Topic: Bitcoin: Complete inelasticity of supply - page 2. (Read 297 times)

The fact that Bitcoin's supply is fixed means that if there will be an increase in demand, its price will really go up and we have right now experiencing it despite the dip from time to time. What we should note here is that nobody has the power to change the supply of Bitcoin in anyway...today or in the future. In fact, experts are saying that even if there will be 21 million BTC the actually number in circulation can possibly be lower since there are millions of Bitcoin that are already lost and can not be recovered anymore.

I'm fully in support of this too, but isn't this somehow a little bit invalidated that Bitcoin also has completely unlimited divisible units? I mean satoshi is the smallest possible unit now, but I read that fractions of satoshi is also possible.

Which always makes me think this supply thing doesn't really make it scarce, but makes the available units more expensive.

I don't think that's a bad thing, from a regular person perspective.

It does but the freshly mined coins entering the market are also supply and the point OP is trying to make is that unlike something like gold, when bitcoin price goes up you can't mine more of it to dump on the market because there is more incentive to do so.

You forgot to mention another important feature of bitcoin that other assets and cryptocurrencies don't have, namely a difficulty adjustment mechanism. A difficulty adjustment is what makes the bitcoin supply barely responsive to the changes in the demand for bitcoin. The reason I said "barely" is because it has a two-week lag, so within these two weeks, bitcoin production may be slightly higher provided that miners invested some additional capital. Once the difficulty of mining is adjusted to the current amount of capital invested in its production, the issuance again becomes stable and algorithmically predictable. Unlike gold, which issuance highly depends on the amount of capital goods dedicated to its extraction, bitcoin always automatically adjusts to economic reality and stays highly competitive to mine.

Actually, what you don't know very well can't be as regards as positive value  to you,

It's quite understandable, in any circumstances of market, weather it encroached to devaluation or not the market will be processed, even though it comes to branch on decrement, people actually will also pertake in selling, shall i will say it's vice versa, in market regulations and mostly inpatient investors.

What the OP is saying, and I think he's got a point there, is that the inelasticity is complete, absolute. We are not talking about a simply scarce commodity or resource. Rather a scarce good but of unchanging, fixed production, regardless of supply and demand at the time.

Interesting, OP, I don't recall reading this concept when discussing the intrinsic properties of Bitcoin, at least as you do.


Interesting question, I would say to a certain extent. I don't know if we couldn't talk about primary supply (the bitcoins mined in each block) and secondary supply (the bitcoins put up for sale) for this case.

Saying that Bitcoin has inelasticity of supply is basically the same as saying the Bitcoin is scarce.
Most of the scarce resources on the planet have inelasticity of their supply.
Nobody is forgetting that Bitcoin is a scarce resource.It's actually one of the main features of BTC.


The value of BTC might not de directly linked to supply/demand,but the BTC price is definitely linked to supply/demand.You can't avoid "high school economics". It doesn't matter how much you hate it.
Saying that demand has nothing to do with the price/value of an asset seems kinda delusional.
If demand has nothing to do with value,then why are the people buying this asset?
The 2 biggest reasons are:
1.Expectations of selling that asset for a higher price and making profits.
2.Utility.Some people find Bitcoin more useful as a payment method than fiat money.

many people newbies and the young try to conceptualise the 'supply demand' of high school economics the over simplify the market supply of price and value, to suggest bitcoin has no value and is just 100% speculative..

so ill have a stab at explaining the market 'supply/demand' stuff

market price
bitcoins market price is not based on the coins mined(supply) this minute because they wont hit the market today.
nor based on the 19million in circulation.

bitcoins market price is based on the coins being put on market order lines inside exchanges.

if its was 'supply' 'demand' of circulation.. then 2012 supply was only ~11mill coins. vs todays 19mill means there is more supply now. yet prices are higher

however as i said its not based on the coins in general circulation.
in the same comparison. coins in exchanges had order lines of 1-1000btc.  now those order lines are 0.001- 1
which is where the market order 'supply' has more effect on the price.

why,? easy explanation is because its those actual coins being exchanged for a price that are setting the price. hoarded coins never on the market dont affect the price. because they are not on the market to change the price.
..
market value
even if there is 190,000 tonnes of gold. and a possible say 50,000 more yet to be mined on earth, does not matter.
what does matter is the smaller allotment held by gold markets doing the actual price alterations.

these price alterations are done by their owners deciding the value which they want to sell at,
based not on high school simplistic but non informing "supply/demand" but on many factors, some of which explain supply and demand. but other factors are involved outside of supply and demand. such as the value that underlines the price.
..
some reasons why buyers pay a premium
do they find it useful, yes
is it hard to get it elsewhere,
is it convenient to get it on the market
is the market offering it at a rate easier,cheaper than other acquisition methods

some reasons why buyers refuse to pay a premium
do they find it useful, not so much
is it easier to get it elsewhere,
is it inconvenient to get it on the market
is the market offering it at a rate higher than other acquisition methods

for instance
in japan it costs about ~$70k to mine a bitcoin. so japanese are very very willing to buy bitcoin rather then mine
in USA/europe it costs about ~$40k to mine a bitcoin. so US/EU jump back and forth in their decision
in kazahkstan it costs about ~$30k to mine a bitcoin. so kazahk's prefer/willing to mine bitcoin rather then buy

why its not just silly 'supply demand' speculation, but is about value
the reason bitcoins has value of between $30k-$70k window is not silly 'supply/demand' high school economics
its because of the cost of acquisition of different area's from cheapest to most premium

the price decisions by each trader trading each second that affect the price. then changes the price within that window of value, and those whims of greed, hope of human decision. change depending on circumstance

in 2012. everyone could acquire bitcoin privately either mining or buying from a friend for under $100. so absolutely no one would pay a $60k premium for it back then.

but with mining cost increases and then the acquirers then buying above $100 setting the new low end cost window above $100. and the repeated change of acquirers costs as things are mined and traded at gradually rising prices. it now near impossible to get bitcoin for $20k from any private source. and so peoples value is now way above $20k minimum

its not about how many coins. its about the value even for 0.001 coin no longer being under $20 ($20k/1btc)
it doesnt matter if someone is offering 100btc or 0.01btc.

he values 100btc the same as 0.01btc  ($4.3m and $430 respectively). both being that of $43k/btc today.

no one ever things that because most orders today are done at 0.001 per order. that someone with 100btc must sell at the 2014 price rate where 100btc was the market order processed supply per order

its actually decided by the person selling who doesnt want to sell at a loss, so never going to sell for less than he acquired it

it doesnt matter if there is an order of 0.001coin or 1 coin or 100 coin
if someone was to trade
0.001coin for $43
1coin for $43,000
100coin for $4.3m

the supply is different but each of the will still trigger a market order and thus a price of $43,000 a coin.
its not like market orders are fixed to only 'fill' if 1 whole coin is sold. and it needs a buyer to pay a whole coins price to buy it.
even in low order sell amounts. buyers can also buy in small buy amounts

sellers with 100coin are not forced to sell all their coin. and they wouldnt. because they know it will hurt themselves selling down the orderline. they prefer to only sell 0.001 at a time to not affect the market.
it might take longer but they do this to avoid selling at a loss. and also to avoid affecting the price negatively for them

buyers wanting 100coin are not forced to buy all 100 coin. and they wouldnt. because they know it will hurt themselves buying up the orderline. they prefer to only buy 0.001 at a time to not affect the market.
it might take longer but they do this to avoid buying at an expense. and also to avoid affecting the price negatively for them

so whats important to know(summarised):
bitcoins value is not linked to supply/demand. its value is window bottom and top limits, based on different costs to get it, lowest to highest. for different regions for different reasons
bitcoins price moves within this window, based on the human emotion whims of different people in different places with different decisions for many reasons

..
i say all this because some people want to use highschool economics to start playing games that bitcoin has no value and that the price is only based on vapour speculation. rather than understanding the value window hidden around the price speculation

It is important to note that market supply is not the same as money supply. Bitcoin's money supply is fixed (or more precisely, on a fixed schedule). The market supply is not. It is not inelastic because there are different prices for different quantities, as seen in an exchange's order book.

Elasticity is not typically associated with money supply, although I suppose it could be. There could be a measure of elasticity regarding money supply vs. GDP , for example.

FYI, elasticity refers to the slope of the curve.

Don't "second hand" sales in either gold or Bitcoin count as"supply"?
If the price goes up to a certain amount, someone will sell some.

Besides portability, divisibility, durability and easiness on verifiability, Bitcoin has a unique feature people seem to skip: Complete inelasticity of supply.

When there's rise in the demand of gold, it becomes more profitable to extract it from the ground and therefore, more gold is being mined, more gold is being added into circulation. It doesn't necessarily matter if there's a fixed amount of gold in the Earth: Changes in the demand affect the supply. Your ounces might worth more when there's rise in the demand, but this will also be true for the miners. As a consequence: They will inflate it.

Same thing happens with every asset; there's a non-zero elasticity in supply. Bitcoin is the only asset whose supply is completely insusceptible to demand. This justifies these intensive fluctuations, because of the following economic law:

• When there's increase in demand, there's also increase in equilibrium price and increase in equilibrium quantity.
• When there's increase in supply, there's decrease in equilibrium price and increase in equilibrium quantity.

• When there's decrease in demand, there's also decrease in equilibrium price and decrease in equilibrium quantity.
• When there's decrease in supply, there's increase in equilibrium price and decrease in equilibrium quantity.

Bitcoin's supply cannot be modified, so the price can be less sustained with the rise or fall of the demand.

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Why did you create this thread?

1. To show that this isn't an insignificant characteristic; it's actually what makes it an even better store of value as it leaves us with one less factor that can affect it.
2. To justify bubbles at regular intervals.