What you are proposing is, in essence, a scalping bot.
A scalping bot tends to play around the range of the bid and the ask usually, and is designed to make a relatively large volume of trades as quickly as possible at a very slight profit margin. The theory is that over time a bot that is barely profitable will return tangible profits.
This bot plays only at the outside edges of the market depth graph and is designed to generate no trades (barring total market collapse). The theory is that over time contributions to the backing floor will allow BitCoin to move towards stabilization by actually backing the currency temporarily (through the bot's collective pool of various local fiats). A few days ago mtgox announced exchanges for 15 new currencies:
mtgoxEUR - Euro
mtgoxCAD - Canadian Dollar
mtgoxGBP - British Pound
mtgoxCHF - Swiss Francs
mtgoxRUB - Russian Rubles
mtgoxAUD - Australian Dollars
mtgoxSKK - Swedish Krona
mtgoxDKK - Danish Krona
mtgoxHKD - Hong Kong Dollars
mtgoxPLN - Polish Zloty
mtgoxCNY - Chinese Yuan
mtgoxSGD - Singapore Dollars
mtgoxTBH - Thai Baht
mtgoxNZD - New Zealand Dollars
mtgoxJPY - Japanese Yen
-and now every person on the internet with a mtgox account and some local fiat has the ability to use BitCoin as a currency and exchange it for local fiat as needed, and can support the idea of BitCoin by backing it with a tiny amount of fiat that adds to the bot's pooled backing power..
I don't see any problem at all with scalping: indeed, it will help the scalper fill his pockets with money, while decreasing volatility and providing liquidity
There's the moral question of milking wealth out of an economy from people who want to migrate to BitCoin because they don't want their financial system to be exploited, but we'll ignore that for now. It does nothing to decrease volatility in the BitCoin market, because almost all of the movement in the market is the direct result of speculation. The price varies at ludicrous speeds across wide ranges that a currency can not even pretend to sustain - strictly based on BitCoin's perception as a virtually worthless (in purchasing power before conversion to fiat) commodity to be speculated on for future (most commonly, short-term) gains. But it does provide liquidity.
However, to any would be donators: know that a lot of people are already operating bots like this, for free (or rather, they expect to earn money letting them trade).
No, but many people are running scalping bots, which do function that way.
Also, I find it ironic that OP proposes what is essentially speculation to end the problem of speculators.
Not quite. I support backing the asset with a distributed pool of fiat currency that would act as a guaranteed minimum price - the first guaranteed anything in the BitCoin economy. It is impossible to have stability in your structure if the ground hasn't even begun to solidify yet.
Seeing as currencies are traditionally issued by the state, the traditional process to speed adoption (passing a law across the jurisdiction of the currency that it is a legal currency that must be accepted) isn't available to BitCoin. This makes it an inhospitable environment to BitCoin as a currency - local fiat already covers most meatspace purchases, and there are some options online in most places. If BitCoin can't at least be used to buy things online, it will never be valuable in any real sense. Therefore it is on us to discover and implement best practices towards aiding it's adoption as a full-fledged currency and not just a commodity if we want it to have real value - and therefore pay off for our collective investment of time energy and money into it individually.
BitCoins have no real inherent value - they're just numbers. The only value they have now is speculative interest. Once they become a spendable unit of money, they gain real value that will last. If they don't gain real value, people will eventually start to sell off, causing the price to drop, since there's nothing that it's actually
worth in trade without speculation value behind it.
Furthermore, speculation is a game of diminishing returns - mtgox charges fees, don't forget. The strategy is only profitable while BitCoin gains new investors or while current investors are willing to pour more money into a losing investment. Their profit comes from somewhere - other people. When some people stop wanting to spend money on BitCoin as a commodity, it will pay less out to those who are still willing to. Neither of those scenarios is sustainable - and both result in long-term crash and depreciation. With speculation mapping it's current path, BitCoin will more likely than not fail.
Make no mistake about it - this is a pass or fail class. If we goof off and treat it like a get-rich-quick Ponzi scheme, it will end up being one.
Hate to ruin everyone's fun, but watch the list of buy and sell orders on mtgox next time prices take a tumble. You will notice very large buy walls meant to prop up the price that magically get withdrawn the second before prices hit that limit and go through.
MTGox is already manipulating their market in an attempt to stabilize price beyond what the free market wants.
I'm not sure this is MtGox manipulating the market, but it certainly illustrates the issue of unbridled free market speculation being an unstable basis for determining value.
I like this idea. It's a system where the community of the commoner can chose to participate in the "speculation" and together become powerful enough to have their goals represented in the market. And what do they want? stability!
It's more accurately described as a co-op of contributed pocket change that becomes a backing fund over time.
Congratulations, you have created a tool to democratize speculation!
Not really, it's more of a tool to democratize the backing of a commodity into a currency. The tool that democratizes speculation is an exchange (like mtgox).
If this isn't the free market at work, I don't know what is.
Interesting point - this is very much the free market at work, just not in the disorganized way that it is now. Thanks for pointing that out.
Hedgers and shorters, quit whining and get a real job!
Agreed - if you're into BitCoin to make a quick buck, do yourself a favor and cash out before the rest of the speculators do. You'll save yourself the loss, and BitCoin will begin to become stable from those who stay to hold it long.