why do you need to do all that? why not base the price on statistics of mining costs?  Say globally it costs 17.51 to mine 1 BTC .  All the math of the costs were covered in the mining thread many times. As prices of electricity , computers etc increase, so do the mining costs.  If its costs $35 to mine 1 BTC in the future (includes labor costs), then one BTC is $35.00. and this price will change with difficulty or other variables. 

and the costs and the price increase based on actual costs tied to labor, electricity, global economics, etc etc.

a statistician could put together a reliable pricing matrix in a day. 

its just Ideas people, just ideas.....just like BTC was once an idea. 

 

 

Same way it is handled with other forex risks.   People will profit off buying the risk.

The only way that Bitcoin can become an established method of payment is by people and merchants adopting Bitcoin. If Bitcoin does manage to establish itself as a method of payment, the eventual price of Bitcoin is likely to be something along the line of: size of the economy divided by amount of Btc available to facilitate the trade + the markets combined growth potential forecast + the cost of mining.

i.e. On a yearly basis services and goods of a value of $12M are traded through Btc. At that point of time, maybe 8M Btc exist, and maybe 500.000 Btc users exist. However, around 5M Btc are likely to be held by early adapters who do not use the Btc to trade goods and services with. So 3M Btc must facilitate trade. In this scenario, each Bitcoin must be transferred 4 times per year, however, Btc are likely to be transferred more than 4 times per year. However, suppose each Btc is only transferred 4 times per year. A reasonable price for Btc would perhaps be between $5-10. Based solely on the trade volume versus trade circulating Btc, price would be $3. If each Btc was tranferred more times, the price of Btc would be lower. However, if the Btc economy had grown in 1 year to become a $12M economy with 500.000 Btc users/owners, potential for further growth would obviously exist, which could account for $2-7 of Btc price. If some early adopters were to cash out and their Btc were bought by traders rather than "hoarders", the price of Btc would fall in a rough proportion to the amount "released" into the economy. Speculation in Btc would reflect all the inherent price dependents, and speculators would keep track of the amount of Btc released into the economy, so although the average trader would not possess relevant market information, the price of Btc would more or less equal the value of Btc due to competitive speculation.

However, if the Btc economy were to have a value of $120 m per year and only 8M or maybe 8.5M Btc are in existence, of which perhaps 6M Btc facilitate trade (if the economy was that large and stable, I suspect many early adopters would in due course of time cash out on a fair amount of their holdings, which would not sink the price and which could be invested more profitable,) the price of Btc, without taking speculation into account, would be less than $20, depending on the amount of trasfers of each Btc per year.

All of above numbers are just hapzard guesses, however, the above calculation could be used to forecast the price of Btc in the future, and also determine whether today's price reflects reality or not; or so I believe.

Disclaimer: I withdrew my USD from Mtgox without having made any trades, and am not looking to put any money into the market before an actual marketplace exists, or is at least far more developed than today.

EDIT: I FORGOT TO ACCOUNT FOR THE COST OF MINING IN THE CALCULATION

This is all starting to sound like Soviet style central economic planning. Good luck with that.

This post, written by bitcoinbull, is so good, I'm just gonna keep quoting it whenever I see the word "speculation"

I entirely agree with this, and which is why I suggest that the actual price of Btc will in relation to the size of the market.

How is "the savings of all its citizens were devalued to 1/3" not part of "ALWAYS caused massive problems?"