Topic: Will scarcity ever come into play? (Read 364 times)

Isnt this already a factor, the lack of whole coins available means the price has risen because users is higher then 21 million.   So the bits are the real tradable currency more then the idea of swapping bitcoins, that means we get that higher pricing which maintaining liquidity and free exchange in a fungible way.




I'm just very quickly pulling this from google but we are likely way ahead of basic demand.    What really matters to me is how often are users reusing the Bitcoin blockchain to do their purchases, or value exchange, forex or whatever use they have.    A daily use by millions would be great but its very hard to measure because this is a global market not centered in any one place

Where did I say otherwise?

Speculative value means volatility, but volatility means that high prices are followed by low prices and vice versa (read, you can ride the spread). Whether this value is intrinsic or not is irrelevant here as there is no "intrinsic" value because all value is entirely subjective and marginally subjective at that. If you have 10 apples, adding 1 more apple won't give you a lot more pleasure in eating it, so the "eating" value of 1 additional apple is essentially 0 to you (so-called marginal utility applied to apples and similar fruits). If there is only this value at play (i.e. you can't give the apple to someone else or sell it), then it will be pretty much useless to you in these circumstances


Labor theory of value has been proven wrong right after its emergence. In other words, an abstract piece of bread costs so much only because people are willing to pay for it as much. If they aren't, the producer either lowers the price till people start buying it or stops baking bread at all, selling out the leftovers for pennies or giving them away for free

Speculative value doesn't mean high prices, it means whatever the value is it is speculative since it doesn't have an instinct value. If you buy a bread it has a value because it cost money to make it, if you buy an iphone it has a value just like bitcoin because it costs maybe 20 dollars for apple and its not 25 dollars to sell, hence people value it high enough to give it a high price.

There are some stuff in the world that people think that has a value because of the capital required to make it but most stuff do not have that type of value, most has value because of the "hype" around it. Look at Tesla cars, they definitely cost a lot to make but considering they do many things to drop the price and still sell really really high priced cars we can say that the line you need to wait to get a car and pay now but get the car 3 months later type of deals are the reason why Tesla cars worth this much.

Bitcoin is the same it has a speculative value because we all give importance to it, sometimes we don't care about it and the price drops and that is still speculative value, otherwise if it was because price of the resources dropped and less capital required to create a bitcoin that would be instinct value but since its not like that the rises and falls all come under the speculative value term.

But why do other people value it?

Because it can help them reach their goals. In this respect, even speculative value is technically value which consists in allowing people to earn money (say, the American dollar) via speculation. The problem with it is that it is even less intrinsic than any other value that Bitcoin might have (e.g. transactional utility) as with prices stagnating (which we see now), it won't be very useful for this goal, and thus will start losing its speculative value. Whether it will acquire real value in the process (due to "stable" prices) depends

because other people value it.

money has value via network effect. it's not entirely rational what gets chosen as money. it's just something that organically evolves in society. central banks don't store value in gold because it has some limited industrial uses worth a small fraction of its total capitalization. they store value in gold because other people value it.

other historical forms of money have had zero inherent utility. cowry shells, for example.


if nobody used bitcoin, it would be useful for none of those things. bitcoin has no inherent value or utility.

Exactly.

The question fails to realize that scarcity is always in play. If it weren't scarce (if there were near-infinite supply) bitcoin would be worthless right now. The same coins are not simply traded back and forth at all. The only coins that are traded are the ones that people decide to sell. Scarcity has and always will be in play at all times, this is what leads to bitcoin having a price - supply(scarcity) and demand.

I noticed that too with certain local exchanging services. Every chunk of Bitcoin they had in their reserve was sold in a matter of seconds. Refresh page, 2.5BTC in reserve, refresh again, 0BTC in reserve, and that went on for weeks. It went so far, that one of these services paid like 5% over spot to have people sell coins to them, and they still didn't manage to get people to sell enough coins to them to meet the demand.

It was pure madness, but these hype phases don't last long as we have seen. Current valuations look way healthier and stimulate smart money to enter and accumulate.

to point out something interesting regarding this I have to say that technically "scarcity of bitcoin" which comes from its maximum cap at 21 million is not written or hard coded anywhere. that is yet another beauty of bitcoin that its maximum is determined mathematically not with some limit written somewhere in the code.

Scarcity alone won't suffice

If something is scarce, it doesn't mean that it will have a price tag attached. It should also be useful for something. Really, why would you care about something which is of no help to you? Will you care if it is scarce or not? Bitcoin has a price tag because it is not just scarce but it is also useful at that for a variety of things like a store of value, a means of payment, a device for transferring wealth, and also as a vehicle for speculation (we can't discard such a use)

What makes you think that there's the same number of coins on exchanges? Coins are moving in and out all the time. But even if we agree with your assumption, then you've already got your answer - the price is determined by supply and demand, and if demand is growing, but supply is the same, then the price is rising.

However, you can't just assume that all coins that are out of exchanges can for some reason be ignored. During the last bubble we had a huge transaction backlog near the top of the bubble, which means that a lot of Bitcoin were moved to exchanges in order to sell them.

What do you mean? The controlled scarcity of bitcoin that is hard coded and can't be manipulated is the one of the characteristics that makes bitcoin valuable and a store of value in the long run. Unlike fiat, it can't be manipulated by a single entity.

I think you're misunderstanding the term scarce here. Bitcoin is scarce, which is why there is a price to trade it on exchanges. If it could be obtained infinitely then it wouldn't have a value at all.

So yes, scarcity will and already is in play in determining the value of bitcoin. And in the long run, this scarcity will only increase as demand increases and the disinflationary curve of bitcoin slows down in new currency creations.

That is in fact a double-edged sword

Which also cuts both ways at that. At first, scarcity may actually contribute to giving Bitcoin real value as that's one of the factors required for a currency to be money (even as a purely speculative asset). It kinda goes without saying and is easily understood by everyone and his dog. But then, after a certain point, scarcity becomes a hindrance since it starts to create imbalances and interferes with further expansion and adoption until it actually prevents this expansion and adoption from achieving their true potential determined by the real value of something (in this case, Bitcoin)

it is already in play and will continue to have a bigger impact as we move forward and we get more adoption. the way scarcity comes in is when we talk about supply and demand and when i say "move forward" i am talking about increasing adoption or demand for bitcoin. and since it is capped the price continues rising stronger than if there was no cap.

additionally scarcity or having a cap is a good thing because the monetary supply of bitcoin is clear that way. so it helps with the transparency and with speculating the future of it compared to if there were no cap.

Scarcity is definitely going to play out one day.  It is a well known fact that bitcoin is going to be one day mine all and from there only what we have in circulation will be traded.  That is going to create scarcity and we would have it difficult to buy then and that is going to push bitcoin price upwards.

I think not only because of scarcity but also in terms of demand, the increasing demand will make the value increase.

I was not aware something like that happened since I have never sold my bitcoin for fiat but do not worry those days will come back again and things will get even more outrageous, when the US stopped convertibility of their fiat to gold during the Nixon shock few years later they had to face the oil crisis in which the OPEC raised the prices of oil and in the US some gas stations gave priority to those that had gold and silver to pay and I expect in the future something similar happening with bitcoin.

From Wikipedia

https://en.wikipedia.org/wiki/1973_oil_crisis
https://en.wikipedia.org/wiki/Nixon_shock

Don't know if anyone remembers but actually in Nov-Dec 2017 there was a shortage of bitcoins to sell and a particular exchange and several Bitcoin ATMs had to halt any sales.

I think it was some India type of Bitcoin exchange and they had to halt their trading temporarily because there wasn't enough supply to fill any orders.

Same with Bitcoin ATMs, many didn't have any BTC left to sell so they either marked up the premium or just temporarily disasbled selling. If you were lucky and wanted to actually Sell BTC for cash, they even waived the fees and you could cash out for free.

Those were the days...

if it were the same number of coins changing hands then the price would have never gone up or down! it is the change in supply and demand that is causing the rises and falls. for example in 2017 when there was a surge of adoption (aka demand) there were more buyers than sellers which meant price went up from around $800 to the moon.

it is not about "shortage" it is about being deflationary. which basically means we won't see unlimited amount of money (ie. BTC) printed out of control!

The answer is of course. As demand increases, those coins being batted back and forth get bought and held, and the ones doing the batting back and forth slow their asses down - price goes up.
That was the easy question of the day. Wtf did you think happened Dec 2017?!

Scarcity is always into play, but the strength of such factor is not strong at the moment since the demand is low, if at some point in the future our predictions about bitcoin becoming adopted by an important amount of the world population becomes true you will see scarcity being the dominant factor when it comes to determine the price of bitcoin since the amount of bitcoin being created is going down with each halving while the demand goes up.

Exactly. Supply (new coins deposited) or demand (fiat taking coins off the ask side) is always affecting price discovery. The OP is coming at this like exchanges exist in some alternative universe where bots are just trading in a zero sum game. He's not accounting for actual buying demand or selling pressure that enters and exits the exchange via fiat and BTC.

Scarcity of coins has already resulted in multiple bubbles. When OTC buyers can't source coins off-exchange, what do they do? They start buying up coins on exchanges and driving prices up.....

Scarcity can only really come about now as coins get lost for one reason or another. Or if there's a big uptick in demand. I think that mostly scarcity will never be an issue because of the fact that 1 bitcoin can be broken down in to so many Satoshi. And I'm also fairly sure that if need be a satoshi could even be broken down.

Now the second one really made me scratch my head...

Going for the first keeping away the isolation factor.
It doesn't matter how many times those 5000 coins are being traded, what matters is how many people are willing to trade and how much money they have.

If there are 5000 people and everyone wants to buy 2BTC there will be demands for 10 000 and scarcity will play its role.
If there are just 10 guys and all they do it actively trading for cents, with cents, then there will be no scarcity and there will be no active markets, the price will stagnate....deja vu.

Now for your second scenario, this is not possible, and will never be.

Exchanges are not entirely separated from the world and if everybody would stop sending coins to an exchange there is only one way out of this, people will slowly come, buy whatever is left and in the end demands will be so large that the price will go up and of course at this point coins will fly back to be sold.

As for the trading bots will realize this when they run out of money since their algorithms are most likely never built for such situations, and the fall of mt gox when bots were still trading there while everyone was putting pop-corn int he microwave is proof enough.

It is not quite clear what you are asking here. Basically, it all comes down to the balance of supply and demand, though many people don't really understand how it works in practice. Technically, there is no such thing as shortage of coins because supply is always balanced out by demand at a certain price (and vice versa). When the price goes up and ask orders get eaten, demand and supply are rebalanced instantly, so you can't even say there is a shortage of coins. If there were (let's assume that for a moment as a mind experiment), the price would be infinite with the ask side of the order book empty

That would count as a shortage

Eventually, right now there are not that many people that want to buy bitcoin that overshadows the sellers. Last year for example price went up to 20 thousand dollars not because bitcoin got more valuable but because there was too many new people who wanted to buy bitcoin and there wasn't that many sellers that can cover it so the price went higher and higher. That was the reason why bitcoin reached 20 thousand dollars.

Same could happen at any given time, if people want to buy bitcoin too much and there are billions of dollars ready to buy bitcoin whereas there are maybe a billion at most that is ready to sell eventually people will start to offer more for each bitcoin increasing the price. That is how the economy of bitcoin works, scarcity is always a thing in the play, only can be felt during bull runs tough.

Okay, but less infaltion = bigger scarcity, so when on the market there is the same amount of sellers and buyers plus there is bigger scarcity than normal is that it has got infulence to the price. Also, I can agree that scarcity is a factor but in trading/investing/speculating there is more to analyze them.

I guess I am explaining it wrong. There are x number of coins on an exchange right now. If everyone outside of that exchange held on to their coins the only trading that would be going on would be the existing coins back and forth between the bots right and that would be how the price is discovered. meanwhile outside of the exchange a coin cannot be bought because no one is selling. how would the trading bots/traders realize this is happening if say only 10 people buy $100 worth of bitcoin each day not showing the true scarcity outside of the exchange?

i don't get it. why would you ever conclude the same 5000 coins are being traded back and forth? haven't you ever deposited or withdrawn from an exchange? placed an order, market bought/sold? if so, you are literal proof that supply and demand on the exchanges is not static. every one of us can affect price discovery on these exchanges---assuming you have some coins or fiat, anyway.

Scarcity come into play every 4 years when mining halve. We had 25 btc in a block now we have 12.5 and soon we will have 6.25.  Bitcoins yearly emission inflation is right now 3.83%. It will halve in less then 2 years. That will pt it just a bit over Gold mining yearly inflation. Scarcity is here. It just get visible every 4 years and forces bull run.

The same number of coins are not just being traded back and forth. If you're a trader, you can prove this anecdotally by removing your asks from the order book and withdrawing your coins from an exchange: this effectively lowers supply. When someone deposits USD to Bitstamp and then buys BTC and withdraws to their own wallet, it's lowering available supply.

As long as people can freely deposit and withdraw fiat and BTC from an exchange, price discovery should be legitimate.

If the demand increases the price will keep increasing so it causes the less supply of bitcoin so there will be no scarcity of it ever.The bitcoin can be diversified into many digits as we want to any traders can send it to exchanges with many digits included into bitcoin.

With millions of supply??, No.

I think it's pretty easy to wind up going bonkers pondering such things. They're unknowable. And that works in the opposite direction too. You don't know who's buying and who's selling. It's not credible to think there's nothing but the same money batting back and forth. There'll be people buying or selling once and never coming back again.

You may also decide scarcity has arrived just as Grayscale decides to sell their 200,000 BTC at the same time as the Winklevii sell their 100,000.

Within a few more halvings if you want more than a fraction of a coin you're going to have to buy an existing one from someone. Mining is still an abundant source for coin buyers. That's going to dwindle to negligible levels. The effective end of inflation and the start of deflation is more arousing concept than scarcity.

The thing is how would anyone know if there ever was a shortage if coins seeing that price is derived by only the coins being traded back and forth on an exchange? If the same 5000 coins are traded back and forth to determine price, scarcity will never be taken into account right? Because all that matters are the coins on the exchanges being traded.

No. With every halving the people should become less eager to sell cheap. It's a result of scarcity.
Of course, there's also about supply and demand. Scarcity alone doesn't help much if there are no buyers.
So it's a cat and mouse game, where scarcity is a factor, but it's one of many.

Bitcoin has a limited supply which is capped at 21 million coins and majority of that has already been mined out.
As demand and adoption grows against a slow moving and finite supply, it is likely to have a positive effect on the price.

Demand and supply will continue to spin in the market, and when demand decreases, crypto value will decrease. I don't think there will be a shortage of coins, but there is a decline and an increase in value.

There is not enough demand for there to be a shortage.

Or will it be a nonfactor because price is determined on the main exchanges which have a finite number of coins exchanging hands.
What i am getting at is the traders on bitstamp never have to acknowledge a shortage because the same number of coins are just being traded back and forth.
Or do you think that if somehow there is a shortage and it is acknowledged, wpuld there always be a shortage then going forward?
Thoughts?