Author Topic: Challenge: Does bitUSD market cap growth force BTS market cap to grow? Or NOT?  (Read 10990 times)

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Offline Empirical1.1

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Even though you can buy small amounts of BitUSD from a large collateral pool without directly effecting the CAP with that specific purchase,  under the current system, the BTSX CAP still has to be at least 2X the total BitAssets in circulation on average, because I can't buy 1 BitUSD without the market CAP being at least $2 after the transaction.
« Last Edit: October 29, 2014, 02:51:45 am by Empirical1.1 »

Offline starspirit

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I tried to come up with a coherent argument and failed. The best I can come up with is that with a growing DAC there consistently is USD sell pressure and BTS buy pressure in outside exchanges. The other way around (selling BTS to buy USD) is smaller than buying BTS with USD because people can instead park their money as BitUSD instead. This asymmetry, which must exist as long as the amount of BitUSD (and other BitAssets) are growing, should continue to cause an average net increase in the price of BTS with respect to the underlying real world assets.
I think what you are saying is that as long as BitAssets are growing, this will be positive for the perception of growth in BTS. And I agree with that. But there is no direct economic linkage apart from the fees.

No, I am not just talking about the perception. I am saying if the BTS/USD market was symmetric and there was a lot of liquidity, people could convert between BTS and USD easily without changing the price (same with BitAssets and USD or other assets because of arbitrage opportunities). For the price of BTS to be driven up, we need more demand for buying BTS with USD to get into the BitShares system than selling BTS for USD to get back into the fiat system. If people are just moving into the system to make some profits off speculation or gambling, or move money around using the internet, but then are ultimately cashing out into fiat to pay for real world goods/services, I expect the market to be mostly symmetric and therefore expect little to no growth. But if people instead keep their savings in the BitShares system, if they pay for goods/services in BitCurrencies and the merchants then pay their employees in the earned BitCurrencies, the BTS sell demand in outside exchanges will be significantly reduced (limited to paying taxes and other goods/services that haven't yet adopted the new technology) because it will instead go into the BitAsset shorts/longs (or even just holding BTS as savings). This causes an asymmetry in the outside exchanges which causes the larger BTS buy demand to drive the price of BTS up relative to USD.
If there is increased network utility in using bitCurrencies, more people will want to use the system. That does not on its own require an increased exposure to BTS shares, or make them more valuable. The increased fees to BTS owners from transactional use of the platform is what will make them more valuable. To be clear I am not saying there is no relationship at all between the success of each - there quite clearly is. I am saying that market cap growth is a related but indirect driver, which means it may not grow as fast as bitAssets themselves.

Offline arhag

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I tried to come up with a coherent argument and failed. The best I can come up with is that with a growing DAC there consistently is USD sell pressure and BTS buy pressure in outside exchanges. The other way around (selling BTS to buy USD) is smaller than buying BTS with USD because people can instead park their money as BitUSD instead. This asymmetry, which must exist as long as the amount of BitUSD (and other BitAssets) are growing, should continue to cause an average net increase in the price of BTS with respect to the underlying real world assets.
I think what you are saying is that as long as BitAssets are growing, this will be positive for the perception of growth in BTS. And I agree with that. But there is no direct economic linkage apart from the fees.

No, I am not just talking about the perception. I am saying if the BTS/USD market was symmetric and there was a lot of liquidity, people could convert between BTS and USD easily without changing the price (same with BitAssets and USD or other assets because of arbitrage opportunities). For the price of BTS to be driven up, we need more demand for buying BTS with USD to get into the BitShares system than selling BTS for USD to get back into the fiat system. If people are just moving into the system to make some profits off speculation or gambling, or move money around using the internet, but then are ultimately cashing out into fiat to pay for real world goods/services, I expect the market to be mostly symmetric and therefore expect little to no growth. But if people instead keep their savings in the BitShares system, if they pay for goods/services in BitCurrencies and the merchants then pay their employees in the earned BitCurrencies, the BTS sell demand in outside exchanges will be significantly reduced (limited to paying taxes and other goods/services that haven't yet adopted the new technology) because it will instead go into the BitAsset shorts/longs (or even just holding BTS as savings). This causes an asymmetry in the outside exchanges which causes the larger BTS buy demand to drive the price of BTS up relative to USD.

Edit: Notice that nothing in my explanation says that the BitAsset growth causes an increase in the value of BTS necessarily. People could in theory just keep all of their wealth in BTS. So I guess I am not actually arguing against your original statement in the OP. But having BitCurrencies is useful in keeping the wealth in the BitShares system rather than being pulled back out into the fiat system (thus leading to the asymmetry that drives BTS value up) because BitCurrencies have price stability and BTS does not. This is one of the big advantages BTS has over BTC in growing the value of the token since people do not have to sell BTS for USD to pay for goods/services priced in USD (of course assuming the merchant can pay their employees and supply chain in BitUSD).
« Last Edit: October 29, 2014, 02:07:36 am by arhag »

Offline starspirit

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I tried to come up with a coherent argument and failed. The best I can come up with is that with a growing DAC there consistently is USD sell pressure and BTS buy pressure in outside exchanges. The other way around (selling BTS to buy USD) is smaller than buying BTS with USD because people can instead park their money as BitUSD instead. This asymmetry, which must exist as long as the amount of BitUSD (and other BitAssets) are growing, should continue to cause an average net increase in the price of BTS with respect to the underlying real world assets.
I think what you are saying is that as long as BitAssets are growing, this will be positive for the perception of growth in BTS. And I agree with that. But there is no direct economic linkage apart from the fees.

Offline starspirit

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

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No, bitUSD demand reduces BTSX supply (available supply, due to the need min 2x BTSX to stay locked as collateral (2x=3x currently, not for too long IMHO)), which in turn drives the price up.
Not sure how locking supply improves valuation. Its still in the hands of those demanding it. If a public company is bought out and becomes illiquid, does its valuation rise? I

Think of it in terms of supply and demand.

Valuations are made up measurement, so someone can sell their services and sound 'informed' and 'intelligent. Prices are driven by market forces not valuations that someone comes up with.

[edit] Wait ,what? Which supply is in hands of whom? The one demanding it?
Forget the word valuation. Think instead what the market thinks something is worth. What they think something is worth does not change if some portion of the supply is locked away, because their return on the asset is unchanged.

Offline gamey

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Yep.  Increasing bitUSD supply takes away supply of btsx.  That doesn't lead to price increase if there was no demand for BTSX to begin with.

Yes if there is no demand for something to begin with the price tends to be close to 0. Reducing the supply to this something something does not help much.

When I said demand, I meant demand on a market.  I just think people can have BTSX sitting around, convert it into bitUSD and it has done nothing because the supply/demand on the BTSX market hasn't changed.  Now if the BTSX converting to bitUSD is bought off the market, we have a different result.

Although I am not considering how this impacts the bitUSD market when I buy bitUSD.  The supply goes down there too.

edit - Although I agree that in general buying bitUSD will increase the price of BTSX, it isn't necessarily the case.
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Offline arhag

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I tried to come up with a coherent argument and failed. The best I can come up with is that with a growing DAC there consistently is USD sell pressure and BTS buy pressure in outside exchanges. The other way around (selling BTS to buy USD) is smaller than buying BTS with USD because people can instead park their money as BitUSD instead. This asymmetry, which must exist as long as the amount of BitUSD (and other BitAssets) are growing, should continue to cause an average net increase in the price of BTS with respect to the underlying real world assets.

Offline tonyk

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Yep.  Increasing bitUSD supply takes away supply of btsx.  That doesn't lead to price increase if there was no demand for BTSX to begin with.

Yes if there is no demand for something to begin with the price tends to be close to 0. Reducing the supply to this something something does not help much.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline gamey

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Yep.  Increasing bitUSD supply takes away supply of btsx.  That doesn't lead to price increase if there was no demand for BTSX to begin with.
I speak for myself and only myself.

Offline tonyk

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

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No, bitUSD demand reduces BTSX supply (available supply, due to the need min 2x BTSX to stay locked as collateral (2x=3x currently, not for too long IMHO)), which in turn drives the price up.
Not sure how locking supply improves valuation. Its still in the hands of those demanding it. If a public company is bought out and becomes illiquid, does its valuation rise? I

Think of it in terms of supply and demand.

Valuations are made up measurement, so someone can sell their services and sound 'informed' and 'intelligent. Prices are driven by market forces not valuations that someone comes up with.

[edit] Wait ,what? Which supply is in hands of whom? The one demanding it?
« Last Edit: October 29, 2014, 01:22:15 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline starspirit

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

Sent from my SCH-I535 using Tapatalk

No, bitUSD demand reduces BTSX supply (available supply, due to the need min 2x BTSX to stay locked as collateral (2x=3x currently, not for too long IMHO)), which in turn drives the price up.
Not sure how locking supply improves valuation. Its still in the hands of those demanding it. If a public company is bought out and becomes illiquid, does its valuation rise? I

Offline starspirit

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

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The ceiling exists because at that point all of the BTS is in the collateral pool. The only possible movement in the supply of bitAssets from there is that they are released. For example, this could be forced covering if the value of BTS fell compared to the amount of bitAssets being supported.

I agree bts market cap will be a lot higher for quite some time. But it will be return potential that drives it forward.

Offline tonyk

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

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No, bitUSD demand reduces BTSX supply (available supply, due to the need min 2x BTSX to stay locked as collateral (2x=3x currently, not for too long IMHO)), which in turn drives the price up.

« Last Edit: October 29, 2014, 01:06:56 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline toast

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Yeah, I am also not convinced that bitusd demand necessarily causes bts demand. I can imagine bitusd demand pushing past the ceiling you describe without anyone deciding to sell their bitusd for bts. Yes there is a profit motive to do so, but what if all the people who realize this are already all-in bts? Wouldn't this be the "up and away" scenario where bitusd/bts doesn't stop climbing until it all collapses?

For the record, I think in practice bts market cap will be far in excess of all bitassets combined.

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Offline starspirit

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Did you factor in that BTS is collateral for ALL assets, not just bitUSD?
The same logic would follow, the only difference would be that the sum of the market caps of all the bitAssets would bump up against a ceiling of 1/3 the market cap of BTS. But still BTS valuation would not necessarily grow as a direct result of growth in the market cap of bitAssets. It's growth would only relate to the platform fees.