Topic: What dictates the bitcoin price (Read 1763 times)

Happy to do it ElectricM.

I just got done drawing down my saving account by about half of what it had been.  Again.  Mostly to non-Bitcoin things, but another fraction of that will be to Bitcoin and would be on it's way already if Tradehill would live up to their documented timings (they've failed me again.)

For those who might be interested (possibly pre-maturely and possibly not...):

http://en.wikipedia.org/wiki/Glass-Steagal

http://problembanklist.com/bank-of-america-derivatives-timebomb-shows-system-is-corrupt-to-the-core-0426/

and of course the recent MF Global fiasco.  Now some may argue that the (non-)segregated customer commodities accounts are different than FDIC accounts, but not very long ago it could have been argued that the CME member institution accounts also were bullet-proof safe on the strength of the CME's statements.

http://www.bi-me.com/main.php?id=55360&t=1&c=35&cg=4&mset=1011

In any event, it seems to me that BofA would not be taking their actions to co-mingle their derivatives with FDIC accounts unless they were planning a cash-out.  And I expect that if BofA accounts require FDIC service, there is almost certain to be a bank holiday to sort out the mess (or I should say, divy up the losses by appropriating the savings of almost everyone and/or inflating things away to the necessary degree.)

I hope these things don't come to pass, but they seem possibly enough to me to wish to limit my exposure and diversify into assets which are less juicy targets than numbers of the books of financial institutions.

I'm surprised that there are not more people like me and therefor that Bitcoin and other things are not in higher demand because of it.  Oh well.
A studied this photography closely when I was a kid (it's a bank run in Shanghai) and it probably is responsible for my being a paranoid financial wacko now in my later years.  Someone said once that history may not always repeat, but it very often rhymes.

Net inflow is zero.

The current rise is from money made from earlier sells. Ok there may be one or two desperate individuals who really use their dayjob money for this. Thanks for that.
LOL

Exactly.  Bitcoin currently mints 7200 coins per day.  At $1 USD that means a $7200 USD net inflow needs to come into the economy to avoid prices falling. Technically it is less than that because some % is hoarded but lets ignore than for a second..

Bitcoins are like any other commodity.  Right now we are at $2.40 USD:BTC.  If daily demand for Bitcoin is >$17,280 then more dollars are chasing the same number of coins and prices rise.  If daily demand is <$17,280 then less dollars are chasing the same number of coins and prices fall.

Note this is on a long term fundamental basis excluding manipulation.  So when the reward drops in half @ $2.40 it won't require a net inflow of $17K daily it will only require a ~$8K daily net inflow.  

On price:
The reward cut may not result in prices rising but it will put upward pressure on prices.
If prices rise or fall will depend on how much money is really coming into the economy.  Prices are @ $2.40 but it is entirely possible than inflows are well below the $17,280.  Maybe $8,000, maybe $2,000.  The price could be artificially supported by a combination of hoarding and manipulation.

If net inflows actually are <$8,000 then prices would be expected to fall (from $2.40) even after the reward is cut.  They simply would fall slower than if the reward wasn't cut.  On the other hand if net inflows are >$8K even if prices are supported today by manipulation and hoarding they would be supported by the fundamentals after the reward cut.

Note:
Net inflows is what matters.   Obviously there are a lot of coins not being traded, sold, or exchanged right now.  That is the hanging sword. If a significant number of them were exchanged for fiat then outflows would significantly increase and the net effect would be insufficient fund flows to support prices.

Difficulty changes don't drive price because regardless of difficulty mining is zero sum game.  x coins are produced each day at difficulty of 20M or difficulty of 0.2M.  Personally I think difficulty is going to fall 30%-40% even before the reward cut both in anticipation of the cut (as we get closer) and because more miners will realize prices aren't going to $30 and mining for a loss simply doesn't make sense.

TL/DR version:
OF COURSE REWARD RATE HAS AN EFFECT ON PRICE.  Lets say Satoshi had made the block reward 50 million coins per block instead of 50.  Does anyone think prices would be ~$2.0 each ($16 trillion monetary base today)?  Yes block reward change in the future is less of an effect (because it doesn't influence the coins already created) but it still is an effect.

I think the whole reward halving thing will increase the point at which miners switch from mining to buying...

For example, right now when the price is at $1, I would shut off my miner and start spending $20/ month on bitcoins instead of $20/ month on electricity for 20 bitcoins.

So the question become are there other people like me out there?  I've thrown some numbers down in another thread to discuss this idea.

There are true speculators, miners, and combo's.  I'm a combo, and I feel that people like me tie the difficulty to the market price.  I agree that some people are jumping out, but there are some of us that are doubling down.

Granted $20 isn't much per month and I'm just one guy.  However, at $0.50, my $20 buys twice as much... so basically, my $20/month commitment is enough to "prop" the price up at some point...

I think there's a decent amount of money, maybe $15-20,000 / month willing to buy bitcoins. 

When the 50 reward/block becomes 25, then that puts upward pressure on price.

Difficulty does not support price - that is right - this happens because supply of bitcoin does not depend on difficulty (in long term).    But when that supply is halved - then we can expect the price to go up.

Hmm....I Fold. And agree, But I disagree with the statement of "there's very little apart from speculation and niche uses holding the value up." Not entirely, But thiers more than a little

Everyone is so convinced that a halving of the block reward in 2013 will automatically lead to an increase in bitcoin's price.  I wager that it won't.  Why?  We have seen previously that difficulty does not support price.  Difficulty follows price down as miners pull out.  Where difficulty was once 1.8M it's struggling to maintain 1.1M.

A halving in the block reward is the exact same thing as doubling the difficulty right now in terms of reward per kilowatt of power spent.  What do people think would happen?  Would bitcoin's price double, or would even more miners pull out because they're all mining at a loss (stolen or 'free' power not withstanding).  Remember that speculators absolutely do not care about how much money was spent to create the bitcoins they are juggling back and forth.  They would happily trade the bitcoins a miner sold at a loss all day.  The cost to produce it doesn't effect them.  What sane miner would sell at a loss?  Those that see the price falling further and decide to cut their losses.  We're probably looking at many of them right now, who are still mining underwater in the hope of selling bitcoins for more money in the future.  That creates a large overhang in selling pressure well into the future.

I have done plenty of actual research into markets and economics.  Bitcoin doesn't really have a market.  'It's worth what people will pay for it'.  Yes, true, but there's very little apart from speculation and niche uses holding the value up. 

Google Trends just gives an approximation of the number of people interested in bitcoin. This in turn approximates the number of people trading bitcoin and the amount of money deposited into bitcoin which is reflected in the value. I would say it is only good for really general trends, like if you wanted to know if the general downward trend since July was going to reverse or if it was just a market fluctuation. Since it seems like we're still on course, I feel very confident that we will go back onto the straight line soon at something around 2.8 or 2.9, maybe with a bit of overshoot.

I think you need to do more research into coins and markets.
2013=Half as many btc mined every 24hrs
also, Global power costs are a major factor in btc prices
there are ALOT of things that change the value Literally more than a pages worth if typed incorrectly

What dictates the price?  On the way up people were buying because the price was going up.  That was the only reason to buy, if people are truly honest.  On the way down people were buying for a quick profit, others were selling while the price was high and didn't fall further.

Where does that leave us today?  Unknown.  Could go up from here, but could also easily languish under $1 for years.

I wouldn't be so sure if it isn't the other way around, at least for the time when the bubble was dominating. Rising prices for something as new as Bitcoin draw attention.

What can I say, yes, there is a big correlation, but it's not easy to say what to make of it. I used it in the rising phase of the bubble, and to determine when the peak was certainly over. But now, things are a little different. There are less maniacs around, so the amount of media hype is less important than before.

If attention drops dangerously low, it might be a sign of trouble. But many great trends started with a single spike at first, sometimes even followed by a second one months or years later, to then grow big. So, since the timing isn't shifted much between the two charts, the predictive value of the Google trends is limited.

All that said, I still check them at least once a week.

The current price is below the Google line! BUY NOW!

Make more news?

I know this has been posted before, but its amazing how close the Bitcoin price follows the google trends.

I think there are a couple of conclusions to be drawn from this but I would like to hear what you think.