Author Topic: Why are market-makers reluctant to make a tighter market?  (Read 10135 times)

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Offline starspirit

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Given the interest in the side-conversation that has sprung up about paying people in BitUSD, I feel almost guilty bringing us to back to the initial question. But for completion, and given I raised the question, I feel I must at least for a moment. Perhaps a new thread on paying people in BitUSD is warranted?

Now, why are market-makers reluctant to make a tighter market? Let me summarise the responses.

One response given is that market-makers don't want to hold BitUSD because they do not want to miss out on BTSX price gains. But any individual has a simple solution to this. They can separate their bullish BTSX book (either through direct BTSX holdings or short BitUSD) from their market-making book. If holding BitUSD is so painful in the market-making book, why not just add to the bullish BTSX book to compensate?

That leaves 2 real concerns for market-makers:

1) they will find it difficult to move out of BitUSD without a haircut due to the low demand,
2) there is market movement risk on the inventory when holding BTSX if it falls, or holding BitUSD if BTSX rises

On (2), market-makers do not actually require a 'guaranteed' profit as some suggest. Market-makers can still make good profits on more volatile pairs, as they do in a number of active crypto markets. They just need to step in and 'discover' the price level and spread where they can earn enough profit (equal to spread times volume) to compensate for the volatility. This does not even require any price anchor such as a peg. The issue is that buyers and sellers are staunch in their current positions, without a middle ground.

The essential problem seems to be the current impasse between buyers and sellers. Holders of BitUSD are reluctant to sell far below the peg, maybe because issuance at the peg has conditioned them they should not accept less. Traders that could potentially employ BitUSD (e.g. as a hedge against other cryptos, for arbitrage or market-making profit) will not step across the gap to buy because it is an instant loss to them when they sell again.

I think this problem could resolve when most of the shorts are on 30 day expiries, which will increase buy-side demand in the market as much as required to guarantee a peg price within 30 day rolling windows. That would give the confidence for traders to buy without the concern of getting a haircut, increasing demand and liquidity. It will also allow market-makers to come in confidently and serve the role of minimising these discounts for more urgent sellers. It may reduce supply significantly in the short term, but that may not be such a bad thing.

I think we need to ask a very critical question - what do shorts have to gain by keeping their grandfathered positions, versus rolling them over and improving BitUSD as a product and prospects for BTSX growth? I don't necessarily think they should be forced out, but let's openly tackle the concerns they might have.

I think until the grandfathered shorts are rolled off, the price where supply and demand meets is currently at a discount that will shrink over time. Therefore BM's discussion about a discount to the peg being acceptable, if the price behaviour is similar to USD, may also be a useful one to reset expectations for current holders of BitUSD, and bring sellers to where they need to be at the moment.

While longer term it is important to boost demand from merchants, employees etc, I do not see these as solving the current dilemma in such an early stage for the currency.






Offline liondani

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I3 should convert the BTCs to the asset with the more potential.(and inside the bitshares ecosystem)
So it is wiser perhaps to buy 1/5 BTSX, 1/5 PTS, 1/5 DNS, 1/5 bitUSD,  1/5 bitGOLD for example...
and of course pay salaries every month with bitUSD and buy more when you are short on bitUSD...

Offline bodenliu

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but still, I believe it is better for 3i to convert btc to most BTSX and a necessary amount of bitusd (instead all to bitusd).

Offline bodenliu

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great thoughts!especially when btc is dropping like shit and seems no way to rise like $1000 again

Offline Mysto

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I mean sell remaining btc.  Keeping pts and btsx

About 2000 btc left

Can you say when you will do this? 2000 btc would eat the sell wall like the cookie monster.

Now wouldn't be a good time to do it. BTC is too cheap.

It would be wise to divest BTC over a six or 12 month period.

It's never wise to sell on a downward pressure in something which has long term growth potential. BTC has long term growth potential and is at an all time low. It would be wise not to sell this year also because a lot of BTC has been stolen, Wall Street hasn't jumped in yet, mainstreet hasn't jumped in yet, 2000 BTC is millions of dollars worth of BTC.

In my opinion when it's worth enough that the interest on the BTC is enough to start hiring people then Bytemaster should trade BTC for BitBTC or BitUSD. If it's BitBTC then 2000 BTC is always 2000 BTC but you get interest. If it's BitUSD it doesn't make much sense at these prices.

When Bitcoin is at all time highs all of us are going to want that interest. The really interesting question is will the interest be in BitBTC or in BitUSD?

Ok let's assume BTC goes to $2000, if that were to happen then most alts would follow it. So wouldn't it help the community a lot more if it was converted to BTSX and maybe only some was converted to bitUSD to hedge?

That would show that the devs have 100% faith that the system will work and grow imo.

Offline Sonny Jim

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+5% +5% +5% +5% +5%

If we have that attitude why would people who have jobs paying in fiat ever care about BitUSD or Bitcoin? They'll only care when the job they have pays in BitUSD or the new job they get is offering to pay in BitUSD. At that point they will investigate what BitUSD is and discover Bitshares. That is free marketing to anyone looking for work and also if we are getting paid in BitUSD then we show we trust the system enough ourselves.

 +5% I agree with this. We have to start somewhere and this would be a great starting place!

We are planning on converting all remaining AGS funds to BitUSD and paying salaries from the BitUSD with the goal to scale the burn rate so the interest earned on the BitUSD is able to sustain the development team for BTSX.    We are also moving to pay everyone on the team in BitUSD.   

Those of us on the team are willing to accept it a par value for prior salaries.

 +5%

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Offline Empirical1.1

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+5% +5% +5% +5% +5%

If we have that attitude why would people who have jobs paying in fiat ever care about BitUSD or Bitcoin? They'll only care when the job they have pays in BitUSD or the new job they get is offering to pay in BitUSD. At that point they will investigate what BitUSD is and discover Bitshares. That is free marketing to anyone looking for work and also if we are getting paid in BitUSD then we show we trust the system enough ourselves.

 +5% I agree with this. We have to start somewhere and this would be a great starting place!

We are planning on converting all remaining AGS funds to BitUSD and paying salaries from the BitUSD with the goal to scale the burn rate so the interest earned on the BitUSD is able to sustain the development team for BTSX.    We are also moving to pay everyone on the team in BitUSD.   

Those of us on the team are willing to accept it a par value for prior salaries.

 +5%

zerosum

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It's never wise to sell on a downward pressure in something which has long term growth potential.
Huuh?

BTC has long term growth potential and is at an all time low.
Huuh? What are talking about man? All time low was less then a penny man.

It would be wise not to sell this year also because a lot of BTC has been stolen, Wall Street hasn't jumped in yet, mainstreet hasn't jumped in yet, 2000 BTC is millions of dollars worth of BTC.
What? Last I checked it was less than a mill.

In my opinion when it's worth enough that the interest on the BTC is enough to start hiring people then Bytemaster should trade BTC for BitBTC or BitUSD. If it's BitBTC then 2000 BTC is always 2000 BTC but you get interest. If it's BitUSD it doesn't make much sense at these prices.

When Bitcoin is at all time highs all of us are going to want that interest. The really interesting question is will the interest be in BitBTC or in BitUSD?
« Last Edit: October 16, 2014, 07:36:48 pm by zerosum »

Offline sschechter

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Quote

It's never wise to sell on a downward pressure in something which has long term growth potential. BTC has long term growth potential and is at an all time low. It would be wise not to sell this year also because a lot of BTC has been stolen, Wall Street hasn't jumped in yet, mainstreet hasn't jumped in yet, 2000 BTC is millions of dollars worth of BTC.

In my opinion when it's worth enough that the interest on the BTC is enough to start hiring people then Bytemaster should trade BTC for BitBTC or BitUSD. If it's BitBTC then 2000 BTC is always 2000 BTC but you get interest. If it's BitUSD it doesn't make much sense at these prices.

When Bitcoin is at all time highs all of us are going to want that interest. The really interesting question is will the interest be in BitBTC or in BitUSD?

By all time low....you mean '10 month' all time low right? There is no invisible hand holding up the bitcoin price above $280. We all know mining is an eventual dead one.  No one here can guarantee bitcoin will ever go over $1000 again, or even $500.  For all we know, the fad has run its course, and no one cares about it anymore. Of course whether bitcoin rises are falls in the future is irrelevant as a question.  The question that matters when it comes to AGS funds is which of bitcoin or bitshares will be worth more relative to the other in the future.

With the recent BTC rally and BTSX weakness, I think the BTSX/BTC ratio will soon be turning in our favor. Now is a good time to at least partially divest.  Moving to bitBTC is a good idea to, will help support the system while earning a yield.
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Offline luckybit

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I mean sell remaining btc.  Keeping pts and btsx

About 2000 btc left

Can you say when you will do this? 2000 btc would eat the sell wall like the cookie monster.

Now wouldn't be a good time to do it. BTC is too cheap.

It would be wise to divest BTC over a six or 12 month period.

It's never wise to sell on a downward pressure in something which has long term growth potential. BTC has long term growth potential and is at an all time low. It would be wise not to sell this year also because a lot of BTC has been stolen, Wall Street hasn't jumped in yet, mainstreet hasn't jumped in yet, 2000 BTC is millions of dollars worth of BTC.

In my opinion when it's worth enough that the interest on the BTC is enough to start hiring people then Bytemaster should trade BTC for BitBTC or BitUSD. If it's BitBTC then 2000 BTC is always 2000 BTC but you get interest. If it's BitUSD it doesn't make much sense at these prices.

When Bitcoin is at all time highs all of us are going to want that interest. The really interesting question is will the interest be in BitBTC or in BitUSD?
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Offline oldman

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I mean sell remaining btc.  Keeping pts and btsx

About 2000 btc left

Can you say when you will do this? 2000 btc would eat the sell wall like the cookie monster.

Now wouldn't be a good time to do it. BTC is too cheap.

It would be wise to divest BTC over a six or 12 month period.

Offline svk


If we have that attitude why would people who have jobs paying in fiat ever care about BitUSD or Bitcoin? They'll only care when the job they have pays in BitUSD or the new job they get is offering to pay in BitUSD. At that point they will investigate what BitUSD is and discover Bitshares. That is free marketing to anyone looking for work and also if we are getting paid in BitUSD then we show we trust the system enough ourselves.

 +5% I agree with this. We have to start somewhere and this would be a great starting place!

We are planning on converting all remaining AGS funds to BitUSD and paying salaries from the BitUSD with the goal to scale the burn rate so the interest earned on the BitUSD is able to sustain the development team for BTSX.    We are also moving to pay everyone on the team in BitUSD.   

Those of us on the team are willing to accept it a par value for prior salaries.

This is amazing news and shows real faith in the system. In my opinion this should be used as marketing material even, would be great to see an article on Coindesk saying "Bitshares developers now taking salaries exclusively in bitUSD" or something like that. Maybe even write a blog post on Bitshares.org highlighting this and any other recent developments, that blog could definitely use some new content.

If someone has a Bitshares project that needs a web developer I'd also happily accept being paid in bitUSD, just saying ;)
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Offline speedy

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Now wouldn't be a good time to do it. BTC is too cheap.

What makes you think BTC is going much higher soon ? We just had a rally.

Offline luckybit

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I mean sell remaining btc.  Keeping pts and btsx

About 2000 btc left

Can you say when you will do this? 2000 btc would eat the sell wall like the cookie monster.

Now wouldn't be a good time to do it. BTC is too cheap.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline speedy

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I mean sell remaining btc.  Keeping pts and btsx

About 2000 btc left

Can you say when you will do this? 2000 btc would eat the sell wall like the cookie monster.