Why won't BTC drop in Value when Mainstream?

[mgio]

I am playing Devil's Advocate by creating this thread.  I don't necessarily believe what I am saying.  And I hope I am wrong.

I am buying up BTC like wildfire, but I have always had this nagging fear that once "Average Joe" can get their hands on it with a simple click, its value will decrease.

Why?

Because I equate "supply" as increasing, when "average joe" is able to easily get bitcoin.

I am not talking about literal "supply" here.  Im talking about *availability*.

I equate "insufficient supply" as the current status, where availability to the general public is extremely limited.

Right now BTC is not easy to get.  Therefore "supply" (availability) is limited.  

This has created "demand" among all of us.  Not the general public.

That's why I said $100 is "our price" ..... $100 is what BTC has settled at for "our little world" of QT wallets and mining.

Later, when BTC becomes simple for the general public to acquire, because there are tools, websites, apps, which make acquiring it simple for the average person - SUPPLY increases.

Availability increases.   Now anyone can get 10 BTC ....

No longer 10 internet geeks playing with BTC, now there are 10 internet geeks and 300 average joes who have it.

Increased availability. 

Price goes down.

This is a temporary, not permanent thing.  But I do believe it will happen when BTC goes mainstream at first.

Sorry, you have it backwards. You should read a basic economics textbook. It's straightforward supply and demand. When demand goes up and supply stays the same (or in the case of bitcoin, goes up very slowly), price will go up.

People are presently not paying premiums to acquire bitcoins and they are certainly not scarce. You are confusing transaction cost with supply. The supply is not changing if the transaction cost goes down. In fact, as many others said here, if the transaction cost goes down, bitcoin price will only go up!

[superduh]

wow, such a badly thought out argument!

[battani]

It is indeed basic supply and demand. Bitcoin is intrinsically a deflationary currency since its supply is fixed at 21 million. Does that mean its price will go up in the future? Only if demand continues to grow to outpace supply, and that's not a given.

Bitcoin has been around for a few years and it hasn't yet proven itself valuable enough for consumers. Merchants are incentivized to adopt it due to the low fees and no chargebacks, but what does the "average Joe" benefit from, as compared to traditional fiat money? Not much.

In fact, since its existence, bitcoin has been used extensively for speculation, gambling, drugs, and pornography because it provides much added value in those fields: instant and anonymous transactions, low fees, etc. But the value of a currency is only as good as its usability in trade/commerce, and instant and anonymous transactions don't add much value in the world of (traditional) e-commerce.

A more creative model must be found for bitcoins in e-commerce, and until then, bitcoin's value will be based on pure speculation and will keep the "average Joe"s out. Indeed, why would the "average Joe" go through the trouble of adopting a currency that's based on Cryptographic Hash Functions (??), Proof of Work (??), and Public/Private Keys (??)? These terms are not very accessible to the non-analytical mind.

[n4ru]

I'll take basic economics for 100, Alex.

[smscotten]

I think what OP is getting at is that there will be a perceived decrease in scarcity when there are more readily-available outlets for people to trade in Bitcoin. Now you sort of have to know someone who knows someone or know the secret handshake. The amount of work or knowledge necessary to obtain Bitcoin will in fact decrease. The cost to obtain Bitcoin (separate from its trading value) will go down.

A good analogy for why this doesn't match up with reality is this:

Imagine a store that sells only one thing. Lets say it is hot cocoa. This store is at the top of a big hill which is surrounded by trees and covered in snow. Everyone in the town near the hill is shivering and cold, because they have never heard of hot cocoa. One person climbs to the top of the hill, which is very difficult because the snow is deep and the hill is treacherously steep. That person gets to the top and the proprietor of the store has four steaming hot cups of cocoa, which the proprietor offers him at a dollar per cup.

The climber, however, has left his wallet at home. He fishes through his pockets and finds a dime. He says, "sorry, that's all I've got." The proprietor looks around, sees he has no other customers and is unlikely to sell any of his cocoa, and says, "what the heck, no one wants this stuff anyhow" and sells the cocoa for a dime.

The next day, the climber brings three friends, and they've all brought their wallets. It's a tough climb to the top but everyone gets to the cocoa store and spends a dollar on the hot cocoa. Everyone feels so much better after a lifetime deprived of hot cocoa that on the way down they start shoveling a trail through the snow to make it easier to get to the top of the hill.

The following day, there are eight people. The trail made climbing the hill much easier. They all get to the top, but there are only four new cups of cocoa. The first four people get their cocoa, and when it comes to the fifth, they ran out. So one person without cocoa offers one of the people with cocoa a dollar for half of their cup of cocoa. The first people in line dole out half their cocoa, make their dollar back, and think, awesome! I just got my cocoa for free!

A few months later, there is a road going to the top of the hill and regular bus service. Everyone wants cocoa and it's not hard to get to the store anymore. The proprietor is trying his best to make as much cocoa as he can but even hiring a couple of people to help he can't make more than a hundred cups of cocoa because the cocoa machine only makes one cup at a time. But four hundred people are visiting every day because everyone knows where the cocoa shop is and how much better it feels to shiver in your wintry fairytale existence with a belly full of cocoa, and no one has to work hard at it, just hop on the bus.

Um. Then the writer realized he'd spent a half hour of his life on a stupid fable about cocoa. A half hour he'll never get back.

The moral of the story is: some people, like me, ought not be allowed on the Internet.

The end.

[battani]

I think what OP is getting at is that there will be a perceived decrease in scarcity when there are more readily-available outlets for people to trade in Bitcoin. Now you sort of have to know someone who knows someone or know the secret handshake. The amount of work or knowledge necessary to obtain Bitcoin will in fact decrease. The cost to obtain Bitcoin (separate from its trading value) will go down.

A good analogy for why this doesn't match up with reality is this:

Imagine a store that sells only one thing. Lets say it is hot cocoa. This store is at the top of a big hill which is surrounded by trees and covered in snow. Everyone in the town near the hill is shivering and cold, because they have never heard of hot cocoa. One person climbs to the top of the hill, which is very difficult because the snow is deep and the hill is treacherously steep. That person gets to the top and the proprietor of the store has four steaming hot cups of cocoa, which the proprietor offers him at a dollar per cup.

The climber, however, has left his wallet at home. He fishes through his pockets and finds a dime. He says, "sorry, that's all I've got." The proprietor looks around, sees he has no other customers and is unlikely to sell any of his cocoa, and says, "what the heck, no one wants this stuff anyhow" and sells the cocoa for a dime.

The next day, the climber brings three friends, and they've all brought their wallets. It's a tough climb to the top but everyone gets to the cocoa store and spends a dollar on the hot cocoa. Everyone feels so much better after a lifetime deprived of hot cocoa that on the way down they start shoveling a trail through the snow to make it easier to get to the top of the hill.

The following day, there are eight people. The trail made climbing the hill much easier. They all get to the top, but there are only four new cups of cocoa. The first four people get their cocoa, and when it comes to the fifth, they ran out. So one person without cocoa offers one of the people with cocoa a dollar for half of their cup of cocoa. The first people in line dole out half their cocoa, make their dollar back, and think, awesome! I just got my cocoa for free!

A few months later, there is a road going to the top of the hill and regular bus service. Everyone wants cocoa and it's not hard to get to the store anymore. The proprietor is trying his best to make as much cocoa as he can but even hiring a couple of people to help he can't make more than a hundred cups of cocoa because the cocoa machine only makes one cup at a time. But four hundred people are visiting every day because everyone knows where the cocoa shop is and how much better it feels to shiver in your wintry fairytale existence with a belly full of cocoa, and no one has to work hard at it, just hop on the bus.

Um. Then the writer realized he'd spent a half hour of his life on a stupid fable about cocoa. A half hour he'll never get back.

The moral of the story is: some people, like me, ought not be allowed on the Internet.

The end.

This is great and I think it's applicable to the bitcoin economy. We're currently in the process of paving that path, but we still don't know how many people will venture across it and whether or not there'll be an oversupply of cocoa.

[smscotten]

Supply is fixed!

Was it broken?

[Mytche]

Availability != Supply

More people selling gold does not increase the supply of gold.

The increased availability may reduce the marginal price, but this will be very minor compared to the real price.
It will likely reduce volatility though.

[adworker]

If bitcoin becomes to mainstream and becomes too regulated, the need will emerge for less regulated and more anonymous coins.

I believe if there will be attempts to regulate, it will apply to all cryptocurrencies

[battani]

The proprietor is trying his best to make as much cocoa as he can but even hiring a couple of people to help he can't make more than a hundred cups of cocoa because the cocoa machine only makes one cup at a time.

The end.

This is great and I think it's applicable to the bitcoin economy. We're currently in the process of paving that path, but we still don't know how many people will venture across it and whether or not there'll be an oversupply of cocoa.

Supply is fixed!

Yes, oversupply = little demand relatively to supply.

[ElectricMucus]

If bitcoin becomes to mainstream and becomes too regulated, the need will emerge for less regulated and more anonymous coins.

I believe if there will be attempts to regulate, it will apply to all cryptocurrencies

Only if the value is derived from fiat like Bitcoins do.

[johnyj]

When going mainstream more people wanting bitcoins and demand increases, hence demand curve shifts right.
Same amount of bitcoins being held and same amount of bitcoins being mined, supply curve stays the same.
Therefore new price forms where supply and demand meet, price will go up.



P = Price
Q = Quantity
D = Demand
S = Supply

As you said, quantity will not increase following the increase in price, so the supply curve should be a vertical line, actually that line will tilt towards left since the supply of bitcoin will decrease with a higher price (people will spend less coin to purchase the same thing)

BTW, the demand curve may not be like that either, since for bitcoin the demand will rise following a price skyrocket of bitcoin, and it will fall after bitcoin price crashed

Anyway, when demand rises, the price will go up

[calmindifference]

If every person in the world would use Bitcoin there would be 1/600th BTC on average per world citizen.

21E6/7E9 = 1/3000

[Chalkbot]

Think back to all those holiday seasons in which a new gaming console was coming to market. Supply was limited to around 25%-50% of target capacity, but increasing, and they were widely available. Every store was getting them in stock and anyone could just walk in and buy one. Pretty much exactly the scenario you are describing here.

So according to you, since you can get one anywhere, the value would go down. Therefore we'll just go to craigslist and... Hey! What the hell? Everyone's got a 400% markup on these things!

Fast forward 6 months or so, everyone who REALLY wanted one got it, and you can generally find them on store shelves (supply is way up). The secondary market value is almost exactly the retail value.

This would indicate that supply vs demand is what drives price (as they say on the first day of economics class) and not availability, as nobody ever said.

[minarchist]

Bitcoins value will be the same as ever other thing in this world is based on, simply what someone will pay for it. Therefor bitcoin will never reach a million a coin or anything close to. Simply because no one will ever pay 1million for it.

Who said anything about anyone paying one million for a bitcoin?  By the time the price is one million USD/BTC, people will be buying milli-bitcoin (millies) and micro-bitcoins (mikes).  When the unit of everyday interest shifts to millies and then to mikes, why will the price of an entire bitcoin scare people away?

Do you shy away from U.S. currency because 100,000 dollar Federal Reserve Notes have been printed?  If your answer is no, then why would people shy away from millies and mikes just because there is a unit of bitcoin that is worth a lot?
 

You will always have other currencies accepted. Bitcoin will never be that needed for the price to go insanely high.

There is a lot of evidence that fiat currencies will collapse.

[ElectricMucus]

Bitcoins are really like new gaming consoles, or the occulus rift, or google glass.

People who have nothing to do with them get them and sell them to suckers who desperately want them because it's trendy.

[minarchist]

I am playing Devil's Advocate by creating this thread.  I don't necessarily believe what I am saying.  And I hope I am wrong.

I am buying up BTC like wildfire, but I have always had this nagging fear that once "Average Joe" can get their hands on it with a simple click, its value will decrease.

Why?

Because I equate "supply" as increasing, when "average joe" is able to easily get bitcoin.

I am not talking about literal "supply" here.  Im talking about *availability*.

I equate "insufficient supply" as the current status, where availability to the general public is extremely limited.

Right now BTC is not easy to get.  Therefore "supply" (availability) is limited.  

This has created "demand" among all of us.  Not the general public.

That's why I said $100 is "our price" ..... $100 is what BTC has settled at for "our little world" of QT wallets and mining.

Later, when BTC becomes simple for the general public to acquire, because there are tools, websites, apps, which make acquiring it simple for the average person - SUPPLY increases.

Availability increases.   Now anyone can get 10 BTC ....

No longer 10 internet geeks playing with BTC, now there are 10 internet geeks and 300 average joes who have it.

Increased availability. 

Price goes down.

This is a temporary, not permanent thing.  But I do believe it will happen when BTC goes mainstream at first.

When the average Joe buys bitcoin, he will be buying small fractions of a bitcoin because the price is so high.

[minarchist]

Bitcoins are really like new gaming consoles, or the occulus rift, or google glass.

People who have nothing to do with them get them and sell them to suckers who desperately want them because it's trendy.

Explain how people will do things like using Silk Road and bypassing Western Union when sending money without a cryptocurrency.

[ElectricMucus]

Bitcoins are really like new gaming consoles, or the occulus rift, or google glass.

People who have nothing to do with them get them and sell them to suckers who desperately want them because it's trendy.

Explain how people will do things like using Silk Road and bypassing Western Union when sending money without a cryptocurrency.

I haven't said there is no use for them. Those things I mentioned are really cool things too.

I fully support cryptocurrencies, and Bitcoin, to the extent it makes sense.

[qwertyGuy]

Bitcoins value will be the same as ever other thing in this world is based on, simply what someone will pay for it. Therefor bitcoin will never reach a million a coin or anything close to. Simply because no one will ever pay 1million for it.

Who said anything about anyone paying one million for a bitcoin?  By the time the price is one million USD/BTC, people will be buying milli-bitcoin (millies) and micro-bitcoins (mikes).  When the unit of everyday interest shifts to millies and then to mikes, why will the price of an entire bitcoin scare people away?

But then there needs to be allowed more than 7 transactions / second, or your example does not work.