Topic: Bitcoin: Complete inelasticity of supply (Read 334 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.

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.

---

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.