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Thread: Bitcoin musings

  1. #1
    凸(ಠ_ರೃ )凸 stuck's Avatar
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    Dec 2013

    Bitcoin musings

    So, in order to shake off some schadenfreude related to noticing bitcoin in 2011 and not getting rich, I'd like to take the phenomenon as a rare chance to understand more about the market.

    pic related happened today

    I want to pay attention to the second to last two bands- the big 23k volume sell and the responding 10k volume buy. Am I wrong in thinking that [~23,000 bc * ~$750 /bc = ~$17250000]? That means that band corresponds to 17 million dollars leaving the bitcoin market? And then the next band = $6.75 m being put back in the market?

    Also, I understand the price having been exhausted by the previous 2 days of crashing, but it strikes me odd that 10K volume in the opposite direction would drive the price back up to the same spot.

    What are the amateur investors doing to this market? Making it incredibly irrational and volatile?

  2. #2
    Now we know... Asteroids Champion ACow's Avatar
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    Dec 2013
    Melbourne, Australia
    So markets in this sense aren't like savings accounts. There's not "X dollars in the market" like there are "X dollars in my bank account" as it were. We talk about it like there is, but there really isn't.

    A market is established with buyers and sellers bidding over a commodity. Buyers state a price, stated in another currency, (and realistically, an amount) that they're willing to purchase, and sellers state a price (and amount) that they're willing to sell. When the two meet, a transaction is made, and the prices involved in that transaction represent the current market "price". The aggregates up there I believe are the total amount of commodity (bitcoin) traded in a period of time, and what the prices were that they traded for.

    Now here's the sort of tricky idea, and sorry if i don't explain it well. There's not an "inherent relationship" between turnover/commodity-traded and price movement. You expect there to be SOME kind of relationship in reality, (as in if there's millions of sellers, you expect the price to be falling probably in reality), but you can't say that this much in turnover results in this much price movement. You could have massive turnover and the price could remain completely stable, theoretically. So its not quite accurate to state that amount traded purely drives the price, per se. What matters is both the amounts of buyers and sellers and the prices and amounts they're willing to buy sell. And the prices in these trades over the set amount of time determines the price.

    What happened was that someone (or a number of sellers) was prepared to continually sell a large amount of bitcoin at a lower price than the previous traded prices. The market matched them up with the buyers, most expensive first, and after the highest buyer's orders were fulfilled, they then kept selling to the next highest buyers, eventually selling to people who would buy for lower and lower until they either hit a price too low for them to want to sell, or until they ran out of the commodity. The market price subsequently ends up lower via this mechanism. There might be a bunch of other people adjusting their sell price offers down in relation to these movements, and there might be a bunch of people waking up and realising they're happy to buy at this new price.

    Then someone (or a group of people) decided they would like to buy bitcoin at the current or higher price, and they got matched up to the remaining sellers as long as there are sellers they can be matched up with at their offered price.

    The thing to realise is that it depends on sellers and buyers, the amount and price that both are willing to trade at, and that this set the market price via the price of their agreed trades. Turnover itself doesn't drive prices higher or lower, its the amount of people willing to buy or sell at particular prices, at particular times, and at what amounts, that drives market price. Hence you can have 23k of turnover, dropping suddenly from a price of $750+ finishing at a price of $725, and then you can have 10k turnover, finishing back at a price of $750 straight after that as long as the number/amount of people willing to buy at prices higher to the current price now were more than the numbers willing to sell for such a price after the original 23k shenanigans, and the amount required to fullfill their trades with the remaining sellers after the 23k shenanigans amounted to 10k in turnover.

    I hope that's all as clear as mud.

    What are the amateur investors doing to this market? Making it incredibly irrational and volatile?
    Hasn't that been bitcoin from the very beginning?

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