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Offline mf-tzo

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Creating more bitassets has negative impact on BTS price?
« on: January 16, 2015, 03:22:49 PM »

My understanding is that demand for bitusd will create more demand for BTS and therefore BTS price should increase.
However, looking at bitusd and BTS graphs, one can notice than when a lot bitusd were created in the end of Oct (from $400k to something like $1 mil) after that BTS price start falling. I know that BTS price falling was attributable to many other factors such as bitcoin falling, DAC merge announcement etc etc..

I just want to make clear that increase in bitusd supply doesn't mean decrease in BTS price but rather that my initial understanding is correct. Or whenever more bitassets are created more bitusd, more bitgold etc this will not reduce BTS price...

Offline nomoreheroes7

Re: Creating more bitassets has negative impact on BTS price?
« Reply #1 on: January 16, 2015, 03:26:52 PM »
As I understand it, every time new BitUSD is created, 300% (?) reserve of BTS is locked as collateral. Thus, theoretically as more BTS is locked and unable to be sold, the supply should decrease, which increases price.

This can't hold the price up if there isn't all that much BitUSD created, and if external market forces are bringing price down. But theoretically it should be helping make the price decline less severe.

Correct me if any of this is wrong.

Offline arhag

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Re: Creating more bitassets has negative impact on BTS price?
« Reply #2 on: January 16, 2015, 06:20:31 PM »
There are probably a lot of different theories floating around.

My pet theory is that all else equal additional outside demand (meaning purchased using outside fiat wealth) for BitAssets should raise the BTS price (assuming latent short demand exists). Of course if there is a change in sentiment for the future of BTS while there is simultaneously outside wealth pouring in, then the net effect could still be a net decline in BTS price according to this theory. Nothing surprising there.

Furthermore, my theory claims that all else equal if the demand for BitAssets is coming not from outside fiat but from BTS holders in the internal exchange, then the net effect on BTS is zero assuming latent short demand exists and if latent short demand disappears then the net effect could actually become a downward pressure on its price.
« Last Edit: January 16, 2015, 06:24:01 PM by arhag »

Offline Empirical1.1

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Re: Creating more bitassets has negative impact on BTS price?
« Reply #3 on: January 16, 2015, 06:33:24 PM »
For me the price decline, starting in early Oct, was the result of the market reacting to the news that I3 was in favour of diluting BTSX. https://bitsharestalk.org/index.php?topic=9603.0 The cost of dilution can be crudely observed with BTC trend lines, however the opportunity cost to BTSX of not having a much higher valuation when BTC was weak is unfathomable.

The creation of BitUSD removes BTS from circulation and therefore should ultimately have a price positive effect as new demand has to chase less supply.

Also think of all the people selling BTS everyday... Are they selling for Fiat/BTC or to pay their bills?
If they bought BitUSD or BitBTC instead, the money would stay inside BTS meaning less for sale on the open market, meaning less sell walls and therefore new demand would raise the price a lot quicker.

I'm personally in favour of kick-starting the markets more via delegates accumulating BitAssets which can be used at a later date for bounties/advertising/salaries.

Offline starspirit

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Re: Creating more bitassets has negative impact on BTS price?
« Reply #4 on: January 16, 2015, 08:02:43 PM »
There are probably a lot of different theories floating around.

My pet theory is that all else equal additional outside demand (meaning purchased using outside fiat wealth) for BitAssets should raise the BTS price (assuming latent short demand exists). Of course if there is a change in sentiment for the future of BTS while there is simultaneously outside wealth pouring in, then the net effect could still be a net decline in BTS price according to this theory. Nothing surprising there.

Furthermore, my theory claims that all else equal if the demand for BitAssets is coming not from outside fiat but from BTS holders in the internal exchange, then the net effect on BTS is zero assuming latent short demand exists and if latent short demand disappears then the net effect could actually become a downward pressure on its price.

Arhag and I have had some involved discussion around these impacts, although time permitting (for me) we still have some points to resolve. Suffice to say, there is no mechanism I am aware of whereby more bitAssets should lead to BTS price decline. As arhag says, and a point we found agreement on, was that if the latent demand for BTS were unchanged, bitAsset creation (which provides additional lending to BTS buyers) ought to lead to increased bid prices for BTS as the stock of BTS ends up getting more and more concentrated in the hands of the most bullish cohort of investors. This is similar to the way a property market might get bid up when there is easy bank lending available. As arhag also said, there are other factors in the market that will also affect the price at any time.

However, in my personal opinion, should this cohort attempt to exit these positions, or if bitAsset demand reduces to force this (think credit contraction), then price needs to fall back by exactly the same extent, and no net profits are made. So the key ( for a sustained value increase that benefits everybody) is really for the overall market to be willing to attribute a higher valuation to BTS as a result of the bitAsset demand and other return prospects for BTS. To be fair, this is a minority view and hotly debated (and still open to review on my part depending on ongoing discussions with arhag etc).
« Last Edit: January 16, 2015, 08:34:28 PM by starspirit »

Offline mf-tzo

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Re: Creating more bitassets has negative impact on BTS price?
« Reply #5 on: January 17, 2015, 04:52:34 PM »
Quote
So the key ( for a sustained value increase that benefits everybody) is really for the overall market to be willing to attribute a higher valuation to BTS as a result of the bitAsset demand and other return prospects for BTS.

I think that this is indeed the key if I understand correctly what you are saying. If BTS market cap is x100 of the bitassets market caps then this will drive an increased demand for bitassets demand as a store of non volatile cryptocurrencies. On the other side if BTS market cap is only x20 of bitassets market cap, then I think that this doesn't create much confidence and could be the failure of the whole BTS ecosystem.

For example...If BTS goes to $10 mil market cap, I doubt that many people will want to have bitusd. But if we go to $200 mil market cap, I bet that at least $2mil bitusds will be created..Now lets try to make the numbers where this system deserves to be before a copycat comes out and we are to late..Please everyone start thinking in billions and trillions as we used to do and hold..

Offline xeroc

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Re: Creating more bitassets has negative impact on BTS price?
« Reply #6 on: January 17, 2015, 05:31:41 PM »
... and that is what we cal systematic risk, isn't it?
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