dryer!

Anyways, anything over a .25 increase a month on the major exchanges make me nervous. We, as the bitcoin community, are still suffering social punishment over the $30 peak last year.  Now, we deserve all the criticism we got for it, but if it happens again then it would really do some damage to BTC future.

He obviously doesn't understand the arbitrariness of the dollar.

haha, lol. Reminds me of a friend who last year (pre-parity), when I said: "bitcoin will reach parity with the us dollar soon" said: "No way, it cannot be better than the dollar".

No. We first need to reach $10 then we can stabilize.

Value of $5 is too low for what BTC offers IMHO. Only 5 times better than Bernanke ? No way !

There's been a lot of talk about how market stabilization like this can't happen without insider information. I don't think that's necessarily the case. I'm reminded of someone mentioning on this forum about research that was done on predicting market movements with high accuracy (80%+) based on the frequency of individual words used on different forums. I would not be at all surprised if someone was putting that to use to keep the market stable and making profit on the side.

Of course, it looks like the dam just burst during the past few days. Regardless, I'm curious to see if we'll return to a comparably stable position once the price stops going up again.

I also think that someone doing this is very good for Bitcoin in the long term. Heavy instability will cause a lot people to avoid Bitcoin markets.

My eyes are on the Bitcoin growth in China. Historically, they love to bet speculatively on anything.

You tell about one billionare, but there could be many. That would make the price jump again.

Think about a strict anticyclic trader. This stabilizes the price, and will lead necessarily to a win (a normal one, not quick or large). It makes profit from others market manipulation, and is usable with any amount of money.

in which order?

No it's not.  You're just not understanding.

To varying degrees, many are and have in the past.  I'm talking about a computer program implimenting a standard speculation stragedgy.


A billionare doesn't need to colude with anyone in order to defend the peg in a $40million market.  By definition, his resources are already unlimited within the trading range of $5+-.10.  The only way the market maker stands to lose in this scenario is if the natural price shoots towards zero and he ends up owning all of it.  After which there is no more market to make.

It's not theft buck, it's how currency markets are supposed to work.  There are a dozen small nations in South America that openly & deliberately 'peg' their local currencies to the US $, and this is exactly how they do it.



the scammers are undermining confidence in the market.  no one wants to play in a market they know will rob them.   we will regain some market confidence when the scammers are caught and exposed


[/quote]

You assume that this invovles some kind of fruad.  I'm telling you that it doesn't require that.  All it requires is one person with the resources to buy the entire market and the apparent willingess to actually risk that occurring.  He can defend the price floor until the last bitcoin is his.  What he cant do forever is defend the high end forever.


That's a different subject altogether.

Nonesense, all he needs is enough funds to be able to buy out the entire market, which would be exceedingly easy to do for any billionare willing to do it.  If the bot is set up to buy (with resources at least as large as the whole market, which is effectively limitless for this tiny market) at $4.90 with a delay of several hours, he can accumulate bitcoins for $4.90 or sometimes less without dramaticly affecting the volume adjusted price.  By selling at $5.10 (again, with a delay) he sells them at $5.10 or more.  The delay exists to 1) let smaller players soak up the price movements in order to stretch out his funds and 2) to obscure the presence of a "wall".  The only way for said player to lose money in the near term is if 1) everything goes sour in a hurry and he ends up buying all the bitcoins in existance at that price level (as in a major security hole is found in the protocol that cant be fixed, unlikley at this point) so that volume goes to zero because he already has them all and there are no buyers or 2) the price movement that wants to trend lower overwhelms his funds.  If the top end of the bot is ever overwhelmed then the investor still makes money in the process of defending the top end of his target trading range.  Not as much as he could have if he let the top end seek it's market price, granted, but he can't lose money by buying at $4.90 and selling at $5.10 even if he doesn't have the resources to defend the peg.  Perhaps the top and bottom aren't rigid price points, but percentages.  There are major market makers in the commodities markets that do things on the stock market this way to prevent (or profit from) 'buy the rumor, sell the news' type panic movements.  The goal of such a bot isn't primarily to profit from price movements, although it generally does except in extreme conditions.  It's primary goal is to suppress voltility for a time to permit the market to mature as well as develop a 'safe' reputation; and the profit taking occurs in the long run.  It's speculation taken to a long view.


That is functionally what the bot does.  Perhaps the bot is  set up to set aside 5% of the coins it buys on dips, so tht if the high end of the bot is ever overwhelmed (selling 95% of all teh coins it's accumulted) then the bot owner still has the las 5% to take full profits from once the market price has found it's new home.  Set the bot up again with a new trading range, rinse repeat.  Again, the only way the investor stands to lose under this scenario is after the whole bitcoin market grows bigger than he is.  Any investor knows how big he wants to be, few are going to get caught off guard in this sense.


This is true, and exactly what I said the long term goal would have to be.  Did you bother to read it?


So?


It only takes one big market maker to do the job.  If others come along later a see that some bigwig has already set up his system, maybe they do look for another market, but so what?  Again, this is a long view speculation, the speculation being that the bigwig is betting on the long term success of bitcoin.  Isn't that what we all are doing?  The suppression of voltility imply mimics a larger & mroe mature currency market, which is what small businesses want to see before diving in. By encouraging these small businesses to dive in, the invetor wills his prediction to become reality as the market really does mature under his watch and voltility really does stableize just as the bigwig is ready to withdraw his deliberate support and start to take his profits.  Notice it's not in his best interest to take all his prifits in any particular time frame.


We actually don't want that.

I think that I can explain it.  The Price stickiness at just under $5 (i.e. price drops to just below $5 per btc, and then recovers) imlies that there is a hidden buy order at around $4.90. (or more likely a bot) There is no way for us to know how big this buy order actually is, but assuming that it's actually just one major player iwth the buyorder, the past several months have already shown that it's someone well heeled & with a tolerance for risk.  It could be just about anyone with a couple million dollars in their petty spending account, but there is one particular billionare that comes to mind for me.  If correct, it means that someone is quietly both supporting bitcoin & intentionally damping voltility; perhaps with a /exchangecompanion sell order at $5.10 or so, thus range bounding the price.  Obviously if true, both the buy and sell orders are delayed execution type orders which would be likely if the intent is to suppress voltility and not invest per se, because it gives other speculators a chance to soak up the price movements before the bigwig's bot kicks in.  This makes sense for any major player with the funds to be able to dominate this little market, because it would not only allow said bigwig to quietly build up a substantioal amount of bitcoin wealth over time, without sending the price to the moon; it also allows the bigwig to profit later because suppressing voltility is what helps the (more risk adverse) small business type economy to mature.  Eventually, it then becomes in the bigwig's own interest to remove the top limit and leak the info that said bigwig has been investing in bitcoin; thus permitting the btc price to double or triple on that news alone.

Think about it, if the news came out today that some semi-famous investment billionare was buying bitcoins; say perhaps one that has a history of picking major tech/Internet winners while young, who had a well known and strong libertarian streak, who was highly tolerant towards risks (a venture capitalist, perhaps), a history in the online currency/money markets and a well-known connection to the cutting edge of the Interent; then the 'hangers on' that follow investors like that one would flood into bitcoin in short order, thus sending the exchange price back towards it's record in short order.  Said billionare then sells half his accummulation of bitcoins at four or five times the price he bought them for, restablelizes the price at a higher price point, makes a killing and still has a fortune left in bitcoin.  And bitcoin also gains withthe suddenly public knowledge that bitcoin has the very kind of backing that detractors claim that it does not because that isn't explicit.

reminds me of mid-2000....   well, that was more like quadrupling position on some nasdaq garbage.  went from 50% down to ~10% down.  that's when i decided i shouldnt be throwing darts anymore


bitcoinica used "play" bitcoins 

Very interesting thread.

I would have expected the price to go higher now that shorting is closed on Bitcoinica.

Waiting to see what reward drop brings us. Hopefully $10 at least

If you're right, he eventually won't be able to hold it back and it will skyrocket very quickly.  If that happens and he defaults at the same time you can say you were right.  Until that happens, you are just making yourself look like a conspiracy theorist.  Also, look a little wider.  While USD/BTC might be holding close to 5, EUR/BTC is trending up since the Euro is falling relative to the dollar.  Other NonUSD currencies also show a similar uptrend.  Big things are happening in the wider markets, and for BTC to hold $5 and not fall like stocks, metals, commodities, and other currencies is impressive.

that mount is accrued from "thousands."  Even though he's not getting much for each trade the volume makes up for it.  

It's called penny shaving or salami slicing

also:


from https://bitcointalk.org/index.php?topic=63933.0;all

edit:

mtgox fee reduction is a problem...  that limits the game to large players

kinda hard to imagine that much money squeezed from gox' market, though.

honestly that makes quite a bit of sense at first glance.

https://bitcointalksearch.org/topic/m.915349

Pirate said :



That is consistent with what we have been talking about.  A spike would break through a ceiling or floor he had set up.

I've been wondering whether pirate is involved as well. The one confusion is that he mentions local customers, and if he's doing bitcoin HFT to profit off of volatility (thus smoothing it out) then I don't understand why he would have local customers... but this is probably explainable.

-s

Possible.  He just stated it's in his interest to prevent sharp upswings: https://bitcointalksearch.org/topic/m.915349

could the sticky-maker and insider perhaps be this guy? https://bitcointalksearch.org/topic/a-day-in-the-life-of-a-pirate-82849

I think with 100k a trader could manipulate it into this pattern for a short period of time.  Like you said, just smack it around.  Long-term it doesn't work.  There's no way he could pull this off for more than a week.  It doesn't take much capital to break resistance levels.    Since it wouldn't take much capital to exhaust his offerings we should have seen a price breakout by now.  You can look at the cumulative depth chart see how little capital it would take to move the price wall outside the trading range.  In addition to starting capital, the trader would need inside knowledge.

http://bitcoincharts.com/markets/mtgoxUSD.html

I think people with balls are making stands.  We got VCs and other big shots who are getting in.  Bitcoin attracts headline news every day.   Events are occurring that should result in big moves by making herds of traders sell or buy at once on a major news headline.   Whoever is on the side of these trades most be a big, big player with knowledge, more knowledge than public indicators provide. Everyone can see bullish and bearish indicators which means all that information is "priced in" at any given time.    This trader needs inside information to make this scam reliably profitable.    He would also need a lot of capital at his disposal.  He needs enough ammunition to control an entire market.  

$100k in the hands of a skilled trader would do it.  They don't have to hold the line all the time, just smack it around a little when the indicators get too bullish above 5 or too bearish below 5.  Yes, eventually this will stop working, but who's got the balls to stand up against the pattern?

That's real tight for something this volatile.  Past history demonstrates that bitcoin has been extremely volatile.  Now for some reason trading has been flat for 4-5 months.  Invariance is increasing steadily.

Cue Twilight Zone Intro

http://www.youtube.com/watch?v=XVSRm80WzZk

the someone's pockets would have to be very deep.  they would also have to have insider knowledge. without insider knowledge they would be losing a lot right now trying to keep the price at a stable level. they would have to see ahead of the order book to be sure of how much they could scalp off the market   symbols made a good point in a previous response.  He said mtgox could effectively be "printing" mtgoxUSD and mtgoxBTC. If that's the case then the scam will blow up when they print too much and fail to deliver real BTC and real USD on redemption requests.  A run on the exchange would expose the scam. No speculation anymore once we saw the results of a run.   Historically, these scams always fail when the run starts.  

First of all being around 5$ +/- 10 cents for what? 2-4 weeks? is not THAT stable.

Secondly the BTC economy is growing as others said it keeps things more stable.

Thirdly someone was manipulating the market up and down with fake walls a month or two ago and I bet a lot got burned on that, well we all learned our lesson and don't panic so easily anymore - markets are alive.

It's being held stable by someone with deep pockets.  Eventually, they will accumulate what they want and then it will become very volatile.

I am having a hard thinking of any commodity this stable.  Bitcoin should be very unstable given how exotic it is. 

Something isn't right.

I'm glad you brought up the fact that big players are coming in. That's another reason why we should have more volatility. Market cap of bitcoin is roughly $45 million right now.  It wouldn't take anything for those big players to move this market.  If a big player bought any significant amount of bitcoins the price would soar.  Volume is roughly 30k bitcoins a day which is about $150k of bitcoins.  $150k is pocket change for "people whose net worth is in excess of $100m."  You can't have all of the activity described above and not have significant price variation.  So far the only thing we haven't ruled out market manipulation by insider trading.    Those players may realize this happening and be wary of entering the market now.  Those guys are professionals and study trading patterns and fundamentals under a microscope.  Why would they buy if the market is rigged?  Arbitrage bots don't explain it.  They are small players.  Arbitrage bots take advantage of subtle price differences across different exchanges.  Keeping price at a given level on one single exchange would not be profitable.  With 10-20x more capital invested we should see double digit bitcoin prices at the minimum.  

Last year we were well above $10 until negligent security practices brought down the entire exchange.  Bitcoin was itself was tarnished by investors who concluded bitcoin was at fault. Guilt by association was their first conclusion.  We had far less interest from big players then and yet price is lower now with high interest from big players.  Before the exchange became a monopoly you could take your money to an exchange that wasn't rigged.  For various reasons we lost market competitors.   Price stabilization happened to have coincided with monopoly formation.  

If we had more exchanges we would have more assurance of fair play.  Market manipulators would have a hard time running scams simultaneously on multiple exchanges.  On a monopolistic exchange that colluded with stealing from traders would be relatively easy.  They wouldn't have to worry about the arbitrage bots foiling their scam by trading against the insiders positions on fair exchanges.

The BitCoin economy has grown significantly, more services have been developed, there is greater liquidity with things like BitInstant, Bit-Pay, foreign currency trading/arbitrage bots have been deployed, etc. and therefore more capital has moved into bitcoins. This has resulted in it taking at least 10-20x as much capital to move the price $.10 as it did 12 months ago.

Additionally, there is tremendous potential buying still sitting on the sidelines. I have had numerous discussions with people whose net worth is in excess of $100m and even helped one make a five figure bitcoin investment. BitCoin has made a proof of concept and proven itself worthy of additional capital which is starting to flow in. I know of at least 4-5 potential six figure bitcoin investors that are seriously sniffing around and other VCs who are looking for some serious BitCoin related businesses to invest in.

It just doesn't seem right to me that the market suddenly went stable within a 4.8 - 5.2 range over the past 4-5 months when it has NEVER been that stable before.

Something isn't right.

Yeah, it gives the exchange an enormous amount of unchecked power.  Power is so easily corrupted. We need assurance that we are not getting ripped off.  In the midst of a global crisis caused by financial institutions you now have to be able to verify before you can trust.   As you said the exchange could be colluding with a bot they created.  Or a hacker could who got in could front-run the market.   For the hacker it would be a better long-term strategy than stealing directly from accounts.   Milk the cow instead of slaughtering it.  And Mt. Gox as well as other exchanges have been hacked thoroughly.  It's a daily occurrence now.

We need transparency.  One way or another.  

In a true market-moving demand situation, the bot's supply of bitcoin would be exhausted. A similar argument would result in exhaustion of dollars to buy with in a true market-moving supply situation. However, if the bot is colluding with the exchange, then the exchange can have effective unlimited supply/demand by 'printing money' in either mtgox usd of mtgox btc subject to avoiding a 'run-on-the-bank' and trying to balance out the accounts over time.

This scenario makes a strong argument for having exchanges operate on the bitcoin network so that at least the btc side of the exchange is subject to global auditing.

-s

There is a way one could construct a robber bot that would flatline trading at $5.00.  A bot could be designed to sell bitcoins once it saw an incoming wave of buy orders.   With bids coming in at $5.25 it would sell as many coins as necessary to quench demand.  It would continue selling until price neared $5.00.   Since it can see the order book in advance it could be confident that there was enough demand available to meet its supply.

Likewise the bot could buy bitcoins once the bid dropped to $4.75 for bitcoins.  As before the bot would keep buying until price returned to $5.00

With advance knowledge of the order book the bot could generate consistent and reliable profit over time. In this example the bot would make on average somewhere between $0.25 and $0.50 per trade.  On market volume profits would be very high as it skimmed money off trades.

Advance knowledge makes front-running possible.  

That is the simplest example of a way to front-run bitcoin trading.  You can extrapolate from this example and come up with more elaborate methods of swindling traders.   With more sophistication the scam becomes more difficult to detect.   The good thing is that we have sensitive statistical analysis tools available.  Under scrutiny it would not be possible to keep the scam going over time.  Insider trading and market manipulation are illegal.  Knowledge that the markets were being watched would be a strong deterrent.  Scammers would know that the odds of getting caught would be near certain with increased scrutiny.  

Your point is well made about what a market surveillance bot would need to have to be effective.  Without complete information the market surveillance bot could not be fully effective.  The bot needs accurate and complete information.   Mt. Gox is the only source for that information and they have not made it available.  Mt. Gox is not a transparent exchange like the NASDAQ and the NYSE.    We should lobby the SESC (Securities Exchange Surveillance Commission) to correct this.  The SESC is located in Japan and regulates Mt. Gox.  The SESC is similar to the Securities and Exchange Commision (SEC) in the USA.   The SESC could enforce full transparency upon Mt. Gox through regulation.  

http://www.fsa.go.jp/sesc/english/index.htm

That would imply that the net demand other than the big buyer is sell-heavy. Which it may be... but then it would be a poor move for that big buyer to keep on purchasing.

-s

Maybe there's a big player buying them up progressively, in greater quantities when the price is towards $4.80, and in lesser quantities (or zero) when the price moves towards $5.20.

I agree that the price stickiness is eerie and inconsistent with some of the fundamentals. Front-running doesn't seem to explain price stability though, although it could certainly be happening. If anything, Front-running should just change who materializes the profits from the market, it still relies on fundamental market direction for its usefulness.

All that being said, having a bot to search for front-running would be useful. Such a bot would still be dependent on accurate reporting from the exchange...

-s

The degree of "stickiness" is eerie.  Price trend has been squeezed down to a Flatline. There has been a great deal of growth and services in the past few months.  Coin demand and transaction velocity have increased significantly.   Bitcoin attracts thrilling news headlines.  Hacking, theft, and scandals make headlines daily.  

Volatility should be much higher given such high turbulence.  Yet the tape does not reflect this.  Price invariability is still a mystery.  

One cause that needs ruling out is front-running.  One example of front-running is where an insider trades on advance knowledge of pending orders.  It is parasitic in nature as these trades steal the profit from honest traders.   It can be difficult to detect when bots or algos break up larger orders into smaller orders.  Trading can be spread across a number of accounts which are controlled by one entity.  

For more on front-running see this Wikipedia article

http://en.wikipedia.org/wiki/Front_running  


The NYSE and the NASDAQ have automated surveillance programs.   They perform statistical analysis that look for abnormal trading patterns, coordination among participants, etc.  Does anyone know if we have a bot that can do this?  

This would be very interesting if we could prove that.  The same psychology exists in the gold & sliver bullion market as well.   You see it happen when the "paper" price falls below the physical price and people go to purchase the precious metal but you can not purchase it on the spot for that amount.   It happened when sliver dipped below $10.00 an ounce (from $16-18), you could not get your hands on it for less than $16 plus premiums.

I don't think that the replacement cycle will make too much of a difference.  Remember Moore's law is not set in stone. 

If there is a delay in replacing GPU's today there was the same (or similar) delay 18 months ago.

What about the idea that the price seems to be hovering around or slightly above the cost of mining coins plus a modest profit (if you are in a low electricity cost area).
i.e. Mining (cost to keep the network running) at least a strong contributing factor to the rate.

+1

@Rothgar
Concerning Moore's law, could you factor in the GPU replacement cycle ?

That and, alot of small hobbyist inverters who are simply never going to sell, if anything they will just use the bitcoin economy, day trade with some a % of their coins, and buy more coins! )

ironically its probably the people that bought at +5$ range that have sold off their bitcoins. Because lets face...the bubble was a bubble and when it poped we lots a lost of people, big and small investors...

and the thing is... when it was poping... "really big investors" didn't wana touch bitcoin with a 10 foot pole

the stable price will hold indefinitely, and this will make bitcoin a more attractive investment opportunity, And taken more seriously as an alternative payment system.

+1

Not only does difficulty not change supply (at least not in a material way), supply has very little to do with the value of bitcoins.  Daily volume on Mt.Gox is much higher than the number of coins created each day through mining.

BitInstant <--- That's what happened. They allowed for people with money to do arbitrage in a simple way, so they keep the market fairly stable.

That, plus difficulty does not change the supply one bit.

I personally think OgNasty's explanation is ridiculous. It's the same as playing poker with the mindset of trying to win back money you have previously lost. Some people do this of course but for a serious player there is an expected value and you invest based on it and what happens, happens.

Of course it can be smart to lower your average price if the entry point was really bad. For example, if someone bought bitcoins at $10+ and is still hoarding them, buying now would make sense if you want to get your average entry closer to the current price. But I just can't see how this could be a significant explanation for the sticky $5 price.

My explanation is fairly simple, I just think that Bitcoin growth rate at the moment is fairly close to the inflation of the money supply. Secondary reasons are psychological reasons and the fact that leveraged rallies have been less crazy for a number of reasons ever since we had the massive long squeeze at Bitcoinica.

One market maker is enough: Put sell order when price goes above $5.2 and buy order when price dropps below 5

Maintain the price and start to accumulate enough BTC, and try to push it towards $50, because the liquidity in BTC is so low and there is no regulation for BTC exchange, who knows what can happen...

I think the best time to push the price up is when block reward drops, we'll see...

If that is indeed the case, it's hoarding price stickiness... and its ultimately misplaced. I believe bitcoins will increase in value, so I would buy on a fall in price. But if I think that its my purchases that keep the price up, I would be better served by gradually selling off my investment because I can't keep the market afloat on my own. I could pursue a strategy of buying just a little bit and hoping that other buyers are encouraged by the price resistance, and then sell into their demand... So I guess that last strategy is possible.

I think enough people have now stashed money in BTC that they will step up and buy to keep the price stable when it falls below $5.  This is to protect the value of their stashed funds...  Just my $0.02.

Difficulty gone up 50% while the price stays stable got you confused?  The hash rate should double every 18 months assuming a constant price due to moores law.  

https://en.wikipedia.org/wiki/Moore%27s_law

Seems very odd though we are essentially stuck at $5. It's nice to see some stability, but it's kind of weird considering difficulty has gone up close to 50% this year. BTC is not responding to supply and demand curves...lol. Although maybe we have reached an equilibrium in the speculator market.

As a miner I'd like to see the coin follow economic fundamentals more closely.

pure coincidence. I think we're going to see both $3 and $15 this year.

And, whatever happened to the 50k walls that used to popup all the time?

Could be a heavily invested entity keeping the price stable to attract users?

So, the exchanges have been keeping a fairly tight band around $5/BTC, I'd like to hear opinions on how much you attribute this to the following factors:


1) Fundamentals: economy is growing at the same rate of the influx of coins from mining so prices stay constant
2) Price stickiness: optimal trade would occur at a different rate but either hoarding or excessive selling is keeping the price up or down
3) Price comfort: easy to think of bitcoin rate as divide USD by 5, works well with our decimal system
4) Other factors, please describe...

-s