Who would profit from a dropping L$?

While preparing my latest piece on SLOG I once again came across an interesting pattern of behaviour at the LindeX: Residents selling smaller amounts of L$ at 2 or more points below current market. It is hard to see any rational reason for it. If someone wants to cash out really fast, it is usually sufficient to simply sell it one point below current market. But offering 286 L$ for a Dollar when the market is at 282 - 283 seems insane.

As someone who firmly believes in a (maybe wierd, maybe unconscious) reason behind every decision, I asked myself: is someone trying to bring the L$ down? And if so, for what reason? I am not saying, that this someone exists, but



Any suggestions?

All the "obligations" type of investments in SL. Think Ginko et al. They could have sold their investors' L$ before hand, and now would be able to buy back many more with the same money, to redistribute.

Perhaps a more narrowly focused question -- who would profit from selling their lindens 2 or more points below market when selling at 1 point below market would accomplish the same quick sale for a bit better return?

I find Im quite curious about that myself.

29.11.2005 Kazanture Aleixandre wrote:
".....
-> Ginko will not like because the inflation is decreasing their real usd interest rates which they give to people.
......
"

Yes it is good for "ginko".
BUT i really dont think they are forcing this(because forcing this also costs and risky). Inflation is only one of the natural results of the miscalculating(or not calculating) of SL economic data by LL. But i am seeing right managements in last days to regulate the economy. According to my calculations(i wont type them here just because i dont want 892364872364 unnecessary replies to them) after 4(+-1) weeks L$/usd rate will be 268(+-2).

Calculations? And what's going to bring the value back? By my calculations, the price of the L$ will never, ever be below 270 again...

I don't make money in the land market off of the $L just going down, but my biggest profits always happen when it moves quickly up or quickly down. I have more trouble dealing with the more stable market that occurs when the $L starts to stabalize out. When it changes, I am able to find a much wider range between what people will sell to me for and what I can sell for.

No one can "profit" from that transaction alone. It is either a irrational decision or an attempt to drag the L$ lower - because he or she would profit from a lower L$ in another transaction.

Such a tactic would make sense, for example, if there was a futures market for L$ and said person had purchased some put options there. I am not aware of such a market for L$, though.

Another situation, where I could profit from a low L$ would be when I had borrowed a large sum from another resident (a loan, so to speak). If I had invested the money - especially if I had invested it in RL - and need to pay it back (in L$) it is obviously cheaper to do so, when the L$ is cheaper. But I am not aware of any institutions giving out loans in SL.

Thats why this behaviour leaves me puzzled.

What affects the price more? The person who puts up a L$20,000 order at 2 points above the current price? Or the person who put us a L$1,000,000 order at the current price?

Worrying about who puts these small orders up is kinda pointless, because the market so quickly absorbs these small orders 2 or more points above the other orders. They are tiny blips that disappear almost before they appear on the sell list. Why do they do it? Maybe they want to sell fast and think that by undercutting the current order it ensures they will sell quickly. In any case, these small orders have very little effect on the lindex, because most sellers do not follow behind these small orders.

Let's say the current orders look like this:

289     $10,000
281    $500,000
280  $2,200,000

Most sellers who understand the market are not going to put their lindens up for sale at 289. They know that the price will be at 280-283 for the rest of the day. It would be foolish to place orders at 289. And maybe there are a few people who just put their money up at 289 because its the "current" price, but this money gets absorbed very quickly and the price will bounce back up to 281. The real thing that will the affect the price in the short term is that 2.2 million sitting at 280. No one who wants to sell within the next 24-48 hours is going to put their money behind $2.2 million at 280. Almost all new money is going to be put up at 281 or 282. That very large amount for sale at 280, has a much larger affect on the market than the $10,000 at 289 (as it should).

The orders that really affect the price are the orders which push the amount for a given price well above 1 million. People seem willing to get in line behind 200,000 or 500,000 in orders, but when there are 1.5 million orders at a given price or more, most new orders go above it and the price moves. And why? Because if you don't, your lindens don't sell, at least not within 48 hours or so.

This recent slide from the mid 260s to the low 280s can really be traced back to a large order (1.5 million or so) that was placed at 261 or 263 at around the beginning of January. That order got some nibbles, but the market could not absorb an order of that size. Almost all new orders got placed above it. The price started moving very slowly at first, but more large orders got placed and before long there were several price points in the low 260s that had 2-3 million in orders each. It was only a matter of time before people got impatient and started selling cheaper. And when the big orders got moved up a few points so that they would actually sell, the whole market moved with it.

Right now there is L$1,690,938 at 281 and L$1,779,322 at 280. That means we are not going to see a rate above 280 for a long, long time. Sellers are just not going to get behind $3.5 million in orders. They will sell for less, because they want them to actually sell. And as long as the influx of new lindens for sale outpaces the demand, that price is going to keep slipping, until it reaches some bottom threshold where demand outstrips supply.

Is this on purpose? Do large sellers want to drive down the market? No. It's caused because there is simply a larger influx of supply on most days than a demand to absorb it. That's what causes the price to move. And large orders at the current price have a much bigger effect than small orders 2 or more points above the current price.

Or else there's people who don't realise that just putting their L$ up for sale at L$1 below the average selling price will be that effective.

Or there's enough smaller fluctuations during the day that they *were* selling for L$1 below at the moment they put it up.

I will copy&paste this to here by march 2nd(+-1 week)(maybe earlier)
Edit:
Within next week we will see 280->278->280
after one week : 280(+-2)->276(+-2)->278(+-2)
2 weeks : 278(+-2)->279(+-2)->277(+-2)
3 weeks : 277(+-2)->272(+-2)->275(+-2)
4 weeks : 275(+-2)-> 271(+-2) -> 272(+-2)
5 weeks : 272(+-2)->268(+-2)->270(+-2)
Will be like this.

The lower value L$ would be advantageous for someone who:

1) Is in a very competitive business.
2) Has ALOT of $L to manipulate the market, and needs to convert some anyway.
3) Has another outlet to convert L$, at a higher rate than Lindex.

This type of person would be able to sell their product cheaper than the competition, yet still manage to make a larger profit. By manipulating the market they gain some liquidity, as well as ensure their profit margins remain higher than the competition.

Well, I can think of two reasons to post small L$ amounts below market.

1. Griefing. Anything a griefer can do to destabilize Second Life, they'll do.

2. To make a buck. If a user can post several transactions for several days running in low amounts, they might scare others into doing the same thing. When others do so, they buy low, projecting that later on the market will rise, at which point they'll sell. It's an old tactic.

I have for quite sometime chided both GOM and now LindeX for their "unregulated stock-market" approach to handling L$ sales. Every time I do so, people start crying out "market freedom" and "seller choice" when really, it has nothing to do with these things. The market is influenced by the few who are willing to sell low to make a sale NOW, forcing others to unwillingly do the same thing just to be able to sell. It's an unruly system that should have vanished with GOM. It causes the L$ to contantly devaluate and drives the SL market into a cycling recession / potential depression status. It's bad for merchants, bad for L$ sales.

I've heard the bogus claim that "the lower the price of the L$, the more people will buy". But that doesn't put any more US$ in the pockets of the merchants, because although people are (debatably) buying "more"... the L$ they spend are worth less.

Philip Linden long ago stated the desire to stabilize the L$ at $4 / 1000 flat. I have never seen anyone, in any forum debate, present a good reason for not doing so. (a lot of emotionalistic, rationalization, selfish/greed reasons, but not a GOOD reason).

OK, more info than was asked, but imho it covers the issue pretty well.

so you guys cant see it as a possibility that the person wanted to sell them really really fast?

-> lol

Ah, her...

Doesn't matter to me whether you read the rest or not. Your loss.

As for the point you made... valid, but you're taking it for granted these people are smart enough to look that far ahead. My observations of many people on SL (including LL itself) is that they don't look that far ahead.

Smirk at others all you want. We can smirk back.

there are people who *are* undermining the $L

and there also groups of people who would REALLY want that value to fall ($L investment schemes)

whether they are the same people or not, is essentially moot, the fact is that it is being 'nipped' down, value wise, by at least one person, probably more

If I don't explicitly set the view to advanced view all I see is the 'current rate' to sell at.

So - dump a lil bit there - you get paid one way of the other... enough people dump at that rate unknowingly - you can snarf em back up..

Sure reselling them on Lindex may not pay off..

But do a lil search for 'linden dollars' on ebay - and see what you find

As the original poster was clear to point out, there was a premise - not in bold type - that made it a hypothetical "if there was a business that stood to gain from a devaluation of L$ what would that business be?".

The answers that others have touched on here a) 'tis nothing but the invisible hand at operation and b) desire for immediate gratification even though striking a "sell" a couple points higher may not actually get them USD faster, seem to me to be the most compelling reasons. When I first read the OP, before others put up any responses, my singular response would be derivative (futures markets) or other long term contract holders. I don't see the "investment" firms having enough weight to pull the market around compared to the possibly un-savvy, "get cash now" individuals.

Market conduct is rarely as purely rational as the economists would love for it to be.

signed,
/the hindmost economic mind in SL/

If I had acquired, or borrowed, or sold shares to obtain, several million Lindens, and used them to buy dollars several months ago, and needed to pay the Lindens back someday, I would profit from being able to buy more Lindens today per dollar than I used to buy the dollars back then.

This does not require math or a "world's greatest economic mind" to understand.

If the question (which most are avoiding) is: who will profit from a devaluation of the Linden?

One answer would be with those whose balance sheet shows a large sum of Lindens that they have converted to dollars and need to return someday.

Say, a bank that took deposits of Lindens, converted them to dollars and moved them out of game until the deposits were drawn upon.

Just a theoretical answer to a theoretical question.

That does not mean that such person is *causing* the devaluation ... just that such a person may have *speculated* on devaluation, knowing that devaluation of game currency is an almost universal phenomenon in MMORPGs.

Keiki, I agree with most of what you have said here. And, while I am an optimist at heart, I don't expect people to behave rationally all the time. It is often more plausible to suspect stupidity at work, not malice.

But these offers (to sell at 2, 3 or more point below current market price) appear far to regularily to be just hurried sellers, IMHO. That hurried seller would have realized after a while that an offer of 10,000 or 100,000 L$ sells just fine at 1 point below market. (The cheap offers appear at certains times of the day, too, which might be seen as another indicator that these are no "random offers" by many unexperienced sellers. )

It is absolutely true, that transactions of some 100,000 L$ don't influence the daily average much. But I would not underestimate the psychological effect of having a lower exchange rate for a while during the day. Like you said it yourself: I resident in a hurry will allways offer at below current market. So, if I can hold the exchange rate down for a while and then one or more of these hurried residents come along, those hurried guys will help me with their own money in building up one of those "barricades" that you correctly described.

Admitted, this strategy is only feasible in a market where demand is lower than supply for a longer stretch of time. Only then it is possible to drive down the rate with comparably little amounts of cash. But the market is in such situation and I see at least the possibility of someone (or a group) taking advantage of that fact to drive down the exchange rate even faster. This has been a rather successful strategy in RL in some cases. I am just not sure if there are structures/institutions in place already in SL that would make such a strategy profitable.

That is why I was asking around here.