I've noticed a lot of misinformation and rumours going around about how the economy is going to collapse, and keys are spiralling out of control.
I can't tell you anything about the former (I seriously doubt it), but I felt a guide was in order to explain the latter.

The guide's semi-long, and semi-rambling, but I hope it gives a thorough overview of the major factors behind why keys have now hit 11 refined each.

This guide was written on the 20th of November 2014. It's likely that if you are reading this in the future the prices here will be off. However, the concepts remain the same.

Assuming nothing crazy happens.

First, let's take the basic ideas of economics and (some) psychology.


If there is high supply of an item, then buyers of that item have lots of choice. They aren't stuck with a few sellers. As such, sellers will compete to sell the most items - by lowering their prices so they are lower than their competitors. If there is low supply, then buyers are more restricted - they cannot shop around so much, and sellers do not need to compete so much. That one guy who is likely to sell very cheaply to sell very fast is less likely to be in this market.

If there is high demand, then it's the opposite - buyers have to compete with each other. Sellers can choose the buyers paying the highest price. They can shop around. Equally a low demand means not many people are buying an item. A seller is more likely to take what they can get, even if it's lower than they'd like (or they can NOT sell, and maybe need to wait a long time for a new buyer).

The bottom line is a high supply or a low demand will decrease an item's price whereas a high demand or a low supply will increase an item's price. . If an item is in high supply AND high demand - for instance, earbuds - the price may fluctuate on other factors.



Let's say I have 10 keys. I really want more keys, because it's human nature. If I have more keys, I am better off in every way than I was before. So if I can sell my 10 keys, then buy back 10 keys for less than I paid, I'm better off. How can I do this?
i) I can sell my 10 keys for more than the current market price, then buy 10 keys for the current market price.
ii) I can sell my 10 keys for some price, then buy 10 keys for less than I paid.

The second case is more general than the first - but it's also rather difficult if you sell those keys at the current market price; why would someone sell me 10 keys for less than market price when they can get more? As such, key flippers (traders who do a lot of trading in buying and selling keys) will usually be seen selling keys for more than the current market price.



I can go buy a key right now. Or I can spend 15 minutes looking for a person to sell me that same key for 5 cents less. Did I do good? Yes, I have 5 more cents now. However, I've lost 15 minutes. Was that 15 minutes worth 5 cents? No, probably not. As such, most people would choose the first option. This is the main reason that keys sell for more than the market price . People are paying that little bit over what they could be paying to save some time. This is different from the Community Market - it's the same amount of work to pay $10 for an item as it is to pay $9.90, so why pay more?

Let's get the one major misunderstanding out of the way: the price of 1 key is totally stable in its own terms. The price of a key relative to refined metal is going up. Valve sells keys for $2.50. The only way keys can enter the system is at this price of $2.50. Every key, at some point during its life, was bought for $2.50. (Except self-made keys, which are special...but we only care about regular keys)
Let's say user A buys a key to trade for a hat they want. That hat could be worth a bit under $2.50, say $2.40. But rather than spend a long time to find it cheaper, user A just pays 1 key. They sold it for about $2.50 with a little difference for convenience and buying what they like. Let's call it X - in this case, X is 10 cents.
Every key is worth $2.50 - X, for some little X. . This says that keys are, roughly, always AROUND the same price so much that they may as well always be the same price. . Nobody will buy a key just to sell it for $1.

Now let's consider refined ('ref'). There is no reason ref should be fixed at one price. Valve does not sell ref. In fact, more and more ref is created - from weapon drops, and hat drops. So our supply of ref goes up every day. The demand for ref, however, stays the same. So by the fact at the start, ref should decrease in price. . And it does.

Take 3 years ago - when I started trading. 1 key was worth 2-2.33 refined. As such, refined would be worth about $1 a piece. Let's say there were 1 million pieces of refined metal then.
Now fast forward to today. That's 3 years worth of players collecting weapon drops (and crafting a few hats, but not nearly as many!). We might have 5 million refined right now. That's 5 times the supply and likely a similar level of demand. Keys are now about 11 ref. That means refined is worth about $0.20. The numbers are completely made up; I don't have figures to hand. But the idea is the same - we do have a lot more refined, and we can see that a refined metal has dropped a lot in value, too.

So what's the value of a key? 1 key. A key will always be worth 1 key. As it is a fixed value, it can never be anything other than 1 key. .
So what's the value of a refined? It's entirely dependent on some fixed value - our only fixed value is a key. So we need to think about refined prices in terms of keys, rather than key prices in terms of refined.

Now when we look at it, we can see that 3 years ago, a ref was worth about 1/2 of a key. Now, a ref is worth 1/11th of a key.

Keys are worth the same and will always be the same. Refined is becoming more common and its value is dropping. Looking at rising key prices as actually 'refined prices are dropping' makes sense, now.

There are only a few reasons for people to prefer refined over keys, so demand for keys is higher.

Short answer: Nothing.

Long answer: We have 2 ways to increase the price of refined:
a) Decrease the supply of refined.
b) Increase the demand of refined.

Let's take a) first. We could decrease the supply of refined by using up more of it. We currently have 3 refined metal => 1 hat. However, nobody uses this much - why would you? You can just buy a hat you want and save money. If you somehow got people to craft several thousand hats, you'd use up a lot of refined. You might see something happen. But do you really think you can get that many people to do something?

Or, b). As players we can't do anything about this. Only Valve can - by making some reason to use up X refined. We could get a limited time hat. We could get a better crate. We could get a chance at an unusual. You need something to give players a reason to sell their keys and buy refined, rather than hoarding keys.

Let's consider that backpack.tf never existed. Does this affect the amount of refined in the game? No. Does this affect how much Valve sells keys for? No. Does this affect the demand for refined? No.

So inflation, as I've described above, still happens. Of course, the argument could be that they set the 'current market price' for people to believe. There are a lot of traders who happily read whatever is said and just take it as law. There could be a pricing error, and suddenly earbuds are worth 3 keys - and likely a number of people would start trying to buy and sell at 3 keys.
But..whether or not you think this affects key pricing, or the speed that inflation happens, is a discussion for another time in another guide. :)

It's been months since I sold a key for refined, except when I really needed refined. I've never gotten why people spend so much time trading keys for refined for keys. It's boring and doesn't make much profit (but let's not start a war here).

If anything, I wish inflation wasn't a thing - would be nice that my hats don't devalue :)

I've rambled for long enough, but hopefully it's helped some people to understand.
Feel free to comment below if you think I've missed something|couldn't understand a thing I said|hate me.