Halving Bitcoin Reward Unlikely to Cause Price Surge

[Wendigo]

Okay so everything boils down to supply and demand in the end I think. If the block reward is cut in half but Bitcoin will have finite amount of coins at 21 million in 2140, will this slowing down of coin release make the price go up? So if we assume that, theoretically, not everyone is selling their coins owned before the halving and holding for a couple of years to see where the price is going to end up, this means we will have fewer coins on the market so if there are 'new' buyers looking to buy Bitcoin they will create a bigger demand, no? I am not saying the coins in cold storage will not enter the market at some point but they won't be used in circulation for a while.

[1714671035]

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[1714671035]

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[Divinespark]

I saw a twwet by Vinny Lingham of Gyft fame yesterday, he reckons there will be a huge short squeeze when halving kicks in. Not so sure about that, but we will see.

[Boosterious]

I saw a twwet by Vinny Lingham of Gyft fame yesterday, he reckons there will be a huge short squeeze when halving kicks in. Not so sure about that, but we will see.

i dont know who is Vinny Lingham,and maybe not just who dont know about him and his company,i want to believe what he say,but i can't because i dont know who really he is,and yes we should wait until halving to make sure that.

[Razick]

Quote from: Quickseller on May 01, 2016, 08:47:33 PM
,,,
Supply of new coins is going to go down.
Supply of new coins? Because people don't care for used ones, they only like to buy new ones?
My understanding is that bitcoins are fungible. I'm not even seeing an option to bid on fresh bitcoins, instead of those worn-out ones that are probably on their last legs and missing bits Sad

I think the assumption is that miners sell the majority of the coins they mine. Since most existing Bitcoins are not on the market at current prices, a reduction, by one-half, of the new coins being mined could change the supply/demand dynamic.

Basically, a large amount of sellers are content to hold their coins until prices are higher. This supply (which is elastic, or price sensitive) will increase as price goes up. Mined coins, however, are inelastic (or price insensitive) because the same amount of coins are mined regardless of price. The supply of these coins can only be altered by miners changing the percent of their coins that they sell versus what they hold.



So the blue line will remain the same post halving, but the green line should be replaced by the yellow line. The aggregate of these two lines represents total supply. Total supply will drop as long as expectations don't change. The point where supply and demand meet determines the price, so a drop in supply, along with constant demand, results in an increase in price.

So in other words, the price will have to go up unless people's expectations (or their income) change on either the supply or demand side. So if we're irrationally exuberant right now, after the halving people might change their minds and the price might drop, or, they might go crazy and create a bubble.

Either way, the underlying effect of a halving does support some increase in price. We just don't know how much.

[odolvlobo]

I think the assumption is that miners sell the majority of the coins they mine. Since most existing Bitcoins are not on the market at current prices, a reduction, by one-half, of the new coins being mined could change the supply/demand dynamic.

Basically, a large amount of sellers are content to hold their coins until prices are higher. This supply (which is elastic, or price sensitive) will increase as price goes up. Mined coins, however, are inelastic (or price insensitive) because the same amount of coins are mined regardless of price. The supply of these coins can only be altered by miners changing the percent of their coins that they sell versus what they hold.

So the blue line will remain the same post halving, but the green line should be replaced by the yellow line. The aggregate of these two lines represents total supply. Total supply will drop as long as expectations don't change. The point where supply and demand meet determines the price, so a drop in supply, along with constant demand, results in an increase in price.

So in other words, the price will have to go up unless people's expectations (or their income) change on either the supply or demand side. So if we're irrationally exuberant right now, after the halving people might change their minds and the price might drop, or, they might go crazy and create a bubble.

Either way, the underlying effect of a halving does support some increase in price. We just don't know how much.

Convince me that you are not confusing (or equating) supply with production. I assume that you understand that the supply curve shifts to the right with every block.

[Razick]

I think the assumption is that miners sell the majority of the coins they mine. Since most existing Bitcoins are not on the market at current prices, a reduction, by one-half, of the new coins being mined could change the supply/demand dynamic.

Basically, a large amount of sellers are content to hold their coins until prices are higher. This supply (which is elastic, or price sensitive) will increase as price goes up. Mined coins, however, are inelastic (or price insensitive) because the same amount of coins are mined regardless of price. The supply of these coins can only be altered by miners changing the percent of their coins that they sell versus what they hold.

So the blue line will remain the same post halving, but the green line should be replaced by the yellow line. The aggregate of these two lines represents total supply. Total supply will drop as long as expectations don't change. The point where supply and demand meet determines the price, so a drop in supply, along with constant demand, results in an increase in price.

So in other words, the price will have to go up unless people's expectations (or their income) change on either the supply or demand side. So if we're irrationally exuberant right now, after the halving people might change their minds and the price might drop, or, they might go crazy and create a bubble.

Either way, the underlying effect of a halving does support some increase in price. We just don't know how much.

Convince me that you are not confusing (or equating) supply with production. I assume that you understand that the supply curve shifts to the right with every block.

Supply does not represent the total quantity in existence, but rather, the quantity that sellers in the market are willing and able to provide during a given time.

Also, note that I differentiate between the supply resulting from existing coins and the supply resulting from new coins. The supply curve resulting from the willingness to sell existing coins depends on many factors, of which number of coins in existence is only one. So while you are correct that the blue supply curve, cetaris paribus, will shift very slightly to the right each time a block is mined, but I don't think cetaris paribus is a necessarily a realistic assumption in this case and even if it does prove true, the impact is very slight.

As for the green and yellow curves, they absolutely do not shift every block. That's like saying the supply curve for baked goods shifts to the right every time Shipley's makes a donut. The supply is currently 50 coins per (approx.) 10 minutes minus whatever miners decide to hold. In several months, this curve will shift to the left by about 50%.

[BitconAssociation]

http://s32.postimg.org/5ccb3r785/market_plane_bitcoin.png

The chart, with demand falling as the price increases, may fit certain commodities that you buy *with* money, but makes no sense when applied to MONEY you buy with money.

Let's say you're buying USD with GBP. The price of USD (its buying power) gets halved, so now you can afford to buy twice as many dollars with your GBP. Does this make you want to buy USD more?

[Razick]

The chart, with demand falling as the price increases, may fit certain commodities that you buy *with* money, but makes no sense when applied to MONEY you buy with money.

Let's say you're buying USD with GBP. The price of USD (its buying power) gets halved, so now you can afford to buy twice as many dollars with your GBP. Does this make you want to buy USD more?

That is a fair point, but not exactly relevant to my argument. Let's say demand is 100% inelastic, which is not likely. In that case, the demand curve is a vertical line, but the price will still vary depending on where the supply curve intersects it:

[The Sceptical Chymist]

The fact that the miners are paid less while you need more is what make them sell their bitcoins at an higher price and thus lead to a price rise.

That's not how it works. Sellers (including miners) are free to ask for higher prices, but if buyers won't pay those prices (typically because others ask for less), then prices don't rise.

Doesn't happen that way in metal mining either.  People here have such a crappy grasp of basic economics.  And that's why the halving isn't going to do what they expect.

[BitconAssociation]

^^You misunderstood me. The supply/demand chart simply doesn't apply when you're buying money with money. The more a dollar is worth, the more you want it.
Let's say there's an imaginary coin called Bitcoin. See fig. 1 below.

http://pre05.deviantart.net/cb2d/th/pre/i/2013/076/5/7/ten_bit_coin___royal_equestrian_mint_by_tidalkraken-d5ydcl1.jpg

                                                     Fig. 1

1. Let's further say that there's a queen, we'll call her Satolestia, who is totally trustworthy and buys and sells those coins for exactly 1 US dollar. She promises to buy all the coins we have to sell, forever, and we trust her, because she's a queen and also an imaginary one, the kind that doesn't lie.
If we're bored enough, we'd buy and sell those coins from/to Satolestia day in and day out.  Pretty pointless, but hey...

2. ...until Satolestia changes the terms: she starts charging a penny more, but still pays a dollar when we sell her a coin.
Wat do?
Obviously, the dumb thing to do would be to keep buying, and losing a penny a coin. But we're in it for PROFIT, so we stop buying altogether. Not just some of us, not slow down our buying, but both of us. Stop buying. Because buying shit for $1.01 and selling it for a penny less is an excellent way to go broke.
Which we don't wanna do.

3. Conversely, if Satolestia starts charging us 99 cents per coin, while still paying a dollar, we'd be on that shit like white on rice -- we'd go into a frenzy, buying a coin and selling it right back to Satolestia at a profit, rinse, repeat, until we're satiated.

You see where I'm going with this?
It doesn't matter to us how many dollars or how many Bit coins there are, the only thing we need is the price, and knowing what someone will pay for our coin. This is an imaginary thing, we know exactly what Satolestia will pay (because she told us & does not lie), so the problem is trivial: If Bitcoin price is < a dollar, buy; If => dollar, don't.

The fun part -- and what makes purely speculative assets fun, is that there is no Satolestia. We have to guess what people will be willing to pay. We might convince them that our Bit coins are worth more than a dollar because there's a limited number, but you and I know that's just a pitch, a nice backstory, a coldblooded thing to say to a motherfucker before you put a cap in his ass.

Other than "too many words," do you see what I'm saying?

[Razick]

^^You misunderstood me. The supply/demand chart simply doesn't apply when you're buying money with money. The more a dollar is worth, the more you want it.
Let's say there's an imaginary coin called Bitcoin. See fig. 1 below.



                                                     Fig. 1

1. Let's further say that there's a queen, we'll call her Satolestia, who is totally trustworthy and buys and sells those coins for exactly 1 US dollar. She promises to buy all the coins we have to sell, forever, and we trust her, because she's a queen and also an imaginary one, the kind that doesn't lie.
If we're bored enough, we'd buy and sell those coins from/to Satolestia day in and day out.  Pretty pointless, but hey...

2. ...until Satolestia changes the terms: she starts charging a penny more, but still pays a dollar when we sell her a coin.
Wat do?
Obviously, the dumb thing to do would be to keep buying, and losing a penny a coin. But we're in it for PROFIT, so we stop buying altogether. Not just some of us, not slow down our buying, but both of us. Stop buying. Because buying shit for $1.01 and selling it for a penny less is an excellent way to go broke.
Which we don't wanna do.

3. Conversely, if Satolestia starts charging us 99 cents per coin, while still paying a dollar, we'd be on that shit like white on rice -- we'd go into a frenzy, buying a coin and selling it right back to Satolestia at a profit, rinse, repeat, until we're satiated.

You see where I'm going with this?
It doesn't matter to us how many dollars or how many Bit coins there are, the only thing we need is the price, and knowing what someone will pay for our coin. This is an imaginary thing, we know exactly what Satolestia will pay (because she told us & does not lie), so the problem is trivial: If Bitcoin price is < a dollar, buy; If => dollar, don't.

The fun part -- and what makes purely speculative assets fun, is that there is no Satolestia. We have to guess what people will be willing to pay. We might convince them that our Bit coins are worth more than a dollar because there's a limited number, but you and I know that's just a pitch, a nice backstory, a coldblooded thing to say to a motherfucker before you put a cap in his ass.

Other than "too many words," do you see what I'm saying?

I agree with you in principle *general,* but there is still a supply and demand curve. Here's why:

We have to guess what people will be willing to pay.

BUT, we are aware that our guesses are not perfect. So consider my portfolio: I am a young college student and therefore have a small income and few assets. I do like to invest though, especially since, at my age, I have a huge potential to benefit from compounding by the time I retire.

Now, Bitcoin has the highest possible upside of ANYTHING I invest in. My stocks may return as much as 100% in a really good year, but there is a chance that Bitcoin could return as much as 2,000% if it has a really good year. My bonds, savings account, and p2p lending investments don't even come close.

Let's assume that I'm a rational person. What should I do? Well, I could invest everything in Bitcoin because it has the highest potential return, but that would be risky. Let's say I believe there is a 10% chance of a really spectacular return, a 50% chance of a good return, a 35% chance of losses, and a 5% chance Bitcoin becomes worthless. It has positive expected value but also high risk.

So, I should invest SOME but not all of my portfolio in Bitcoin, which is what I have done. So let's say I want to invest 10% of my portfolio in Bitcoin and I have $10,000 to invest (just making up numbers here).

I'd invest $1,000 regardless of price.

I'd invest the following:

   1,000 BTC if they cost $1.
   100 BTC if they cost $10.
   10 BTC if they cost $100.
   1 BTC if they cost $1000.

Meaning this is my demand curve:



Now of course this is just my personal demand curve, and it also changes based on my personal expectations of future returns. That said, there will still be some kind of curve for every participant in the market. For some people it will be vertical, for some people it might be highly elastic, but there will be a curve for the market.

Also, remember the willing and able part. I might think that Bitcoin is an excellent value at $100 per coin and be willing to buy nearly infinite BTC. However, If I only have $1,000, I can buy only 10 BTC. At $10 per coin, I can buy 100. Once again, that creates a downward sloping demand curve.

On the supply side, I suspect there is an explanation of why there would be a curve (for example, the opportunity cost of holding Bitcoin: USD is more widely accepted. At higher prices, you get more goods per Bitcoin by selling) but the point of my diagram was not to provide an exact picture of the market. Let's assume you are correct and there is no supply curve but rather a supply "point" (or vertical line).

[NB: Once again, the assumption is that not all owners of Bitcoin are willing to sell at the current price (I think exchange volumes prove this (and also suggest the existence of a supply curve) and that miners sell most of what they mine.]

The point moves around unpredictably based on all the different factors that control whether or not participants in the market (on aggregate) are inclined to buy, sell or hold at a given price. One factor though, block reward, is KNOWN to be positively correlated with supply. So a decrease in the block reward will, as one of many factors, tend to reduce supply.



So cetaris paribus, the block halving reduces supply. Reduced supply with results in higher prices as long as the demand curve does not change. The demand curve could change, but probably not as a result of the halving.

I'm not trying to argue that we *will* see a spike in price, rather, that the effect of a block reward halving is one of many factors that could contribute to higher prices. It's possible that expectations have overbid prices now and that, as a result, they'll actually fall. But, over the long term, prices should average higher with a reward of 25 than they would have with a block reward of 50.

[Razick]

Okay so everything boils down to supply and demand in the end I think. If the block reward is cut in half but Bitcoin will have finite amount of coins at 21 million in 2140, will this slowing down of coin release make the price go up? So if we assume that, theoretically, not everyone is selling their coins owned before the halving and holding for a couple of years to see where the price is going to end up, this means we will have fewer coins on the market so if there are 'new' buyers looking to buy Bitcoin they will create a bigger demand, no? I am not saying the coins in cold storage will not enter the market at some point but they won't be used in circulation for a while.

Sums it up nicely.

[enhu]

Will bitcoins ever sell for $1,000 USD or more again? Possibly, but it's not likely to happen as a reaction to halving. The supply of bitcoins in circulation is not changing, and if miners jump ship that is a strike against bitcoins not something that would warrant a price increase.

The only thing that halving the reward to btc miners will do is make mining half as appealing. In fact, if you think about it, it's not a very good system because the more people using bitcoin, the more you need miners...but the miners get paid less and less as time progresses.

At the very least, as compensation from mining decreases, a minimum network transaction fee should be imposed and it should increase proportionally to difficulty to ensure that all miners receive a predictable and steady flow of bitcoins for the resources they provide.

The bigger mining companies will stay  as they may be the only who can survive and they're not that few though. Still there will be miners.
The Chinese will dominate the industry in the end but they the coin will still circulate with more demands as we're all be using it. but thats just going to remain theory still.

The reality is that we're all be using bitcoin because it necessary if you gamble or pay anonymously an d this is going to dictate its value. It may go up or down but it will still continue to grow.

[DataSecurityNode]

Okay so everything boils down to supply and demand in the end I think. If the block reward is cut in half but Bitcoin will have finite amount of coins at 21 million in 2140, will this slowing down of coin release make the price go up? So if we assume that, theoretically, not everyone is selling their coins owned before the halving and holding for a couple of years to see where the price is going to end up, this means we will have fewer coins on the market so if there are 'new' buyers looking to buy Bitcoin they will create a bigger demand, no? I am not saying the coins in cold storage will not enter the market at some point but they won't be used in circulation for a while.

Sums it up nicely.

Agreed. So I guess we want to see more demand.

[AlexGR]

'Halving Bitcoin Reward Unlikely to Cause Price Surge'

I don't know about a surge but here is the fact:

1. Price is stable at around 440 +/-20$.

2. Price being stable means that the 3600 coins generated per day are met by the market demanding them (either miners wanting to hold them, or buyers buying them), otherwise the price would be sliding down.

3. 3600 coins x 440 = 1.6mn usd per day in inflation that is met by the market

4. Post halving that's 800k usd and another 800k usd will be in excess and uncovered demand.

5. So we have an excess 800k demand that will, by necessity, be unmet as production has slowed down. The only way for the market to acquire an extra 800k usd of coins per day is to take them from old holders. But they aren't selling at these prices otherwise there would be no price equilibrium at our current state of +3600 coins per day. So why would they sell when there are only +1800 coins per day? Thus, price has to rise in order for the old holder to be lured into selling. Or a crisis can be manufactured to increase selling and attain the same effect.

[mki8]

The fact that the miners are paid less while you need more is what make them sell their bitcoins at an higher price and thus lead to a price rise.

they don't need more they are currently earning 4 times their consumption, they are safe at the current price even afte the halving

where did you get this info ?
do you have a reference ?

a documentory (cant remember details off top of my head) showed an interview with one of the top miners, and american that moved his mining to china, he stated he knew other (farm) miners in china and that were losing money when the price was at $250

so how do you figure they are earning 4 times their consumption ?
even with price where it is today

miners will need the price increase,
it wont happen at the halving, it seems like everyone is expecting a massive jump in a single day
which although you may see a bubble (or a few) burst around that time due to speculative trading
price will continue to rise for the months after the halving, similar to the last halving

[pooya87]

actually halving bitcoin reward is the most likely even that can cause the price surge, and the reason is so simple, it is all about the hype.
the normal rise because of more adoption and normal things like more demand is there and you can't deny that the price has been rising and will continue this way on a slow rate.
but if you are looking for a surge then you need hype and what else is better to create a hype than halving. it has already been hyped a lot for the past six months and will continue this way.

[BitconAssociation]

...
I'm not trying to argue that we *will* see a spike in price, rather, that the effect of a block reward halving is one of many factors that could contribute to higher prices. It's possible that expectations have overbid prices now and that, as a result, they'll actually fall. But, over the long term, prices should average higher with a reward of 25 than they would have with a block reward of 50.

Since we're clearly not getting anywhere, how about some data to ponder? Here's Litecoin halvening, I think Aug. 26 is when it happened.

http://s32.postimg.org/xtvi2yzs5/Capture.png

Would you be able to point to Teh Halvening on the chart if not for the helpful vertical line?
Why did the price not go up, as the halvening faithful predicted?

Let's give analogies one more chance, let's imagine again.
The Princess (from our last game) issued a decree: "On Jan. 1, 2017, Princess Satolestia will buy all your Bit coins @ $10k/BTC."

Taking into account that you are the cunning and rational trader I know you to be, wat do?
Do you wait until Jan. 1, or do you start buying now?
If you chose to wait until Jan 1, why? If not, why?

While we have to imagine that Princess never lies, we can be 100% sure that Teh Halvening will happen, because algorithmically determined and maths. It's been announced back in 2009, and will surprise no one who cares

[Blinken]

This post makes absolutely no sense whatever. Take some intelligence pills or something. Maybe read "The Wealth of Nations"? I don't know. At this point, until further action, I would advise against doing anything that would involve suggestions originating in your mind. I recommend latching on to someone with proven skills as a logical thinker and then slavishly following them around and doing whatever they say. That might be a success path for you.

[--Encrypted--]

...
I'm not trying to argue that we *will* see a spike in price, rather, that the effect of a block reward halving is one of many factors that could contribute to higher prices. It's possible that expectations have overbid prices now and that, as a result, they'll actually fall. But, over the long term, prices should average higher with a reward of 25 than they would have with a block reward of 50.

Since we're clearly not getting anywhere, how about some data to ponder? Here's Litecoin halvening, I think Aug. 26 is when it happened.

you're comparing bitcoin with litecoin... how many people actually buy litecoin to use them and not just for trading?