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I think that Mt. Gox needs to place limits on how quickly the 'official' bitcoin exchange rate can rise or drop. This would help to limit the intra-day volatili

by pemulis 15y ago

I think that Mt. Gox needs to place limits on how quickly the 'official' bitcoin exchange rate can rise or drop. This would help to limit the intra-day volatility that is the defining feature of bitcoin speculation. Since the trading volume is so low right now, savvy professional traders can manipulate the market up or down with only a few thousand USD. This makes the current bitcoin economy impractical for most ordinary merchants and consumers. If people want to trade in dark pools or OTC exchanges at rates different from the 'official' rate, that's fine. And in situations where there is an actual reason for the price to shoot up (like PokerStars announcing they will start accepting bitcoins), those side markets are where we would see the 'real' price. The official rate on Mt. Gox would lag behind because of the restrictions in place, but I think that would be a small price to pay for an end to the bot- and speculator-driven volatility in the exchange.

barmstrong 15y ago
Wouldn't speculation driven volatility be automatically solved as the number of participants and size of the market goes up?
- ceejayoz 15y ago
  http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania
topynate 15y ago
You can't force people to fill bids and asks at pre-freeze prices, as that would just lead to participants being horribly arbitraged against (and even if Mt. Gox were the only way of trading Btc for USD, it would still be a terrible idea); so the only other option is to suspend trading. Well, now what? Btc will still be traded; the market price will still move; but you won't be able to see it happening on Mt. Gox anymore. The effect would be to harm the liquidity of holders of Mt. Gox accounts, not to reduce volatility; and in fact, by reducing volume, volatility would likely increase. The site would lose its business in a few days or hours. My theory of what could rapidly reduce volatility in Bitcoin: liquid markets in futures and vanilla options. It's an easy way of generating more volume. It provides price stability to businesses accepting Bitcoin as payment. Empirical evidence exists that the more options purchased by hedgers, the less volatility exists in the underlying: http://www.terry.uga.edu/finance/docs/pearson.pdf http://www.terry.uga.edu/finance/docs/pearson.pdf.

by pemulis 15y ago

barmstrong 15y ago

Wouldn't speculation driven volatility be automatically solved as the number of participants and size of the market goes up?

ceejayoz 15y ago
http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania

topynate 15y ago

You can't force people to fill bids and asks at pre-freeze prices, as that would just lead to participants being horribly arbitraged against (and even if Mt. Gox were the only way of trading Btc for USD, it would still be a terrible idea); so the only other option is to suspend trading. Well, now what? Btc will still be traded; the market price will still move; but you won't be able to see it happening on Mt. Gox anymore. The effect would be to harm the liquidity of holders of Mt. Gox accounts, not to reduce volatility; and in fact, by reducing volume, volatility would likely increase. The site would lose its business in a few days or hours. My theory of what could rapidly reduce volatility in Bitcoin: liquid markets in futures and vanilla options. It's an easy way of generating more volume. It provides price stability to businesses accepting Bitcoin as payment. Empirical evidence exists that the more options purchased by hedgers, the less volatility exists in the underlying: http://www.terry.uga.edu/finance/docs/pearson.pdf http://www.terry.uga.edu/finance/docs/pearson.pdf.