Thank you for contributing to this exciting and necessary discussion about understanding price dynamics and how we can best manage them.
Your suggestion of comparing ∆C[i] with the size of the ICP market, using ICP_total_supply[i], certainly provides a unique perspective on how we might analyze and predict price changes. However, I’d like to propose an alternate approach that focuses on the current cycle supply.
Our Current Cycle Supply could be calculated as the sum of our Existing Cycle Supply and the product of our Liquid ICP Supply and the Price of ICP in SDR. With this in mind, the price of ICP would only be driven upwards by Cycle demand in the event of a liquid cycle supply shortage. We can determine Liquid ICP by considering our current liquid ICP supply, voting rewards, and node rewards.
Until now, ICP price has predominantly been influenced by speculation, with some correlation with the price movements of Bitcoin. However, I’d suggest we broaden our analysis to include the entire crypto market cap, SDR trade volumes, and indices such as the S&P 500. To predict log(∆P[i] / P[i]), we might consider implementing a Long Short Term Memory Recurrent Neural Network (LSTM RNN) for its ability to learn long-term dependencies, but this requires further discussion.
There’s another pressing concern that I’d like to draw attention to: the potential for manipulation of the ICP price. Hypothetically, a sufficiently funded entity could temporarily inflate the price of ICP, mint excessive cycles, and subsequently deflate the price. Although XTC cannot currently be sold on the open market for stable coins, it is foreseeable that this might become possible in the future, leading to a mechanism similar to LUNA-UST.
This mechanism provides a vast array of data regarding prices, supplies, and trade volumes. Either as a community, we should thoroughly understand and learn from the challenges they faced or devise a comprehensive strategy to mitigate ICP price manipulation. This concern has been previously addressed in a separate topic: ICP Exposure via Minting Cycles vs Selling on Exchange.
Moreover, it’s worth noting this insightful response to the cycle demand series discussing the possibility of surplus XTC supply forcing the market exchange rate of XTC far below the minting value: Projection of Cycle Demand.
These topics are integral to ensuring the economic sustainability of our system. Your thoughts and feedback are greatly appreciated as we continue to navigate these complex issues.