There are three different types of prices
I thought I should mention the three prices that coins have, because it is necessary to understand this in order to understand the effects of this upcoming auction.
The **market price** of a bitcoin is the price at which the last trade took place, and can be between, above, or below the other prices. Nobody can ever obtain the market price for a bitcoin because the market price is a lagging indicator; it's the last price paid. Most of the sites that post bitcoin prices use the market price.
The best indicator of the value of a bitcoin is the **sell price**. The sell price is the value of the highest buy order on the exchange. This is the price people should be looking at when they are trying to figure out how much their bitcoins are worth. The sell price is always lower than the **buy price**, which is the price of the lowest sell order.
This is important in trading and mining, as I found out this weekend. Consider if the price of bitcoins is crashing rapidly, as happened last November 18. The market price could be listed at $800, but the sell price is $750, because people are lowering their buy orders faster than people can sell. If you looked at the market price, you would be severely miscalculating the value of your holdings and might make a bad decision.
There are also some markets where there are not enough orders to fill your entire sale or buy at the current price, so then you need to average down your purchase or sale with the next order beyond that. If you want to buy 25 bitcoins, but the exchange only has 5 for the first price, then your average cost is 5 * the first price, plus 20 * the next lowest sell order's price. Finally, if you're trading in altcoins, you'll notice something interesting: there are a few coins where there are no buy orders at all, which I assume makes them dead. I'm not sure why Cryptsy has coins without buy orders listed.
If you take anything away from this section, remember that the "market price" is not the "current price."
The next great discovery is proof of actual work
It occurs to me that the next great discovery in mathematics may be when someone determines how to expand the "proof-of-work" algorithms that are used in cryptocurrencies to be able to represent any arbitrary algorithm. The most obvious example of this that many people have used in the past is that one could make the "work" protein folding, so that people are rewarded in coins proportional to how much folding they perform.
However, if any algorithm were able to be used as proof of work, then a new age in honesty and transparency could begin. For example, consider that we want to digitize books. The proof of work in this case is how many words a person can correct type into a screen (or can verify from an OCR scanner). People who have time to kill can bring up their cellphone apps and start typing away on the bus while they ride to work. This allows them to bring in extra income to do work humanity collectively agrees to be useful without a central authority needing to have a business model.
Such a scheme can also be expanded to offline activities as well. For example, the algorithm could be a sophisticated image processor that analyzes photos of construction work. If the algorithm determines that floors are being added to the building, then the submitter gets a block reward.
While I am not a mathematician, it is being discovered that almost everything can be abstracted into mathematics in some way. If someone can figure out how to represent real useful work as a proof of work, that would be a genesis for a round of altcoins that would actually be useful.
What will be the price?
The big speculation today, now that the GHash.io thing has blown over, is what price will be fetched at the auction. There's a lot of debate about whether the price will be "above" or "below" market price, but I think that both are wrong. It might be more accurate to ask whether the auction will close above or below the current price, and I'm very confident in predicting that it will be above.
At the very least, we can say that the current price is depressed because so many people who could not afford what they were buying were wiped out by margin calls last week, so simply by that measure, a recovery is likely before the auction. These people, who were flooding reddit recently with complaints that /u/moral_agent's bubble charts were wrong, will be big losers.
The people who have insider knowledge at the firms who are bidding are going to start buying as soon as they know what their company's bid price is going to be. Unlike with stocks, where such action would be illegal, there are no laws preventing such employees from buying bitcoins in anticipation of the bid being submitted. Remember: if a company submits a bid, then they have set a floor for the auction price. At least one block of bitcoins will definitively close equal to or above the submitted bid.
Therefore, to say that the auction price will be "above" market rate is a matter of definition. There are enough companies with enough people who will bid that the odds of every single person involved not talking or taking any action are essentially zero. Whether the closing price is announced in a timely fashion or not, the price of bitcoins is going to rise over the next two weeks to catch up to whatever the companies are bidding as the insiders act. If the companies bid $800 or $1000, then the price will reach $800 or $1000 when the bids are placed (not when they are announced), probably with a temporary correction afterward.
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- Days until July 24: 39