[KGZotU]

You might working with an oversimplified model of the market. If you have 1% of all bitcoins, you're not going to be able to sell them all at the highest standing offer-to-buy (OTB).

If the highest standing offer to buy is at $700, it's not going to be an offer to buy all 120,000 of your BTC. It might be an offer to buy 100BTC. So you sell 30BTC at $700 and then move on to the next lowest OTB, which might be 20BTC@$699.95. You walk down a line of highest OTBs and the new market price is the highest OTB that you didn't manage to exhaust. The price is lowering as you sell out.

Similarly, you're not going to be able to buy in with your entire pot at the lowest standing offer-to-sell (market price). You'll exhaust the lowest offer-to-sell, then move on to the next highest offer-to-sell, etc. The price is rising as you buy in.

Assuming that the market is efficient, the decrease in price as you sell out and the increase in price as you buy in will be perfectly balanced against each other, and any extraneous gain or loss will reflect changes in market information that occurred while you were executing. Of course the market is not in practice perfectly efficient, but that applies to any other traded commodity.

[fat0wl]

heh so then how come when Bitcoiners are quoting the price of the ecosystem they always take the number of BTC * the highest standing OTB...

i know thats kindof a tangent but.... seriously, i'm curious

[pfisch]

That is how every commodity market in the world works....

How do you think an exchange rate between say USD->EUROS is decided? By the last trade price....

[fat0wl]

Yeah but nobody insists

last trade price multiplied by number of units in circulation = total value of ecosystem

Bitcoiners do this CONSTANTLY

[pfisch]

No, this is what everyone does for all equities. It is called the market capitalization, you probably hear it called market cap usually though.

http://en.wikipedia.org/wiki/Market_capitalization

[fat0wl]

a proxy for the public opinion of a company's net worth

vs.

current trading price of something with no intrinsic value

[pfisch]

Ok, this was a weird segue. I thought we were talking about market capitalization and whether or not people use it outside of bitcoins, which they all do for basically everything.

However, non-voting common stock equities that do not grant dividends basically have no "intrinsic value" either I guess. It is just a proxy for the public opinion of the net worth of the underlying asset, similar to bitcoins.

I think this kind of "intrinsic value" line of reasoning isn't a very strong argument in general though because mostly the value of commodities is essentially based on the value people assign it via free market and psychological principles.

You sort of don't seem like you know much about econ/finance so I think it is strange that you are so outspoken about bitcoins.

BTC could still collapse, and it very well may. Even if we put the potential innovative benefits of btc aside though, things like this are more like cults vs religions. A cult is a cult until it has enough followers at which point it becomes a religion.

Cults and religions have a similar scam potential which is what it seems like you are feeling, however at this point I would say btc is reaching or possibly above Scientology levels of belief/followers. In fact the market cap of btc is possibly more than the market cap of Scientology right now. If btc is going to fall apart as a pyramid scheme it will likely be the largest to ever fall.

However btc is more than a pyramid scheme because it does offer some real benefits over the existing financial systems. The online blackmarket does require a currency similar to btc to operate. Right now sending money across borders is difficult and expensive. Right now buying things over the internet basically must be done with credit cards which has a lot of fees attached. Right now there is no real way to quickly send large sums of money to people without similar fees and specific hours of operation. You also have to go to a bank and deal with a lot of bullshit.

Whether btc will be the solution to these problems I am not sure, but it is a very big deal that it already has so many users/followers. That is the hardest part of changing things, getting large scale adoption.