A few thoughts - Sunday, June 29, 2014
Posted: Sun Jun 29, 2014 1:41 pm
A few thoughts before I get back to another day of figuring out this memory leak. Weakly-typed languages like Python are a huge regression and I don't understand why people who are dealing with money are writing all the bitcoin-related code in such languages.
An explanation for the strange price behavior of last week
Last week, I predicted that the bitcoin price would begin to rise significantly as the auction approached, once the insiders were aware of what the bids would be. When that didn't happen, I had to assume that the insiders knew that the their own bids were not going to be high and, because they had no knowledge of the other companies' bids, decided not to trade.
However, there is another explanation that could account for the price decline of the past two weeks: the demand was simply shifted forward, and the mined coins continued to flood the market in the meantime. This explanation gains greater credibility by taking into account what Barry Siebert had to say this weekend. He said that not only did he bid for all blocks, but he had to turn down some bids because they were too low.
As /u/bitcoin_charlie said in his thoughts on Friday, it is possible that the bidders who were turned down were not serious and bid too low to ever expect to win the auction. On the other hand, there is evidence to suggest that some people were withholding buying from the open market because they planned on participating in the auction. This possibility was not something for which I accounted during the last few weeks. If true, it implies that this class of investors will want to buy as quickly as possible once they find out that they lost.
Given this new information, I would pay attention to the prices tomorrow as the bidders are notified of the outcome of the auction. There has been a lot of attention on what the price of the auction will be, but it seems apparent now that the timing could be more important. The people who don't yet know they lost are unwilling to buy now, because they could end up with too many coins if they win. Once they lose, they may want to quickly lock in the current low prices before anyone else can.
I was shocked at the volume that Siebert announced. There were over 30 bidders on that list of interested parties, and the only one who has gone public already announced he had too much volume to be satisifed in the auction.
This isn't a traditional auction
In a traditional dutch auction, there are a certain number of identical items available. The highest bidders win the items. If there is a lot of demand for a seller's items, then the price of the items will be very high, because that is the only place to obtain those items.
This auction is unique in that there is absolutely no difference between these items being auctioned and those available somewhere else. Suppose the Marshals acquired 300 used Corollas in a drug raid. While there are many Corollas in the world, these particular cars have different usage patterns than those being auctioned as fleet vehicles from Enterprise, for example. The number of bidders will directly influence the price obtained for the vehicles.
Here, since all bitcoins are worth the same (unless someone enforces coinvalidation, for example), one would not expect the number of bidders to influence the outcome of the auction significantly, because the same bitcoins are available on the market. Even though there may be 100k of bids in the auction, as a bidder I only want 3k bitcoins, and I can obtain that many myself by buying openly.
What's interesting about this is that while any individual person might not cause slippage, the collective effect of all the losers buying would cause slippage, so the incentives of individuals to bid low are at odds with the collective incentive to bid at a price that would support all the demand unsatisfied by the auction.
Resumption of news next week
After the auction is over tomorrow, the usual parade of good and bad news will again rise to the forefront. I would suggest that some companies purposely withheld bitcoin press releases this week because they knew they would be buried.
Another example of poor journalism
Why do people continue to post shortsighted articles that are almost 100% certain to be inaccurate? Look at http://www.panture.com/bitcoin-seeing-price-stability/. This comes from a supposedly trusted investment firm, claiming that bitcoins have finally stabilized in value.
How can anyone who is knowledgable about bitcoins think that bitcoins will remain stable at this price for any significant period of time?
Other
An explanation for the strange price behavior of last week
Last week, I predicted that the bitcoin price would begin to rise significantly as the auction approached, once the insiders were aware of what the bids would be. When that didn't happen, I had to assume that the insiders knew that the their own bids were not going to be high and, because they had no knowledge of the other companies' bids, decided not to trade.
However, there is another explanation that could account for the price decline of the past two weeks: the demand was simply shifted forward, and the mined coins continued to flood the market in the meantime. This explanation gains greater credibility by taking into account what Barry Siebert had to say this weekend. He said that not only did he bid for all blocks, but he had to turn down some bids because they were too low.
As /u/bitcoin_charlie said in his thoughts on Friday, it is possible that the bidders who were turned down were not serious and bid too low to ever expect to win the auction. On the other hand, there is evidence to suggest that some people were withholding buying from the open market because they planned on participating in the auction. This possibility was not something for which I accounted during the last few weeks. If true, it implies that this class of investors will want to buy as quickly as possible once they find out that they lost.
Given this new information, I would pay attention to the prices tomorrow as the bidders are notified of the outcome of the auction. There has been a lot of attention on what the price of the auction will be, but it seems apparent now that the timing could be more important. The people who don't yet know they lost are unwilling to buy now, because they could end up with too many coins if they win. Once they lose, they may want to quickly lock in the current low prices before anyone else can.
I was shocked at the volume that Siebert announced. There were over 30 bidders on that list of interested parties, and the only one who has gone public already announced he had too much volume to be satisifed in the auction.
This isn't a traditional auction
In a traditional dutch auction, there are a certain number of identical items available. The highest bidders win the items. If there is a lot of demand for a seller's items, then the price of the items will be very high, because that is the only place to obtain those items.
This auction is unique in that there is absolutely no difference between these items being auctioned and those available somewhere else. Suppose the Marshals acquired 300 used Corollas in a drug raid. While there are many Corollas in the world, these particular cars have different usage patterns than those being auctioned as fleet vehicles from Enterprise, for example. The number of bidders will directly influence the price obtained for the vehicles.
Here, since all bitcoins are worth the same (unless someone enforces coinvalidation, for example), one would not expect the number of bidders to influence the outcome of the auction significantly, because the same bitcoins are available on the market. Even though there may be 100k of bids in the auction, as a bidder I only want 3k bitcoins, and I can obtain that many myself by buying openly.
What's interesting about this is that while any individual person might not cause slippage, the collective effect of all the losers buying would cause slippage, so the incentives of individuals to bid low are at odds with the collective incentive to bid at a price that would support all the demand unsatisfied by the auction.
Resumption of news next week
After the auction is over tomorrow, the usual parade of good and bad news will again rise to the forefront. I would suggest that some companies purposely withheld bitcoin press releases this week because they knew they would be buried.
Another example of poor journalism
Why do people continue to post shortsighted articles that are almost 100% certain to be inaccurate? Look at http://www.panture.com/bitcoin-seeing-price-stability/. This comes from a supposedly trusted investment firm, claiming that bitcoins have finally stabilized in value.
How can anyone who is knowledgable about bitcoins think that bitcoins will remain stable at this price for any significant period of time?
Other
- Days until July 24: 26
- /u/moral_agent didn't post today, so I can't state what the lower boundary is at today.