Elasticity and inelasticity of bitcoin's supply and demand

[odolvlobo]

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

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.

[Amph]

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

[johnyj]

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

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.

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

[jaysabi]

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

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.

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.

[jaysabi]

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

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.

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

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.

[odolvlobo]

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

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.

This is not true. The "market" is whatever is trading on the exchanges.

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.

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

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.

If I have 100 bitcoin and someone offered me $100 million for 100 coins, I would maximum sell 5 bitcoin ...

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.

[odolvlobo]

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.

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.

[RyanX]

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

[odolvlobo]

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

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

[johnyj]

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.

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

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.

If I have 100 bitcoin and someone offered me $100 million for 100 coins, I would maximum sell 5 bitcoin ...

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.

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

[Betwrong]

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.

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.

[knowhow]

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.

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

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.

If I have 100 bitcoin and someone offered me $100 million for 100 coins, I would maximum sell 5 bitcoin ...

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.

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

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.

[johnyj]

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.

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

[knowhow]

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.

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

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.

[MasterYii]

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.

So far the bitcoin's demand is getting higher as well as its value.
There will be a lot of coins be produced soon.

[Miss Fortune]

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.

Its not stable as well as our economic is not stable, every time it changes it depends on the season.

[AtheistAKASaneBrain]

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

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.

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.

[bitmarket.net]

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.

[RyanX]

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.

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).

[knowhow]

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 .