Topic: Elasticity and inelasticity of bitcoin's supply and demand (Read 4716 times)

Bitcoin is very volatile crypto currency and its valuation keep on flactuation and like I use to say in my earlier posts also that the flactuation in valuation is governed by many factors like market circulation of bitcoin like if there is shortage of bitcoin in the market then the demand increases and the valuation inflates and vice versa. Second factor is amount of capital investors invest into bitcoin and yes this elastic and in elastic nature of valuation makes it volatile.

This elasticity and inelasticity of bitcoin supply and demand are the main cause why is the volatility price value of bitcoin is changing always in the coin market index , this factors causes really the changes of value price of bitcoin.

We are feeling the demand of cryptocurrency and bitcoin is increasing because there are a lot of peoples are using bitcoin as a payment processor and also great benefits of increasing the price and increasing the demand in the crypto world,

This is more like a systematic investment plan for stocks.
This kind of demand (price insensitive) provides support for the overall market cap of bitcoin.

Absolutely, but it's not just limited to the limitations of Bitcoins, but people having continuous interest in this very cool currency, completely different cryptographic movement in order to get it going, instead if there ain't any interest and ain't any buyers, it will be just another "ALTCOIN-TYPE-DYING" currency, and that's the truth that we need to keep eyes on...
If you are talking positives, you should also know the negatives of the same...

Indeed bitcoin is limited, once all the bitcoins are mined (which will take quite awhile) the demand of bitcoins will skyrocket up to the moon. Hopefully by then more people would have adapted to bitcoin and are using it as much as they can. It will be a long while before we see mass adaption of bitcoin though.

Even I invested on bitcoin. I use to buy bitcoin from trading sites atleast Once in a 2 months. I am not seeing the price or demand or anything. Whenever I am capable to buy I use to buy at that times. I currently spent bitcoins for Christmas expenditure to buy things.

well it true that there is no deflation in the supply until the fee era, but there is in the demand, because bitcoin will encourage hoarding your coins instead of spending, at least until a certain target

There is no "guarantee of deflation every four years". Inflation is reduced every four years until it reaches 0. That is not the same as deflation.

Bitcoin is considered to be "deflationary" after the inflation rate reaches 0 because (depending on who you ask)

• coins are lost, or
• a growing economy is assumed, implying a greater demand for money vs. a fixed supply.

Bitcoins inbuilt scarcity is truly what makes this thing work as well as it does.

This provides a guarantee of deflation every four years, which is not too bad all

Sorry, this is a type. What I meant is that the price of bitcoin will be higher in the long term due to limited supply and increase supply of fiat.

The question is, why is Joe Schmoe buying this bitcoins ?
Is he putting away certain share of his salary in bitcoins ?
Is it to buy some goods ?

He is proabably getting his salary in US dollars.
Whatever he is buying, the price is most likely fixed in USD dollars and if the merchant accepts payments in bitcoins, it's just going to be converted from USD to BTC at the current rate.

Therefore Joe will most likely be buying $2000 worth of bitcoins, no matter what the current price is.


The miners on the other hand, will have certain amounts of bitcoins to sell every week or month (assuming they will sell all their output), again, no matter what the price is.

You are saying that you might sell before the halving to benefit from pre-halving hype if it happens. Or you might sell during the halving hype if it happens during... well, the question here is, when are you going to re-enter the market? what is a good correction to re-invest and how do we even know this if we don't even know where teh ceiling could be on a "Great Bitcoin Bubble 2.0" scenario?

There are huge risks involved in here. You may leave the market counting your profits, but you may be caugh in a huge buying hype that pushes the price to something like 4K a coin. Let's not forget that it takes a minuscule amount of fiat to sky rocket a marketcap of only 4 billion dollars.

I had to read his statement twice.

Congratulations on showing that you have absolutely no economic knowledge.

Reduced supply of a good means that a good will have a higher price due to its scarcity, it makes no sense saying that the price would be lower.

The money supply of bitcoin is limited. So the price in bitcoin will be lower in long term.

Demand and Quantity demanded

This term refers to the collective want of consumers as a whole in the context of a certain good. It is closely related to the term Quantity demanded, which means the amount of the good that consumers are willing and able to purchase when the good in question is at a certain price. The Quantity demanded is a singular point on the demand curve while the entire curve is referred to as demand since demand refers to the relationship between the price of a good when compared to the people that are willing and able to purchase it. If a consumer does not have the money or is not willing and able to purchase a good he is not considered in the Quantity demanded. In the case of Bitcoin, when a single Bitcoin was at about 1200USD each a few years ago, there were less people that were willing and able to buy it during this period in time when compared to the current price of 225 USD each as of August 26,2015. This is because a lower price allows more people to purchase a certain good, thus the Quantity demanded and Price are inversely proportional. Other factors aside from price can alter this curve namely, Number of buyers, Income, Prices of related goods, Consumer preferences, Advertisements, and Expectations. The numbers of buyers refer to the amount of people that actively want to purchase a good, in a sense if price determines the “able” part of willing and able then the number of buyers determines the “willing” part of the statement. The second factor that affects the Quantity demanded is income and inside this term there are two terms, the first is “Normal Goods” and the second is “Inferior Goods”. Normal Goods refer to goods that are bought more when incomes go up; these goods are usually premium products such as high-quality appliances. On the other hand, Inferior goods are goods that are bought more when incomes go down; these goods are usually substitutes for the premium products that are Normal Goods, for example poorly made appliances are Inferior Goods. Currently, Bitcoin does not classify as either because it is a form of currency just like the US Dollar or the Philippine Peso, there are benefits to using either currency. The third factor, Prices of related goods refers to how the prices of substitute goods and complementary goods affect the demand curve of the good in question. A substitute to Bitcoin is the US Dollar or any other currency and oftentimes currencies determine the value of other currencies. Since complementary goods refer to goods that are used with other goods and Bitcoin is a currency there are no easy goods that classify as complementary. The fourth factor is consumer preference; if less people preferred to buy Bitcoin then the demand for it would go down because there are less people that want it. Fifth on the list are advertisements. When an advertisement has a positive impact on consumers there are more buyers and if it has an unfavorable effect the opposite occurs. The final factor that affects demand are expectations which means that if consumers believe that Bitcoin prices will go down due to a certain silky marketplace (Silk road) going down, the demand for Bitcoin will go down as well.

Supply and Quantity Supplied

  Supply is the term that refers to the collective ability of suppliers to supply a specific good. Quantity Supplied is the amount of a good that suppliers are willing and able to supply. Unlike other currencies, Bitcoin’s supply comes from the blockchain which is a series of calculations that are solved by several different computers referred to as Bitcoin miners. These miners are awarded a small portion of a Bitcoin every time a “block’ in the blockchain is solved by the miners. These calculations secure the daily transactions of existing Bitcoins from one person to another; this way Bitcoin protects itself by making it incredibly difficult to create a coin since to mint a Bitcoin a portion of the blockchain must be solved. The Law of supply states that when the Price goes up, the Quantity supplied will also go up since people want to make profit there will be more people that will find ways to supply the good in question. When the prices falls the Quantity supplied will also fall since it will be difficult to make more profit. Unlike the law of demand which is inverse, Price and Quantity supplied exhibits a direct relationship. The supply curve which is composed of various points of Quantity supplied against Price can move along its curve when Price goes up or down, however there are factors that cause the curve to move entirely. These factors are, Number of sellers, Technology, Other related goods, Resource Costs, Expectations, and subsidies. The Number of sellers will cause the Supply curve to move to the right since there are more suppliers of the good. If more people mine Bitcoins then there will be more Bitcoins in the market. When the opposite happens and there are less Bitcoin miners then the supply of Bitcoin will go down and the supply curve moves to the left. The second factor Technology means that supply will increase if Technological advances allow more goods to be produced easily. Since it is currently impossible to forge a Bitcoin this factor does not apply to Bitcoin. The third factor is other related goods, it is important to note that this factor only applies when the price of a substitute good changes. The supply curve of the good in question shifts right if the substitute goods have a lower amount of supply compared to the good or when complementary goods are frequently purchased; If the good increases its price then it is likely that substitute goods will be chosen over the good thus the supply curve shifts left. The fourth factor is resource cost and this causes the supply curve to shift right if it is easier to produce a good and to shift left if it becomes more difficult. In the case of Bitcoin, if it costs more to set up a Bitcoin Mining Machine than the worth of the Bitcoin made then it shifts left due to the loss incurred by the Bitcoin Miner. The fifth factor are expectations, the supply curve will shift right if a seller believes that his good will sell well in the future. For example if a person about to set up a Bitcoin Mining farm believes that the amount of Bitcoin demanded will go up in the next year then he will increase his supply of Bitcoin produced. The final factor that can affect the supply curve are Subsidies and Taxes, Goods will shift right if governments subsidize or give money to suppliers to supply a good and will shift left if governments tax or require a larger cut from a supplier’s profit.

Market Equilibrium

This term is often interchangeable with “Market Clearing Price”, both terms refer to a situation wherein the Quantity supplied is equal to the Quantity demanded. Therefore the Market Clearing Price is when all units of a good are purchased by consumers. Reaching this point is determined by how quickly prices adjust. In the case of currencies such as Bitcoin, reaching these points will be difficult since their prices change due to a multitude of factors. The opposite, Market Disequilibrium is a state of either a Shortage or a Surplus. If there are more people that demand Bitcoin than there are that sell Bitcoin the price of Bitcoin will go up since there are more people that need Bitcoins than there are that sell Bitcoins therefore the sellers will increase the prices until there are less people that are willing and able to buy Bitcoins in order to fix this shortage. If the opposite occurs and there are more people selling Bitcoins than there are that want to buy Bitcoins then sellers must lower their prices so that more people are inclined to purchase their Bitcoins. For a while Bitcoin had stabilized at around 300USD however in recent months it has dropped to 225 each.

Elasticity

  Elasticity refers to how the Quantity demanded or Quantity supplied responds to changes in price. A good is considered elastic in the frame of demand if its Quantity demanded changes drastically changes to a change in its price and inelastic if it does not exhibit a drastic change to in its Quantity demanded to changes in Price. In the frame of supply, a good is considered elastic if its Quantity supplied changes drastically to its Price and inelastic if the opposite happens. Bitcoin is considered Elastic since it has many close substitutes as it is a currency, therefore consumers of Bitcoin can choose to use fiat currency as opposed to Bitcoin. It has demonstrated its Elasticity in the year 2013 when 1 Bitcoin was 266USD on April 11 of that year and rose to 1250USD during November later that year. This dramatic change in price shows that Bitcoin is indeed very elastic. Since then Bitcoin has been steadily declining due to its dying popularity and government crackdowns on marketplaces that used Bitcoin due to its anonymous transacting system.

It's hard to show exactly how elastic the supply and demand is for Bitcoin due to how new it still is and due to the largely speculative nature of it. The demand and supply for it is much, much more elastic in the short-term due to small fluctuations, news, et cetera. But you can't really predict it.

True.
My point was that if you're buying $100 worth of bitcoins to pay for something worth $100, you're going to buy whatever amount of bitcoins, no matter what (same goes for remittances).
If you buy bitcoin as an investment, you may buy more at $200 than $400, because you may think there's a bigger upside at $200.

Money supply is correlated to market supply.
Prices in dollar terms of various assets have been maintained because the fed has increased the money supply.