Topic: Prices Cannot Stabilize - page 4. (Read 7618 times)

I read an assumption of price or market size staying at exponential growth.

Read the above sentence a few times, remember what an exponential is, and it will be obvious that evoorhees is correct. He even put in a reasonable time-scale: "over years and decades".

Of course it won't be stable tomorrow. But the market learns at the speed the volatility happens, and exponential growth cannot last forever, so there is no problem after enough time has passed.

Unstable price will attract speculators, and today almost everything is to be speculated, bitcoin will be the best candidate for speculation, due to its limited supply nature

I'm not economically confused. Bitcoin is a virtual commodity that happens to have properties that allow for easy exchange. Like any commodity, or any other good/service on the market for that matter, an increase in demand leads to an increase in prices, leading to an increase in production/supply, which decreases prices to balance them out.

Normally on the market, this process yields stable prices (technically, it leads to decreasing prices due to greater efficiency of capital with time, but Bitcoin supply increases the same amount regardless of capital so capital efficiency cannot improve for Bitcoin). As a result, I theorize that Bitcoin price increases exponentially the more demand exceeds supply, and decreases exponentially the more supply exceeds demand. This off-the-top-of-my-head theory was concocted by reasoning that moving up/down on a demand curve exponentially increases the area between it and its corresponding supply curve. Given the relatively small user base we have, demand is going to be finite over a small period of time. So once demand decreases beyond the equilibrium point, boom turns to bust and we have an exponentially decreasing price even with just a linear increase in sellers. I predict that with an increase in user base, the boom/bust cycles will take longer and be larger but still occur.

Now my theory and prediction could be complete nonsense, but the bit about prices being unstable (without trying to quantify) should be accurate.

+1.
Evoorhees: Thank you for answering all the economics-challenged people out there when they post threads like this.  Nobody else bothers, but you are providing a very important service to this forum and the Bitcoin community.  

(Also, note that I am not ridiculing people who are confused about economics, just saying that someone has to answer them when yet another thread like this gets posted)

You're completely incorrect. Prices cannot do anything BUT stabilize in the long-run.

Now, in a Bitcoin world we may see the price for a coin change every day, but that change will asymptotically shrink over years and decades.

What's important in a currency is that changes in money supply are A) minimal, B) predictable, C)not arbitrarily decided by specific actors. Bitcoin satisfies these requirements - and in fact Bitcoin offers the most predictable money supply ever created in any form of money.

Meh supply growth is predictable and now less than 0.1% per day. 

Swings in price as much as 40% daily can't be explained by 0.1% supply growth. 

Gold supply continues to grow roughly 3% per year.  While gold has volatility we don't see it $1800 one day and $720 the next.

The supply of coins grows at the same rate regardless of demand. Stability requires a flexible supply increase to correspond with demand increase. This limitation will be an impediment to the growth of Bitcoin commerce.