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Author Topic: Elasticity and inelasticity of bitcoin's supply and demand  (Read 4500 times)
gkv9
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December 22, 2015, 01:37:19 PM
 #61

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.

Absolutely, but it's not just limited to the limitations of Bitcoins, but people having continuous interest in this very cool currency, completely different cryptographic movement in order to get it going, instead if there ain't any interest and ain't any buyers, it will be just another "ALTCOIN-TYPE-DYING" currency, and that's the truth that we need to keep eyes on...
If you are talking positives, you should also know the negatives of the same... Wink

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December 24, 2015, 07:46:00 AM
 #62

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.


This is more like a systematic investment plan for stocks.
This kind of demand (price insensitive) provides support for the overall market cap of bitcoin.

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June 17, 2018, 08:46:00 PM
 #63

We are feeling the demand of cryptocurrency and bitcoin is increasing because there are a lot of peoples are using bitcoin as a payment processor and also great benefits of increasing the price and increasing the demand in the crypto world,

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June 17, 2018, 09:09:51 PM
 #64

This elasticity and inelasticity of bitcoin supply and demand are the main cause why is the volatility price value of bitcoin is changing always in the coin market index , this factors causes really the changes of value price of bitcoin.

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Dmitry.Vastov
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June 26, 2018, 08:40:59 AM
 #65

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.
Bitcoin is very volatile crypto currency and its valuation keep on flactuation and like I use to say in my earlier posts also that the flactuation in valuation is governed by many factors like market circulation of bitcoin like if there is shortage of bitcoin in the market then the demand increases and the valuation inflates and vice versa. Second factor is amount of capital investors invest into bitcoin and yes this elastic and in elastic nature of valuation makes it volatile.
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