BitShares Forum
Main => General Discussion => Topic started by: Method-X on August 31, 2014, 07:45:14 pm
-
http://www.reddit.com/r/BitShares/comments/2f1gu6/bitsharesx_explain_it_like_im_five/
I don't understand the market dynamics enough to give a coherent rebuttal.
-
The supply of most cryptocoins increases over time, according to fixed schedule, regardless of demand. Wild rises in the early days of a coin are a result of a supply shortage -- the coin's marketing efforts have resulted in demand that's exceeded the supply of available coins, so the price rises. Followed later by big drops which are usually a sign of a supply glut -- new coins continue to be produced, but demand has been satisfied, thus price falls.
The supply side of BTSX is a little different. All BTSX that will ever exist were created in the genesis block, so new BTSX production will never happen. Moreover BTSX is constantly destroyed due to transaction fees.
The supply side of BitUSD is a lot different. BitUSD supply can react quickly to changes in demand since BitUSD can be created by short selling, and destroyed by short covering.
Basically if BitUSD falls below parity, BTSX holders will buy BitUSD hoping it will rise. Meanwhile short positions will try to cover in order to lock in their profits before the market regains its sanity, which will result in even more BTSX being used to buy and destroy BitUSD. On the forex side, if you can get a buck for less than a buck, you might see Bitcoins and dollars pouring into BitUSD. In other words, the peg exists as long as investors believe the peg exists.