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Offline bytemaster

BitAsset Predictions & Speculation
« on: February 13, 2014, 12:28:19 AM »

The economics of BitShares X is beyond my ability to fully resolve with 100% certainty and thus I would like to present a set of hypothesis that BitSharse XT will test.   

Hypothesis 1) BitUSD will 'perfectly' track the USD / BTS price in all scenarios including:
       a) when BitUSD is lost to transaction fees and removed from circulation
       b) when extreme volatility results in more BitUSD being in circulation than shorts are required to cover.
       c) perfectly is defined as within the buy/sell spread and noise floor.
       d) with or without interest paid to BitUSD holders.
     
    The justification for this hypothesis is that despite the supply side, market participants invest (buy/sell) on the assumption that all other participants in the future will expect to trade at parity.  This establishes a consensus valuation of BitUSD that retains value entirely independent of changes (increases/decreases) of the backing.   The historical example of this was when gold was removed from backing of the dollar.   The dollar retained the purchasing power it held the day before.

    This is currently my gut feeling and if I were a betting man, this is the hypothesis I would bet on.

Hypothesis 2) The valuation changes of BitUSD will 'perfectly' correlate the USD/BTS price changes except for large transient events that result in significantly more BitUSD being in existence than required to be covered by collateral.  Worst case 100% of all margin positions in the network are blown and as a result some users end up holding BitUSD while there are no short positions left that are required to cover.

   Unlike hypothesis 1 which suggests that this extra BitUSD would continue to trade near parity with the USD/BTS price because it is fungible with all other BitUSD... hypothesis 2 assumes that BitUSD will start trading at a discount to real USD proportional to the surplus (unbacked BitUSD) relative to the new backed USD.   In this case the value of BitUSD would slowly climb as BitUSD is taken out of circulation from transaction fees and more (backed) BitUSD is created. 

   I doubt we will see a complete blowout and if we did I still believe market participants would be unwilling to short below parity or buy above parity.  Value would thus be reallocated from everyone in the network to the holders of BitUSD who retained purchasing power despite having all collateral being consumed. 

Hypothesis 3) BitUSD will trade at a premium to real USD because it provides more value (pays interest, divisible, private, instantly transferrable, etc) 

    I believe the prediction market will grow the supply of BitUSD to meet all demand and thus keep the price pegged near parity.  Even if short-sellers have to pay interest (so longs can receive it) I believe that interest fees are just part of the risk/reward and the consensus will still be tied near parity. 

Hypothesis 4) BitUSD will sell at a discount because it comes with extra risk. 
   
   Same conclusion as Hypothesis 3


So there you have it, the full spectrum of possible outcomes that I can think of at this moment.  Please provide additional hypothesis.  The goal is to make sure everyone understands that anything could happen with these markets and like bitcoin this is one giant experiment. 

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Markus

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Re: BitAsset Predictions & Speculation
« Reply #1 on: February 13, 2014, 03:23:23 AM »
I believe in Hypotheses 2-4. I'm not saying I have understood all details either but here is why I think what I think:

contra 1) and pro 2) for the same reasons:
The dollar might have retained its purchasing power the day after gold pegging was abolished. Now, 40 years down the track, I wouldn't claim that anymore. Once an asymmetry between long and short holdings is introduced, I would think the price will lean that way too (slowly).

3) and 4) both are true.
The weaker one will be cancelled out. Risk will be considered less and less after time, I assume, so 3) wins.
Convenience (divisible, private, instant transfer) will have a minor effect, above market interest rates will pop the ceiling out. If short sellers have to pay high interest they won't short, not even high above parity.

… looking forward to the big experiment.

Offline CWEvans

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Re: BitAsset Predictions & Speculation
« Reply #2 on: February 13, 2014, 07:52:05 PM »
The goal is to make sure everyone understands that anything could happen with these markets and like bitcoin this is one giant experiment.

In younger days, I supported myself by performing sleight-of-hand table-to-table at a restaurant across the river from Manhattan. My friend who taught me most of what I used to earn my living taught me the most fundamental rule of magic:

Emphasize. Over-emphasize.  Re-emphasize.

The goal is to make sure that everyone understands: This is one giant experiment.

Offline Mrrr

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Re: BitAsset Predictions & Speculation
« Reply #3 on: February 13, 2014, 07:53:41 PM »
nr. 4, what we're trading here is not value; its trust.

Gox is offering a nice case:

GOXBTC used to trade 10% above USDBTC. In the eyes of investors, a GOX IOU for a BTC was worth more than an actual Bitcoin. Now shit has hit the fan. A GOX IOU now trades 15% below market. Even worse: bitcointalk has a topic now where users trade account balances at 80% of GOX/USD.

In order to have BIT/USD trade at a premium III will have to attain a level of trust higher than that of the FED.

Offline BldSwtTrs

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Re: BitAsset Predictions & Speculation
« Reply #4 on: February 13, 2014, 10:29:20 PM »
Hypothesis 5) BitUSD will not track USD price at all but have their own value

Hypothesis 6) BitUSD will not track USD and are worthless 

 :P

Offline Markus

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Re: BitAsset Predictions & Speculation
« Reply #5 on: February 13, 2014, 11:38:39 PM »
If 6) is a valid possibility I might add another one. This one is from the shorts perspective.

Hypothesis 7) BitUSD will not track USD and have infinite value

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #6 on: February 14, 2014, 12:32:37 AM »
If 6) is a valid possibility I might add another one. This one is from the shorts perspective.

Hypothesis 7) BitUSD will not track USD and have infinite value

Both 0 value and infinite value are not an option as the only way to create BitUSD is for someone to agree on a non-0 value.    Likewise, infinite value is impossible.   

Therefore I contend these two options are invalid.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #7 on: February 14, 2014, 12:36:08 AM »
nr. 4, what we're trading here is not value; its trust.

Gox is offering a nice case:

GOXBTC used to trade 10% above USDBTC. In the eyes of investors, a GOX IOU for a BTC was worth more than an actual Bitcoin. Now shit has hit the fan. A GOX IOU now trades 15% below market. Even worse: bitcointalk has a topic now where users trade account balances at 80% of GOX/USD.

In order to have BIT/USD trade at a premium III will have to attain a level of trust higher than that of the FED.

III is not being trusted... but I presume you mean our code and the free market will have to attain a level of trust higher than a Bank.... considering how low the trust level is in banks, this is possible. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #8 on: February 14, 2014, 12:36:36 AM »
The goal is to make sure everyone understands that anything could happen with these markets and like bitcoin this is one giant experiment.

In younger days, I supported myself by performing sleight-of-hand table-to-table at a restaurant across the river from Manhattan. My friend who taught me most of what I used to earn my living taught me the most fundamental rule of magic:

Emphasize. Over-emphasize.  Re-emphasize.

The goal is to make sure that everyone understands: This is one giant experiment.

+ 1  + 2 and +5%
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Markus

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Re: BitAsset Predictions & Speculation
« Reply #9 on: February 14, 2014, 01:11:30 AM »
If 6) is a valid possibility I might add another one. This one is from the shorts perspective.

Hypothesis 7) BitUSD will not track USD and have infinite value

Both 0 value and infinite value are not an option as the only way to create BitUSD is for someone to agree on a non-0 value.    Likewise, infinite value is impossible.   

Therefore I contend these two options are invalid.

I don't believe in either of them. I just thought, IF 6 is valid THEN 7 must be too. :)

Offline gordonhucn

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Re: BitAsset Predictions & Speculation
« Reply #10 on: February 14, 2014, 02:04:17 AM »
For 2) when one side of bitUSD owner wins all , why can't we simply give the winer all the BTS and destroy the winer's bitUSD. If the winer wants to keep going with bitUSD, he can just bet again with someone else.

Offline Bitcoinfan

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Re: BitAsset Predictions & Speculation
« Reply #11 on: February 14, 2014, 02:09:39 AM »
 I'm making this point for the sake of tempering our overconfidence biases.  How is it not possible to have a zero value.  Theoretically if speculators lose confidence because the bitasset is not tracking they will stop placing orders.  Volume shots down until there is no demand for the bitasset.  Although no bitasset was traded for a zero, you can't get any value for it-- and your sitting there with a bitasset with no demand.  It's effectively at zero.

If 6) is a valid possibility I might add another one. This one is from the shorts perspective.

Hypothesis 7) BitUSD will not track USD and have infinite value

Both 0 value and infinite value are not an option as the only way to create BitUSD is for someone to agree on a non-0 value.    Likewise, infinite value is impossible.   

Therefore I contend these two options are invalid.

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #12 on: February 14, 2014, 02:10:26 AM »
For 2) when one side of bitUSD owner wins all , why can't we simply give the winer all the BTS and destroy the winer's bitUSD. If the winer wants to keep going with bitUSD, he can just bet again with someone else.

Because this isn't a pairing system, BitUSD is fungible for all users in the system.   What I do is use 100% of the BTS to BUY as much BitUSD on the market as I can and that is functionally equivalent... so instead of the loss being born by a single BitUSD holder it is spread across all BitUSD holders. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #13 on: February 14, 2014, 02:13:02 AM »
I'm making this point for the sake of tempering our overconfidence biases.  How is it not possible to have a zero value.  Theoretically if speculators lose confidence because the bitasset is not tracking they will stop placing orders.  Volume shots down until there is no demand for the bitasset.  Although no bitasset was traded for a zero, you can't get any value for it-- and your sitting there with a bitasset with no demand.  It's effectively at zero.

If 6) is a valid possibility I might add another one. This one is from the shorts perspective.

Hypothesis 7) BitUSD will not track USD and have infinite value

Both 0 value and infinite value are not an option as the only way to create BitUSD is for someone to agree on a non-0 value.    Likewise, infinite value is impossible.   

Therefore I contend these two options are invalid.

There is always demand for a BitAsset as long as there is a short position.  Once all short positions have covered there is not BitAsset in existence.   

The assumption is that BTS has a non-0 value... if BitAssets do not work I suspect BTS has a value of near 0 and thus BitAssets are worth 0...   

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: BitAsset Predictions & Speculation
« Reply #14 on: February 14, 2014, 02:14:39 AM »
By your last argument, points 5 and 6 are equal and the same hypothesis... BitAssets either track or they have no value.... they cannot have some 'other value' that is not correlated in any way.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

 

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