Topic: Bitcoin: Complete inelasticity of supply (Read 297 times)

bitcoin does have a fixed supply but this fixed supply wont actually be realised (felt) for another 120 years.

in 2012 there were 11million coins and exchanges had order lines of 1-1000coins thick.
in 2022 there are 19million coins. which means more coins in circulation. yet exchanges are not seeing order lines of 1.7-1700 thick.

instead what you find is that people still on average only want to regularly buy bitcoin in minnow orders of $400-$600 and whale orders of $40m-$60m. peoples fiat disposable income has not changed.

what has changed is instead of using the supply/demand of there being more coins now than previous years in circulation. bitcoiners actually went the opposite direction. they prevented themselves from crashing the market by offering more coin. and instead started 'drip-feeding' orders to meet the demand.

this is why even though there are 1.7x more supply in circulation. bitcoin sellers are only feeding the market with 100x less supply per order to meet the demand.(0.017-10btc order thickness)

i personally have alot more coins now than i did in 2012. but the amount of coin i drip feed into an exchange is alot less than i did in 2012. because if i used the same volume as 2012 or even the same % of hoard. id crash the market

yes right now we are not 'feeling' the limited supply because we are still experiencing more coins being made.

if the average minnow buyer is only investing say $600 a month. but the bitcoin mining is netting $882m of 'new asset' every month. then the circulation supply is increasing to allow 1.47m new minnows to join bitcoin without causing any 'supply' bottlenecks of the circulation allotment.

yes bitcoins supply limit is a great economic rule. but its just not something being felt yet.

what is being felt. is not the '21m coin rule' but instead the halving of mining per 4 year rule(in laymans)

mining pools get half as many coins, but are not going to half their efforts to mine to match half of the reward.
instead they continue competing for the share of the reward, and because its less, they demand more $$ for the less amount.

bitcoins price is more influenced on the 'never sell for less than it cost to acquire' more so than a 'supply/demand' based on a 21m cap rule

The truth is that I did not see this word of inelasticity since the university, and well I think that it is not like that, the btc moves by the Law of Supply and Demand, together with the whales and all the institutions that decide to enter, this is notably affected by the emotions or feelings (which is very normal in speculative markets) that if they affect the market, the only thing that BTC does not have is a backing like stocks have in the stock market, either with gold, among others, but I think that the approach you want to show can be taken as a very interesting topic with a lot of concept.

I agree that Bitcoin's different from gold in this regard, but is Bitcoin truly the only asset with fixed supply? For instance, Cardano has a total supply of 45 billion, right? And Litecoin also has a limited supply. So while Bitcoin's different from gold and assets of other types, there are some altcoins, I think, that have the same feature. Also, while this feature protects Bitcoin from inflation, it doesn't, clearly, protect it from what's considered the main threat of inflation: the currency losing its value. Bitcoin can be worth $40k or $50k, with the price fluctuating a lot, and it's hypothetically possible for Bitcoin to experience a huge decrease of value, having essentially something similar to what could be effects of hyperinflation of fiat or sudden overmining or gold.

Provably lost coins are, by definition, not recoverable.

Yes, because everyone is forced to pay everything with a fiat currency (e.g., taxes). Okay, but so what does this have to do with its supply?

The only coins that don't add up to the available supply are those that either were provably lost (OP_RETURN, lost private keys, and burn addresses probably too, but I am not sure they can't be restored in the future) or haven't yet been mined. Others do count. Hodlers' coins count even if never moved because that is part of the increased demand for money.

That is the point. The purchasing power of bitcoin can only be measured through the purchasing power of another currency, but not through real commodities. You cannot estimate the real purchasing power of bitcoin because you always have to refer to the purchasing power of fiat currency (usually domestic), through which to express prices (unit of account).

The supply of bitcoin influences its purchasing power, but not the other way around. I guess that's the beauty.

I'm trying to understand what was your point. That it's obvious supply isn't affected by demand? But it is, in most cases.

No, I wouldn't. It has a completely inelastic supply. The lack of deflation doesn't make that false. The block subsidy doesn't change with the rise in price.

You only count the quantity that can be available on the market.

Why don't you know the real purchasing power of bitcoin? 1 BTC = ~$41,000 currently. The purchasing power of $1 is equal with ~2,400 sats.

Look where I've quoted you:

Yes, it's true. Yes, if the price fell by -50%, the supply would take longer to be increased, but that's until the difficulty retargeted. All I'm saying is that this is not the canon nor a significant factor.

The X-axis is the total quantity of money available on the market (in our case it will be equal to the circulating supply of Bitcoin), and Y-axis is the purchasing power of one unit of money, which is the "price" of money expressed in commodities terms (the problem is we don't know the real purchasing power of bitcoin because the price of bitcoin is always thought in fiat terms). However, consider the situation when bitcoin is used as a universal unit of account, which means all the prices of all commodities are now being expressed in bitcoin terms. Not only are commodities prices are shown in bitcoin (or satoshi) terms, but also it is also possible to express the price of bitcoin in commodities terms. For example, if one bitcoin can buy you a Tesla car, it also means that a Tesla car can be exchanged for one bitcoin. So, the price of Bitcoin will be equal to one Tesla car. It is the purchasing power of bitcoin. So, given that the supply of bitcoin cannot be inflated in response to increased demand, the only thing that changes is bitcoin's purchasing power. For example, if the demand for bitcoin increases, but the supply stays the same that will result in an increased purchasing power. Bitcoin will be worth more than one Tesla car.

No, it is highly significant, because it makes Bitcoin supply unresponsive to the changes in demand. Gold and other assets lack this feature.

Your first point is key, even if gold is scarce there is no way to know precisely how much gold we have on the planet, especially since more than three quarters of the surface are covered by water and it is virgin territory to exploit all kind of resources.

Bitcoin on the other hand with its hard cap is a completely different asset, not only we know how much bitcoin will be ever created, we know when it will happen and the rate at which it happens as well, bitcoin is by far the most perfect store of value ever created and I think people are finally realizing this simple fact.

I'm going to stop because I think I've made my point (perhaps poorly) and I feel this discussion is becoming a distraction to your main topic.

Something else to note -- the statement that the supply is fixed at 21 million is not quite true. The max supply is 21 million, but the actual supply is not fixed. The money supply is actually rising toward 21 million and will start falling at some point due to lost coins.

Isn't that noteworthy? What asset keeps having the same supply (or supply schedule) regardless of the demand? Only (those that work like) Bitcoin. In other words: What other asset has this difficulty feature?

This is why its supply is completely inelastic. Because it's not allowed to vary. There's no other asset whose supply is not allowed to vary. If you try to explain this in economic terms what would you use? I assume E_s = 0 is the closest we have to describe it.

Going one step further: What does it actually mean “not allowed”? By who? Isn't that noteworthy?

So, by "completely inelastic", you mean that Bitcoin's money supply in completely unaffected by price. Is that noteworthy? I think it's stating the obvious. Bitcoin's money supply is completely unaffected by anything.

In the end, I don't think the term elasticity is appropriate for Bitcoin because the money supply is not allowed to vary. If it could, then Bitcoin would be elastic just like fiat. In other words, there is no elasticity because there is no curve. It is only a point and a point has no slope.

Considering it a currency may confuse the situation, so let's say it's just a product. One is the product's supply (Q) and the other is product's price (P).

I don't disagree, but ...

... what are the two axes? One is money supply and the other is ...?

Consider Dogecoin. It is inflationary, so I would assume that you would consider its money supply to be elastic. But, what are the two variables that you use to measure elasticity? Money supply and ...?

Which is actually quite high as well and with the new blocks being mined there are Bitcoins being added in the whole system as well. I think the complete inelasticity would be significant when we reach the total mined coins. At the same time trading and short term selling is quite frequent, have it not been that then the price wouldn't have been volatile at the end of the day. I do think that the market supply is something in theory but in practical purposes it's quite diverse and keeps on changing. Therefore I do think there might be certain inelasticity but it does not really significantly affect the market right now. An investment is always a subject to buy/sell.

They count as a market supply, which is outlined by odolvlobo. If I sell my bitcoin to you and another buys it from you, we've made two transactions, but the bitcoin isn't doubled.

Of course. But, the market supply is affected less if the money supply is completely inelastic.

Exactly. Bitcoin's money supply curve is a straight line vertical to the quantity (Q_s) axis. There's no other asset with E_s = 0.

No, I said: Complete inelasticity. That's why I italicized it. Gold has an inelastic supply, but not completely inelastic. (0 < E_s < 1)

You could say that Bitcoin is a complete scarce asset.

This is an insignificant detail. The canon is that a new block is mined every 10 minutes.

Oh no. You woke up franky...

Congrats, Einstein, but: Shareability ≠ Scarcity. Look it up. You could have also said this in a simple sentence and not in 155 words which waste time.

Again, the ability to buy smaller fractions of a product does not make it less scarce, it simply eliminates any sort of entry barrier, like some stocks which have a minimum purchase amount.
There would only ever be ~21 million bitcoins available for purchase, regardless of how divisible it is, and the more the demand grows, the supply thins against it, meaning it gets more scarce. I have not heard anyone say you will not be able to buy tomorrow, but it would likely be more expensive.

Okay, lets consider a more applicable example, which is not too technical.
There are about 42 gallons of oil in a barrel. If a nation has a certain amount in total, lets say 1000 barrels, to power their 10,000 citizens, and the amount is insufficient. The ability to divide the barrels, into 42 gallons, and then into 160 liters does not increase the supply. You still have the exact same amount of oil to serve the citizens and it is still insufficient even if it is divisible into centiliters or milliliters; It just makes it possible to purchase the amount you can afford, if all the whales have not bought and stored them all.

at the technical level. in raw data of blockchain and transactions... there is no BTC.
everything is measured in sats.

there will be 2,099,99,999,769,000 shareable units that people can have
EG, saying there is only 190,000 units of gold. makes gold seem scarce, but when you then reveal thats the measure is tonnes. which no one can afford a whole tonne, and everyone only buys grams, ounces. you start to realise there is actually
6,702,053,000 shareable units of ounces.. not 190,000 shareable units of tonnes

everyone in every house has some gold. its in devices its in jewellery its everywhere. its not actually scarce

its not actually about 'scarcity' its about absolute limit.(final supply limit)
after all many think there is only 250,000 tonnes (190k(60k yet to be mined)).. yet they now talk about asteroid mining beyond the 250,000tonne cap, gold becomes less 'strict' in its supply economics

supply limit. and scarcity are separate terms

@Upgrade00 @hatshepsut93

I was not so much questioning the scarcity of Bitcoins but the scarcity of it being in supply. This is fact. But people always talk about scarcity adding value to it (or shall we say price) because people will "buy it up before it stops being produced".

But that's really not the case because you can always but Bitcoins. When the number was a lot, you could get a lot. When there is only 0.1 BTC being produced, you buy even smaller fractions. This is why I said it somewhat invalidates those arguments about people saying rush in and get BTC now because you can't tomorrow.

Once more, I don't disagree about scarcity being important just not the way people talk about how it affects price.

I could be wrong in the end maybe I don't get how it all works and maybe this scarcity:)

I mean, I don't see why we compare to oranges as nobody would buy 1/100000th of an orange so a single orange being produced every round makes it very valuable. And dividing it actually makes it less desirable.

If you had a scarcity of oranges in a city, dividing the available oranges into 2 or 4 does not increase the quantity neither does it solve the scarcity problem, all it does is it makes it possible for the available oranges to be shared among the citizens.

Bitcoin being infinitely divisible does not affect scarcity, it just makes it for people who can not afford 1BTC to be able to purchase fractions of it, the quantity remains determined.

It's a very common misconception that Bitcoin is less scarce because it can be divided. Bitcoin is Bitcoin and satoshi (1/100 000 000 of Bitcoin) is satoshi. 1 satoshi is worth 1/100 000 000 of Bitcoin, and smaller divisions would be worth according to their proportion. When you are dividing Bitcoin, you are not creating more Bitcoins.