The daily cash flow diagram of BTC economy is as follows (always totalling zero):
+ the purchases of existing holders
+ the purchases of new holders
- the sales of existing holders
- the value of new mining
-----------------------------------------
0.
When the price rises, the value of new mining goes up, giving possibility for more new money to come in. When it rises really high, also the existing holders sell in increasing quantities, absorbing all the new money and eventually forcing the price down. (BUBBLE PHASE).
When the price falls, the value of new mining goes down, but is still there. New money is sluggish to enter because price is in a downtrend. The existing holders largely need to absorb the mining, leading to further decline. (DOWNTREND).
When even the existing holders in large quantities throw in the towel and want to cash out, the price quickly falls until it meets a floor due to rising interest from new holders (and their fiat also buys much more coins, also mining value is very low). (CAPITULATION, SEEDS OF A NEW RISE)
Now, if the ecosystem would eventually die, we assume that new holders would not ever be coming and the existing holders would one at a time throw in the towel. Then the only ones to buy both the coins from the defectors + the newly mined coins, would be the other existing holders. In this case the price would go down (similar to DOWNTREND above) but even sharp falls would not ignite a new lasting uptrend.
This pattern has happened to many, if not the majority, of altcoins. The difference that sheds light to Bitcoin's situation is that no altcoin that eventually died or is in a terminal decline, has made successive booms before that. It has always been the tulip mania -style one bubble and then bust and die. Bitcoin has made several bubbles and survived as many busts, making the chances of survival from this one also, much higher.
Bitcoin is much more usable now than 12 months ago when the price was 4 times higher. Unless the actual ecosystem goes into decline, I would not worry of Bitcoin dying. IF the ecosystem goes into decline, though, the price is already likely in a trash, because markets tend to forecast such events. Considering the price, I have no reason to remove the STRONG BUY from Bitcoin though. Just make sure you operate with funds that you are comfortable with.
+1
Great post.
I would also add, that all the altcoins and all new bitcoin businesses takes money from the bitcoin ecosystem.
Right now it was a bubble of both, a lot of money wasted in stupid ideas or businesses that need bitcoin to keep growing fast in order to be profitable and not die soon.
Most of this was funded with bitcoin profits.
Also a lot of bitcoin advocates stopped their jobs to live just with their bitcoin holdings and were cashouting bigger from bitcoin every month. And hoping to be able to maintain their lifestyle with the "next incoming bitcoin bubble".
Now with this big crash all will start to return to normal. Only good businesses and rich advocates will keep doing it, rest will need to abandon it and find a job.