Proposal for smaller difference between Buy/Sell price on exchanges


#1

Problem statement
Liquidity is an important factor in choosing an asset to buy. It is one of the four principal metrics used by CoinGeko to determine the health of a coin. https://www.coingecko.com/en/price_charts/bitcoinz/usd.

It is well understood in the field of economics that an asset is more desirable if the difference between the best bid and the best ask on an order book for a given size transaction is small. The difference between the two is called the “Spread” and is usually expressed as a percentage.

See, for instance Yakov Amihud and Haim Mendelson, “Asset Pricing and the Bid-Ask Spread.” Journal of Financial Economics 17, 1986.

It may therefore be argued the desirability of BitcoinZ is not as great as it could be due to the large spread between the bid and ask on the order book. A big spread makes inter-currency gateways based on price quotes expensive to operate.

A large spread is synonymous with an illiquid market. A small spread is synonymous with a liquid market.

Our principal liquid market is in BTC Our principal exchanges quote our price in whole units of Satoshis. This is a problem since the minimum spread between the bid and ask price is 2.5%. This is very high compared to other assets. For comparison, the minimum bid/ask spread of USD/GBP is 0.007%. The price step for BTCz is 353x that of GBP. This substantially inhibits adoption of BTCz.

Another area BicoinZ could excel if it had the liquidity and small spread would be as an inter-exchange transfer currency. Imagine you had BTC on an exchange that you want to transfer to another exchange. If the split were low with BTCz, it would be possible to economically exchange to BTCz, transfer funds to another exchange, then exchange back, thereby avoiding the high fees associated with sending Bitcoin. Currently, the split between buy and sell is too high to do this efficiently.

Mission Statement or Vision
Once our price is up to 1000 satoshis, this problem will cease to exist. Meanwhile, we need to make BTCz as useful as possible. Both as an inter-exchange vehicle, and as a vehicle for commerce. Our price quotes versus other currencies need to be precise, and have a narrow spread. Increasing precision and thereby increasing liquidity adds to the empirical data validating the value of BTCz. We need to make exchanges into and out of BTCz cheaper to incentivise investors as per established economic theory.

Objectives to be achieved
When we have a currency pair to USD, or another instrument of lower value, no change is necessary. When we we have a pair with Bitcoin, which is our principal market, due to the relatively high value of each BTC token, we need 10 decimals to achieve high precision and low spread. We should aim to improve the liquidity metric on coin comparison sites such as coingecko and make BTCz more useful and cheaper to trade by increasing the decimal precision of BTCz quotes when paired to BTC.

Preferred approach
We should ask exchanges when first listing us to list versus USD at their normal precision. They should list us versus BTC at 10 digits of precision. We should as a matter of community policy, request exchanges increase our precision to 10 digits on the BTC pair where possible.

Benefits statement
BitcoinZ should benefit in the longer term by increased adoption, greater growth and ultimately higher prices.

Risks and ways to address them
Increasing the precision can potentially cause confusion since we already have many leading zeros. Users will need to be aware of the precision one exchange versus another is using. Typically, exchanges put decimals after the satoshi unit in subscript, or another font effect, in price quotes. This tends to eliminate the problem.

Another argument made is that if we have more decimal places, the bottom may seem to be lower than with fewer decimal places. The counter argument would be that other currencies don’t just keep sliding due to pricing precision, but live and die on their usefulness. We’re not looking down. We are looking up!

A basic plan of work (timeline and key milestones)
After this vote, the current community policy will be established. Exchanges need to be informed of community decision where appropriate.

Cost estimates and funding sources
Zero cost.

8 decimal places are to the nearest Satoshi and at current precision, making the minimum difference between the buy and sell price 2.5%. 9 decimal places alleviate the problem somewhat, but are still a long way from the spreads associated with currency market industry norm. 10 decimal places put us near currency market norms and are often supported by crypto exchanges. Should 10 not win, then the total votes for 10 should add to 9, as a vote for 10 is a vote for increased precision.

  • 8 Decimal (2.5% bid-ask spread)
  • 9 Decimal (0.25% bid-ask spread)
  • 10 Decimal (0.025% bid-ask spread)

0 voters


#2

I have provided above what I believe to be a rational and sourced argument for the position of increased precision.
I have had debates over the position, and have included any argument I know of which would err on the side of 8 decimals precision, and provided a counter argument.
If you believe 8 decimals is adequate, please consider clicking reply to share your thoughts.


#3

Imo, by doing this, we aknowledge the currently low value of btcz. I believe that, if the value of btcz has to be expressed in milli-satoshi, the coin has failed. I was never happy with the argument of 21B supply as a major surplus of btcz, as for me it is mathematicaly speaking only where you put the decimal separator, nothing more, nothing less. But making this change feels even worse in the opposite direction. Let’s reopen this discussion in a year or two, if necessary, but I hope it is not…


#4

I never said the coin should be valued in milli-satoshi.

My argument is that the coin should have sufficient precision in the quotes so that the step between buy and sell price can be at a level that makes it useful as a currency.

We can still value the coin in Satoshis. Be it 40.39, 70.55, 88.44, 120.43 or whatever. The value the market gives the coin will be based on it’s usefulness. I want the coin to be as useful as possible as currency. That is what will make it more valuable.

Doge coin is certainly not a failure, and that is expressed in 9-10 decimals.


#5

Or deci-satoshi… It feels like the ‘real’ value of btcz needs to be expressed in satothi after the comma… imo then its a failed coin. If the believers in the coin (== that’s us) already think that, it’s the beginning of the end. I believe btcz has not even started yet.

If 40 sats would be the ‘stable’ value of btcz, I would agree. But its to early to do so now (I expect 500 sats in a year, if bitcoin and crypto in general holds)


#6

Can you point to any economics studies which suggest increasing pricing precision, when there is a clear need, depresses the value of an asset?

The study I referred to above points the other way.


#7

No I cant, but as a human, for me it feels like aknowledging the current low value. So it seems like a bad strategy, and a negative indicator for outsiders. nothing more


#8

I want the price to be higher too. I think the way to do it is to accept where we are, and to do what we can to make the coin more useful.

Doge coin is valued with greater precision than BTCz. It is number 13 on CMC. Having more precision in the quote doesn’t mean we think the coin is not worth as much. It simply means we place the importance of making it useful very high.

Any professional investor evaluating the coin will want to make sure it is useful and that it is backed by a community making practical and pragmatic decisions.

An investor would likely not be impressed by a coin where the community make decisions because of the way they feel.


#9

Really, I have no idea on how the market would react, and maybe you are wright, but I can only express how I feel about it. I dont think this discussion would not be ongoing if btcz was > 100 sats… So I think we have to sit out the current crypto-dip at least. Let’s see where the coin stands in a few months. If it is still necessary then, I will reconsider my vote (but in the mean while, all others can vote, my vote only counts for 1 :slight_smile: )


#10

If BTCZ reaches 50 sats, then the spread will go down to 2%, which is OK and accepted. If the value grows more than that, the spread will decrease even more. When the price was at 200 sats, the spread was at 0.5%. The 2.5% spread exists now because BTCZ’s value has tanked as everything else following Bitcoin. If we choose such a move right now is as we accept that the coin’s future is around this current price, which I personally believe that is not.


#11

Show me evidence 2% is OK. Show me evidence that adding precision suggests the price will go lower. Established economic theory says the opposite. Check my citation. How do you explain Doge being 13th on CMC with greater precision than us?


#12

Why? You have any evidence that it will not?


#13

And dont forget that the markets you are refering to are 100 to 300 times more liquid than the whole cryptocurrency market alltogether including Bitcoin! So it is a bit early to speak for increasing the precision. Only 6 months old BTCZ is…


#14

Do you agree that suggesting the price of BTCz will be suppressed as a result of reducing the split contradicts economic theory?


#15

The theories you are refering to are based on markets that have trillions of dollars of liquidity and huge volumes each day, not millions or thousands as we have. It wouldn’t be right to compare these markets with cryptoeconomy. Cryptos are at their infancy, so do the rules that imply to them.

And again there would be no way that a pair of GBP/sth would ever have a spread larger than that you are refering above. The bots would do real attack to take advantage of the difference if the spread was larger. They dont let it be larger. There is no time for the spread to become larger! The liquidity is just too huge!! The theories you are refering to and are refering to these markets are some like fullfilling themselves.

Let just give cryptoworld some space and some years to mature and then we can do a different conversation I believe…


#16

You are suggesting there are market size and maturity thresholds where economic theories break down.


#17

I think that it is too soon for conventional theories to be implied here. Crypto world is a huge inflated world (not in a bad way). A lot of new liquidity has entered the market last year. The market cap of the whole cryptoeconomy has raised from only 15 billion at Dec 2016 to almost 700 billion at the end of '17 which is an incease of almost 3800% at its peak. Spreads at such fluid economies is known and well proven that are very high, more higher than our only 2.5%. I believe it is too soon to have this conversation. BTCZ has a marketcap of only 5M. We dont even know what the future of the whole crypto-system will be.

And yet again even if we vote for a decimal increase to be implemented, how would we persuade the exchanges to apply it?


#18

Please provide evince that the specific cited economic theory doesn’t apply because crypto.

Frankly, if we are hoping to be a useful and dominant crypto, we have to show our reasoning is sound.

If there is no evidence that you can cite, then please change your mind. Please don’t just pull it out of the air because we are dealing with people’s assets here.

How we would encourage exchanges to adopt was addressed.


#19

Please provide evidence that the specific economic theory you are refering to aplly to crypto!
Provide this and then tell others to do the same.
If there is no evidence, do what you tell others to do… Change your mind!
And dont be stuck to what you said just because you said it or just because you happened to see something.


#20

Please provide evidence that the specific economic theory you are refering to aplly to crypto!

You are the one asserting that generally applicable economic theories don’t apply to a currency simply because it uses cryptographic techniques for value transfer. So the onus is most certainly upon you to prove your hypothesis that using cryptology somehow excludes an asset from normal economic theory. It is not at all obvious why that might be true.