Topic: Elasticity and inelasticity of bitcoin's supply and demand (Read 4736 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.

Ok, I guess I was being too picky. The money supply does not directly affect the price, but it does affect it indirectly because it affects the market supply. However, you can't say that the price hasn't been affected (indirectly) by increase in the money supply simply because the price has gone down instead of up. There are other factors, specifically demand.

Multiplying the USD supply by 5x since 2008 hasn't, so your point about multiplying money supply by a factor of 100 million (something nobody is talking about) isn't relevant. You're not even having the same conversation anymore. You brought up the difference between market supply and money supply, and then when I agreed with you and distinguished the point further, you started talking about 100,000,000x increase in the money supply. That doesn't even follow logically, and again is refuted by the fact that a 5x increase in the USD supply has not lead to inflation because money supply increase is still not market supply increase. Even if you want to argue the ridiculous point of 100,000,000x increase in money supply, it's still not going to impact the price unless it's part of the market supply.

We both know that multiplying the money supply by a factor of 100,000,000 would have an effect on the value of a bitcoin, so saying that the money supply has no effect on the price can't be correct.

Money supply is a number that has no effect on price. Price is determined where market supply meets demand. That's why when a major seller comes into the market, it depresses prices. That total supply was there prior to being on the market, but it doesn't have an effect until it's brought in to trade.

when we are going to use bitcoin, then we see whether bitcoin has now become a medium of exchange trade in the world, I suppose not entirely, due to the infrastructure and policies of the countries of the world are different, as long as it is not fulfilled, then to the current bitcoin only used as investment goods such as gold, lands and properties, although the actual value of the investment is not as good as gold, lands and properties

Most of us  we see bitcoin as investment  ,others as savings,the big reason behind the interest is its volatility that is amazing,being able to make 20% in a week doing nothing.New coins will keep being moved and price should grow as the interest to own bitcoin,if the same people at bitcoin well we will see it around 200,300 dollars .

Even when people use bitcoin to pay for goods, they will keep bitcoin for certain period before they spend it. It can be regarded as a kind of holding (investment).

Interesting discussion.

I think that the demand for bitcoins depends on what people need these bitcoins for - will they hold them as an investment or they are just using them to pay for goods / services or as a quick and inexpensive way to move cash around the world.
In my view, currently there is much more upside in the latter category, although these two are definitevly linked.

The supply is simply fixed, I don't see how people don't get this. Just look at the halving graphs, that's the inflation %. Then consider the lost Bitcoins, and you subtract that to the total supply. Pragmatically, by about 2025 the inflation (new Bitcoin released into the market) will be way lower than it is now. In fact lost bitcoin rate will be higher, therefore it will just feel deflationary. If the demand has been increasing price should be way higher than we can imagine as a sane prediction now.

The fiat is controled by banks and they control their currency value,injecting milions making the currency get more value very easy.Its interesting to know and to think they do what they wanna and usually is banks against banks,and no one of them loose money on forex.Bitcoin besides being decentralized we know that anyone or whales cant pump bitcoin price,that is fact.
In the end who pays the bill is we that wanna travel and need to exchange our fiat into other,since bitcoin hasnt reach mainstream.

Same thing can be said for fiat money, you never know how much money is in circulation and how much money will suddenly enter the interbank market and crash the foreign currency exchange rate, only large banks have an idea. For example, Swiss central bank just crashed some foreign currency dealer and hedge funds by suddenly giving up the peg to Euro.  Bitcoin exchanges are similar to those large banks, they have some kind of first hand information about the money flow

Bitcoin demand and supply currently means nothing to the price,there is new coins to be mined and all days bitcoins being traded,soo all days the supply is decreasing slowly at the fees,because the big ammount of bitcoin and the fact no one have a list ot holders of bitcoin.The worse thing is we dont know the bitcoins trades the real volume ,how many of them are new coins how much are waiting in cold wallets .... we dont know and will never know it.

Yes, there is a number of people (and this number is increasing on daily basis) who buy Bitcoins without bothering about the price bacause they spend them the same day. If their demand exceeds the current supply the price of BTC will rocket up.

Supply and demand theory only works in economy books, in reality unless the money reach exchange, it will not have the ability to affect exchange rate. The exchange operator can clearly observe the different reserve level of different currencies, thus roughly make an estimation of the bear/bull market and take actions before every other trader, but even that is not always precise

Notice that when price goes even higher, for example one bitcoin reach 10 million, then I would only need to sell 0.5 bitcoin to get the required fiat money to spend. So, a higher price caused the supply to shrink. Supply demand theory usually applies to products/services, it does not apply to money, because money can be regarded as having unlimited demand. The demand to hold bitcoin can be larger than fiat money when bitcoin price is constantly rising

Not quite. The bitcoins are unavailable during the remittance process and that affects the supply.

The effect of remittance is zero if one buys Bitcoin in the U.S. And sell in Philippines

Money supply is a number -- all the money that can be circulated. Market supply is not. It is a curve that shows price vs. quantity. A market depth graph is the supply/demand graph for that particular market at that particular time.

There is no requirement that something be listed for sale to be part of the supply. That's one of the reasons why it is so difficult to determine the actual supply and demand curves. If you are considering only the market depth graphs on major exchanges as the supply and demand, then you are missing most of the actual supply and demand.


But they would move them at the right price. That's why they are part of the money supply and part of the market supply.


So, 5 of those coins are part of the supply. And you would sell the remaining 95 at some price, so they are also part of the supply.

This is correct, and a great example. The FED printing all that money after 2008 hasn't resulted in massive inflation because that money hasn't made it all the way to the money supply. If it did, you would see the inflation you would expect, but it's not part of supply right now, even though it exists. Perfect analogy to coins being held off exchanges.

This is not true. The "market" is whatever is trading on the exchanges. Any coins not listed for sale on the market are not increasing supply of bitcoins for sale. Price swings may induce more holders to agree to sell, thereby increasing supply, but coins being used for transactions outside of exchanges cannot be counted as supply until they are listed for sale on an exchange. The number of coins in circulation only matters to the market cap of the coin, but only the coins on the exchanges are part of supply and demand which determines price.

Coin holder decide how much money supply there will be in the market, not the bidder. FED has printed 5x more money since 2008, and you never notice anything's price going up by 5x, because banks hold majority of those money and never move them, so they are not entering circulation and will not cause inflation

The reserve holder typically have long term plan than simply profit from selling his reserve. If I have 100 bitcoin and someone offered me $100 million for 100 coins, I would maximum sell 5 bitcoin, since that is enough for me to spend for a while and does not affect the exchange rate too much. Similarly , if Satoshi have 1 million bitcoin and someone offered this price, he might still sell maximum 5 bitcoin, but his reserve's value will raise to 1 trillion

and anyway without the right demand the price would not increase, no matter if you destroy the whole supply minus one or everyone is holding

the price won't magically increase because of this, you need a catalyst, something that start the escalation

That is simply not true. Neither the money supply nor the market supply decreases when someone holds coins. If someone offered you $100 thousand or $100 million for those coins, would you sell them? Yes, so they are still counted as supply. Only if you destroy the coins would they be removed from the the market supply and the money supply because could never be sold or circulated.

Should you be measuring demand in terms of USD? That might not give the true picture. If Joe Schmoe was buying 10 bitcoins a day, no matter what the price is, I would agree that this component of total demand is inelastic. But if he is buying $2000 worth of bitcoins everyday, I am not sure you should be considering this demand inelastic.

Can you buy gold NOW with Litecoin?  If so, well then LTC might become a viable contender to BTC.  If not..., then my guess is that BTC's advantages as the first useful crypto are too hard to break for the medium-term.  

Retail acceptance is an important part of the BTC Equation...

If you buy 100 coins and hold it for 10 years, they will disappear from market for 10 years, thus make the supply decrease by 100 bitcoins

If you buy 100 coins and sell them after 10 days, they will disappear from market for just 10 days, then another buyer hold it for another 10 days, and they will disappear from market for another 10 days...

So if the interval between buying and selling are days instead of years, you will need 365x more people to make the same amount of coin disappear from market for 10 years

It is clear, the supply shrink caused by high frequency trading is magnitudes lower than long term holding. But high frequency trading increase the market liquidity, some trader might trade forever for 10 years thus reaching the same result (but contributing large amount of fees)

Suppose that an exchange's daily average volume is 20K coins, then all those transactions on the exchange have the effect of removing 20K coins from circulation. However, the exchange might have a cold wallet holding 200K coins, they seldom move, causing a large decrease in supply

Fair enough on the 1-2 year time span, but that's not how you presented your point initially. You said there would always be price-agnostic buyers, an absolute which cannot be true.

As far as competition goes, every alt coin that exists is competing with bitcoin, and they all in turn are competing with fiat. All bitcoin is is a method of value transfer, and the same is true of any other cryptocurrency. To the extent any alt coin has a market cap above zero, it means there is some market for it, so it is succeeding to that extent. (A failed coin has a market cap of 0, because no one is willing to trade anything of value for it, whether that be another coin or any physical object.) Litecoin is used for the same purpose as bitcoin: to transfer value from one person to another. Same as Doge, Dash, Clams, etc. They're all competing over the same market of value transfers.

Your conclusions are correct:
1. Bitcoin has a floor, it's zero. And the sky is technically the limit
2. The halving will depend on market sentiment at that time...so predictions are meaningless

I feel that you're missing some categories in your Demand section. First, I don't think the people willing to buy at any price represent a large portion of demand. Maybe it's in your wording, but people that need bitcoin regardless of price are still limited by the price. They can only afford $xxx to spend so if the price of bitcoin rises they can exchange that fiat for less bitcoin, therefore their impact on demand goes down (because they can't buy as many bitcoin).

PS: If you want all 21 Million you'll need mine...what are you offering for mine?

Well some people trying the luck witht the halving that will happen,the question is demand and supply doesnt affect bitcoin at the moment,since as you stated around 3600btc coins daily ,but well poloniex one of the biggest exchanges has around 800btc to 5k btc trading daily soo whales present at it .
The demand and supply doesnt work at the bitcoin,the big value and market capitalisation,is too big to this works at the moment,even when the mine ends the demands and supply will keep being impossible ,bitcoin market need more interest and new investors.

I wouldn't call litecoin competing to bitcoin. I would rather look at it as living next to it or being in symbiosis.

Litecoin is great for its cheaper price and faster blocks, while still being secure.

Litecoin has been "competing" with bitcoin for years and no one is using it for any non-speculative purposes. I'm not saying that the existence of bitcoin's price floor is an absolute truth but it will be true for the next 1-2 years, which is what I'm interested in.

The premise that there will always be price-agnostic bidders defies the laws of economics, and there are too many competing cryptos that fulfill the same function as bitcoin for this to be true indefinitely. What you have is a tremendously small sample size (relative to the whole bitcoin market) that you are projecting into an absolute truth.

¸

Trust me, there will also be speculative investments as well. Looking at the whole bitcoin architecture and possibilities , there's just too much money to be made regarding bitcoin,
so people will never abandon it and it will most probably never even return to double digit price. On the other hand, top price could be anything really, from what i can see, the bigger the price overtime,
the stronger infrastructure builds around it.

I think the main thing that I can contribute is the idea that there IS a non-zero floor. Because there will always be price-agnostic bidders who are using bitcoin for non-speculative purpose. There is a floor and it's above zero.

You can't really count on halving to increase the price at that date. I think that price will be tanked way before the actual halving, so that when the days of halving come,
people that expect the rise will be dumped onto by people that bought much earlier and at lower price.

But like i said, there are no rules about this, there's just too many possible scenarios that can happen, but the halving - technical point or not , is definitely a part of the equation.

I think sentiment is all. The halving is a technical detail. It's up to the humans to get excited about it. There may well be some self fulfilling prophecy involved. Ultimately there isn't a realistic supply constriction if demand doesn't grow.

Developmentally, the bitcoin community is eons past the point where it was at the last halving. I would not draw any conclusions based on how it went last time, because there is very little about bitcoin's public presence now that is similar to how it was 3 years ago.

i'm not so sure, take a look at the 2012 halving, the price rosed not only before but after the halving, and on a very generous scale

it's not mathematical that the price increase will occur before or in the same date, it can happen at anytime around the date of the halving

I think there are few other scenarios which I think can also add up to the demand part. For instance, right now we still have about 6-7 months before the halving occurs so what if let's say a service or bitcoin infrastructure (for example money remittance business) were to be developed within this time span that sudden causes demand to explode exponentially, it would change everything. Whether the halving kicks in or even before that happens, anything is still possible.

There are some classes of users you overlooked.

Demand:

New users buying bitcoins at any price.

Supply:

If Joe Schmoe is buying bitcoins at any price for remittance, then someone is also selling an equal amount at any price. In short, there is also a class of users who generally sell them immediately at any price.

Merchants accepting bitcoins are immediately selling them for local currency.
People selling bitcoins at any price because they need the money.
Early adopters selling at any price because they can.

Three comments

1. My conclusions become more useful as we approach the halving. If the price still seems to be scraping along in the lower to mid 200s or lower in Spring 2016, then I'd be excited about the halving. If the price starts rising significantly before the halving ("pre halving hype"), I'd be more likely to sell into the halving or even before it. Here in Oct. 2015, it's too early to judge.

2. Most of the people who will be involved in the next big rally don't even know what a halving is. They don't own any bitcoin right now. If there's a truly large pre-halving hype, it will attract newcomers. If the rally smaller and more incestuous (which we can measure in some ways by looking at trade volume, forum statistics, reddit subscriptions, etc) then I agree that it would be priced in.

3. The elasticity is important because when supply falls and demand is inelastic, price rises in a non-linear fashion. So if the supply of oil drops 10% because of a war, we don't just see a 10% rise in the price of oil. We sometimes see a doubling in the price of oil because of a small change in the supply. So another (hidden) conclusion I have come to is that the halving could actually have a very large effect on the price if pre-halving sentiment is very bad and we are scraping along the bottom. But I'm doubtful that this will happen because the halving has been so hyped.

The most likely outcome, IMO, is that we begin with an incestuous pre-halving hype and start rising in anticipation of the halving.

Interesting write-up based on your observations, but the conclusions aren't particularly meaningful:


As far as the halving goes, it seems more people than not (based on what I've observed on these boards) expect that the halving will result in a rise in price. If this is the case, you should expect the bulk of the effect of the halving to be priced in before the actual halving occurs, not after.

Demand:

1) My experience as a seller on localbitcoins.com tells me that there is a baseline daily demand of bitcoin coming from people who are price-agnostic such as Joe Schmoe who is buying $2000 worth of bitcoin per day for.. something. Maybe remittances. I never ask. But I will tell you that every day he needs $2000 worth of bitcoin no matter what the price is. He doesn't care what the price is. This component of total demand, measured in USD, is inelastic.

2) The second big component of bitcoin's demand is demand from people who are speculating. If bitcoin is in a downtrend and the market is pessimistic this demand can easily dry up to almost nothing. Speculators can take their money and buy some other asset. If everyone is super optimistic about bitcoin, then this demand can skyrocket thousands and thousands of percent and has practically no ceiling. This component of the total demand is extremely elastic.

Supply:

1) There is a fixed supply schedule. Currently, roughly ~3600 coins are created per day in the form of block rewards. Miners choose whether or not to sell part of this, all of this, or none of this. But the maximum amount of new bitcoin that can be put on to the market per day from miners has a ceiling of 3600 coins. If a miner keeps his bitcoin for more than 24 hours or a week after he mines them, he becomes no different from a speculator.  So although there's a fixed supply schedule, this component of the total supply is elastic because miners choose whether or not to put mined coins on the market. They can choose to be speculators.

2) Speculators are the second big component of supply. Most bitcoin lays dormant at any given time and most bitcoin are distributed between a small number of big holders. The amount that can move onto the market on any given day from speculators is absolutely enormous. 15 million coins can be put up for sale tomorrow. (In reality, this never happens. Even during the bubble that would've made Satoshi a billionaire and Roger Ver a quarter-billionaire, we didn't see the dumps. Likely because these holders are too smart to dump all at once and suffer extreme slippage.) In any event, this component of bitcoin's supply is extremely elastic.

In the end, the supply is totally elastic and the demand is partially inelastic. We have two extreme scenarios:

1)  The price is bouncing along the price floor created by price-agnostic Joe Schmoe because sentiment is very low and miners are selling everything they mine. Speculators are heavily shorting and selling. (It's impossible to calculate what the price floor is, but there is some price floor created by inelastic demand from Joe Schmoe.)

2) When sentiment is very high, we have the supply of coins from miners drying and the  supply of coins from speculators also drying. It's hard to get coins at any reasonable price. Speculators borrow heavily to buy.  

The Halving:
The next question is what should happen during a halving? It depends on which situation we are closer to. If we are near the floor created by inelastic demand, we would expect the halving to have a big impact. If most mined bitcoin are being sold, and shorters are as short as they can get, then the supply will drastically be reduced when miners have only half as much coin to sell.

But if the price is high and sentiment is high, then the change in supply might be negligible because the supply of coins from (greedy speculating) miners would already be low. It cannot go negative.

Conclusion:

1. Bitcoin has a floor but practically no ceiling. But it's impossible to calculate where the floor is.
2. The effect of the halving really depends on market sentiment at the time of the halving. It could be large or insignificant.