Elasticity and inelasticity of bitcoin's supply and demand

[cutesakura]

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

[jaysabi]

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.

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.

[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.

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.

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.

[jaysabi]

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.

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.

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.

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.

[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.

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.

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.

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.

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.

[pitham1]

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.

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.

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.

[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.

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).

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.

[DiamondCardz]

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.

[cutesakura]

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.

[RyanX]

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.

The money supply of bitcoin is limited. So the price in bitcoin will be lower in long term.

[DiamondCardz]

The money supply of bitcoin is limited. So the price in bitcoin will be lower in long term.

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.

[odolvlobo]

The money supply of bitcoin is limited. So the price [of a dollar] in bitcoin will be lower in long term.

I had to read his statement twice.

[pereira4]

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.

[bitmarket.net]

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.

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.

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.

[RyanX]

The money supply of bitcoin is limited. So the price in bitcoin will be lower in long term.

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.

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.

[BantamSystems]

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

[odolvlobo]

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

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.

[Amph]

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

[avw1982]

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 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.

[Altynbekova]

The money supply of bitcoin is limited. So the price in bitcoin will be lower in long term.

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.

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.

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.