[2015-10-07] Why I think the Bitcoin price will skyrocket very soon

[LiteCoinGuy]

Why I think the Bitcoin price will skyrocket very soon

July 2016 might be Bitcoin’s biggest month since the currency was created in 2008. The next halving of newly-mined Bitcoin is going to happen soon, causing the supply of newly created Bitcoin to drop by 50%. This is one of Bitcoins most loved and honored principles since it is responsible for the maximum of 21m Bitcoins in total. Therefore, this halving makes Bitcoin a deflationary currency which is also what made it so different to all the other currencies back then.

http://about.bitwa.la/this-is-why-i-think-the-bitcoin-price-will-skyrock-very-soon/

[odolvlobo]

I didn't want to bother logging in to comment, so I will do it here.

The author makes the same mistake that so many others make: the belief that the halving decreases the supply of bitcoins. Then he makes the mistake of comparing bitcoins to consumable commodities like oil and wheat.

First, the supply (as in money supply) of bitcoins is increasing. After the halving, the supply of bitcoins will continue to increase. The supply of bitcoins does not decrease.

Second, unlike oil and wheat, the supply of "new" bitcoins is not important because, unlike oil and wheat, bitcoins are not consumed. All bitcoins are available as supply, not just the new ones.

Here is what actually happens:

The increasing money supply of bitcoins creates a constantly increasing market supply of bitcoins. More precisely, the supply curve shifts to the right as the money supply increases. After the halving, the supply curve will continue to shift to the right, albeit at a slower rate. Shifting the supply curve to the right causes the equilibrium price to fall (assuming that the demand curve is constant).

In order to maintain a constant price in the face of increasing supply, the demand must rise (or more precisely, the demand curve must shift to the right) at the same rate as the supply curve. Otherwise, the price will rise if demand increases more quickly than supply, or the price will fall if demand increases more slowly than supply.

Next, we see the price go up and down despite the constant increase in supply. That means that the demand is constantly changing. We know that the demand does not rise at a constant rate, so it is naive to assume that a slower increase in supply will cause a rise (dramatic or not) in price because it assumes that the demand continues to rise at a constant rate.

Finally, it is really much more complicated than that. Not only do the supply and demand curves shift, but their slopes change due to things like propensity to save, the velocity of money, and other significant factors, including the price itself. The whole system is very complicated, chaotic, and difficult to predict. It is ridiculous to assume that the halving will cause a dramatic rise in price. It is much more reasonable to assume that the halving will put less downward pressure on the price.

[TheGr33k]

I didn't want to bother logging in to comment, so I will do it here.

The author makes the same mistake that so many others make: the belief that the halving decreases the supply of bitcoins. Then he makes the mistake of comparing bitcoins to consumable commodities like oil and wheat.

First, the supply (as in money supply) of bitcoins is increasing. After the halving, the supply of bitcoins will continue to increase. The supply of bitcoins does not decrease.

Second, unlike oil and wheat, the supply of "new" bitcoins is not important because, unlike oil and wheat, bitcoins are not consumed. All bitcoins are available as supply, not just the new ones.

Here is what actually happens:

The increasing money supply of bitcoins creates a constantly increasing market supply of bitcoins. More precisely, the supply curve to shifts to the right as the money supply increases. After the halving, the supply curve will continue to shift to the right, albeit at a slower rate. Shifting the supply curve to the right causes the equilibrium price to fall (assuming that the demand curve is constant).

In order to maintain a constant price in the face of increasing supply, the demand must rise (or more precisely, the demand curve must shift to the right) at the same rate as the supply curve. Otherwise, the price will rise if demand increases more quickly than supply, and the price will fall if demand increases more slowly than supply.

Next, we see the price go up and down despite the constant increase in supply. That means that the demand is constantly changing. We know that the demand does not rise at a constant rate, so it is naive to assume that a slower increase in supply will cause a rise (dramatic or not) in price because it assumes that the demand continues to rise at a constant rate.

Finally, it is really much more complicated than that. Not only do the supply and demand curves shift, but their slopes change due to things like propensity to save, the velocity of money, and other significant factors, including the price itself. The whole system is very complicated, chaotic, and difficult to predict. It is ridiculous to assume that the halving will cause a dramatic rise in price. It is much more reasonable to assume that the halving will put less downward pressure on the price.

This was the most properly informed post I have seen all day, thank you for clarifying this for my knowledge as well as many others. Had a few questions get answered just by reading your post, and I agree with the tl;dr halving will put less downward pressure on the price

[Kakmakr]

Do we currently assume that most of the coins being mined are sold immediately to cover the cost to mine it? If that is true, and the hash rate stay at the same levels and the block reward is lower, more miners will have to sell to cover their cost.

So assuming the price of Bitcoin does not rise enough to cover the difference, more Bitcoins will have to be sold to cover the cost of mining. If we also assume, miners only sold a small percentage of their mined coins to cover their cost.

This will then in theory cancel the greater demand, because a larger percentage of the mined coins will have to be sold to cover the mining cost?   

[NorrisK]

I didn't want to bother logging in to comment, so I will do it here.

The author makes the same mistake that so many others make: the belief that the halving decreases the supply of bitcoins. Then he makes the mistake of comparing bitcoins to consumable commodities like oil and wheat.

First, the supply (as in money supply) of bitcoins is increasing. After the halving, the supply of bitcoins will continue to increase. The supply of bitcoins does not decrease.

Second, unlike oil and wheat, the supply of "new" bitcoins is not important because, unlike oil and wheat, bitcoins are not consumed. All bitcoins are available as supply, not just the new ones.

Here is what actually happens:

The increasing money supply of bitcoins creates a constantly increasing market supply of bitcoins. More precisely, the supply curve to shifts to the right as the money supply increases. After the halving, the supply curve will continue to shift to the right, albeit at a slower rate. Shifting the supply curve to the right causes the equilibrium price to fall (assuming that the demand curve is constant).

In order to maintain a constant price in the face of increasing supply, the demand must rise (or more precisely, the demand curve must shift to the right) at the same rate as the supply curve. Otherwise, the price will rise if demand increases more quickly than supply, and the price will fall if demand increases more slowly than supply.

Next, we see the price go up and down despite the constant increase in supply. That means that the demand is constantly changing. We know that the demand does not rise at a constant rate, so it is naive to assume that a slower increase in supply will cause a rise (dramatic or not) in price because it assumes that the demand continues to rise at a constant rate.

Finally, it is really much more complicated than that. Not only do the supply and demand curves shift, but their slopes change due to things like propensity to save, the velocity of money, and other significant factors, including the price itself. The whole system is very complicated, chaotic, and difficult to predict. It is ridiculous to assume that the halving will cause a dramatic rise in price. It is much more reasonable to assume that the halving will put less downward pressure on the price.

This was the most properly informed post I have seen all day, thank you for clarifying this for my knowledge as well as many others. Had a few questions get answered just by reading your post, and I agree with the tl;dr halving will put less downward pressure on the price

The part about the halving putting less downward pressure on the price is potentially true, but only if the miners are actually selling their coins. If they are holding as an investment, eg. taking the electricity bill as investment costs, it might have very little effect on the downward pressure.

I don't expect a big price rise from the halving itself, maybe the hype before or just organic growth untill then.

[Quantus]

Its my understanding miners don't want to deal with the volatility of bitcoin because they all reinvest every few months to stay ahead of the pack.
Any miner who dose not reinvest is quickly left behind.
What they do is buy the best hardware, mine for a few months and then buy new hardware so they can sell the old before its lost to much value.
They can't reliably do this if they hold Bitcoins as a investment. They sell the majority of the bitcoins as soon as they get them. 

[Slark]

tl'dr version:

This is not the first bitcoin halvin in history, there was one before. After halving in 2012 bitcoin price did not rise AT ALL.  In fact it went down a little.
Why do you think that history will be different this time and price will skyrocket? There is no historical confirmation.