Why bitcoin will appreciate forever

[johnyj]

I went a little bit deeper into this analysis, here is a screen shot of my excel sheet:

In the upper part of the chart, each row represent part of the coin supply, row 2 represent the number of coins coming from daily mining reward, row 3 through row 9 are number of coins sold by a corresponding row of investors in the lower part of the chart

In the lower part of the chart, each row represent the number of coins that a group of investors hold

Take Row 29 for example: This group of investors mine/purchase all the daily coin mined during the first 4 years period, the number of coins they hold rise year after year. From the 5th year, they stop buying and start to sell part of their holdings every year, at a rate that is defined in cell A1(10% in this chart), so their number of coins shrink continuously through F29, G29, etc...

Row 30: From the 5th year, another group of investors enter the market, they have the same strategy: First save for 4 years and then spend 10% each year. Notice that they could only mine/purchase 6480 coins per day: F2 (daily coin generation) and F3 (cash out by the first group of investors)

Row 31 means another group of investors from the 9th year enter the market, and they could only get 6120 coins per day due to a summarize of J2,J3 and J4 (J3 and J4 are spending from 1st and 2nd group investors)

Row 23 is a summarize of all the coin supply from the upper part of the chart, e.g. the total daily coin supply on market

[johnyj]

The recent polls (https://bitcointalk.org/index.php?topic=296264 and https://bitcointalk.org/index.php?topic=295753) indicated that majority of the miners and traders will select a less than 10% per year spending strategy, so this chart shows the daily coin supply under such a spending strategy



The chart showed different daily coin supply under 3 different scenarios: Investing for 1,2 or 4 years, then spend 10% each year afterwards

Under a 10% spending strategy, after about 16 years, the daily coin supply will be stabilized at a level around 5000-6000 bitcoins. The volatility for 2 and 4 year curve comes from the assumption that one group of investors only purchase during a 2 or 4 years period, in reality the curve should be much smoother, since there are investors starting anytime

So it is clear to see, under a 10% spending strategy, the future daily coin supply will never get above 5000-6000 coins, and if the investment increase due to more population or higher productivity, the coin value will appreciate forever

Even all the existing person have already fully invested in bitcoin, there are still 370,000 babies born every day. Suppose that each day same amount of person start to invest in bitcoin, and they are competing for those 5000 coins, they would averagely get 0.0135 coin per person  

Suppose that each person need $ 1,350,000 for a comfortable retirement, and they put all those savings into bitcoin and get 0.0135 coin, e.g. 1,350,000 satoshi, this means 1 satoshi = 1 usd,  1 BTC will worth 100 million dollars, this might be the highest possible value bitcoin can achieve

[David Rabahy]

It is clear the OP is just beginning to understand the dynamics of this thing called Bitcoin (and many other things).

When I purchased my Bitcoins on an exchange, the coins came from someone (or perhaps multiple people) willing to sell them (the Bitcoins weren't created then and there new just for me).  If I *ever* sell my Bitcoins on an exchange then they will go to someone et al willing to buy them; if there is no one then I won't be able to sell them at all, i.e. the effective exchange rate goes to zero.  The number of Bitcoins doesn't go up or down per se during these exchanges.

The exchange rate (for example, USD/BTC) can vary (sometimes wildly) even when people brand new to Bitcoin are or are not purchasing their very first Bitcoins ever.  The exchange rate is fundamentally a measure of relative confidence with the supply and demand dynamics impacting the confidence considerably.  The Bitcoin exchange rate is very unlikely to increase steadily.  Predicting when exactly to exchange out 10% each year is actually much harder than imagined.  Worse, if you expect it to continue to rise then why exchange out at all?  If you take too much into Bitcoin and need to exchange some out to make purchases available only in fiat then that was a risk (some might call it a mistake).

New people are born; old people die (for now).  New people have little ability at first to purchase Bitcoins; they might be given some as gifts.  Dying old people put their Bitcoins at risk of being lost if they don't take steps to make them available to their beneficiaries.

A wide variety of hopefully unlikely catastrophes can befall Bitcoin pushing confidence down; down even to zero.

[johnyj]

The exchange rate is fundamentally a measure of relative confidence with the supply and demand dynamics impacting the confidence considerably.  The Bitcoin exchange rate is very unlikely to increase steadily.  Predicting when exactly to exchange out 10% each year is actually much harder than imagined.  Worse, if you expect it to continue to rise then why exchange out at all?  If you take too much into Bitcoin and need to exchange some out to make purchases available only in fiat then that was a risk (some might call it a mistake).

The biggest confidence of bitcoin comes from the limited/fixed supply and unlimited demand. It can not be inflated by central banks, nor inflated by added gold producers. You can spend 10% per year by evenly distribute the spending throughout the year.

You start to cash out or spending when you have already accumulated enough coins, and if you cash out carefully, you won't affect the constantly shrinking supply trend. (Actually, even with a 100% cash out strategy (everyone sold all of their coin after one year), the daily coin supply will still stablize after 10 years, and it will only be 1 magnitude higher than a 10% cash out scenario, like 60,000 coins per day) And of course those 370,000 babies per day will not buy the coin when they were born, but when they grew up 20 years later. Currently you have more than 500,000 grown ups entering the bitcoin world everyday due to higher birth rate 20 years ago, and no old people die with bitcoin savings yet

Daily coin supply for 100% cash out strategy after a certain investment period


I think at current price level, those who have already accumulated >10k bitcoins are the major spenders in bitcoin economy. In fact, lots of bitcoin promoters today are those early adopters who accumulated enough coins and have the motivation to drive this ecosystem further

[zachcope]

You need to consider the difference between the fiat price of bitcoin vs the purchasing power in goods and services of a bitcoin.

The fiat price will go up faster than the purchasing power so that the 100 dollar cash out becomes worth less and less over time.

This is due to fiat inflation vs increased utility of bitcoin as a store of value and way to transfer value over time.

[Shallow]

These charts don't really make much sense. Bitcoin could drop significantly at any time and there is a possibility (albeit a small one) of an altcoin usurping bitcoin.

[cowandtea]

Not if the Bitcoin market continue to get harass by US government. At this rate, every Bitcoin related market would be closed down and Bitcoin would had no value

[hashman]

Not if the Bitcoin market continue to get harass by US government. At this rate, every Bitcoin related market would be closed down and Bitcoin would had no value

Yeah, like remember all those other things folks claiming to be goverment officials claimed the right to confiscate?  They really dropped in value didn't they. 

[johnyj]

You need to consider the difference between the fiat price of bitcoin vs the purchasing power in goods and services of a bitcoin.

The fiat price will go up faster than the purchasing power so that the 100 dollar cash out becomes worth less and less over time.

This is due to fiat inflation vs increased utility of bitcoin as a store of value and way to transfer value over time.

The cash out strategy is based on a percentage of bitcoin holding, nothing to do with exchange rate. You should also consider that not only fiat money can exchange bitcoin, but also anything else with a value (goods/services/gold/securities, etc...), they will further reduce the daily coin supply on the exchanges

[Johnny Bitcoinseed]

I'm thinking that eventually bitcoin will stand on its own.  That is, you don't so much trade bitcoin for dollars and then dollars for bitcoin.  Rather you earn bitcoin through your job or business and then spend them for the stuff you need and want - the people on the receiving end then spend the bitcoins and round and round it goes, no dollars needed.

As the bitcoin economy grows, each bitcoin will buy an increasing amount of stuff - its value is increasing because of its limited nature.  But you never run out because bitcoins can be divided into tens of thousands of units.  Perhaps one day 1/1000th of a bitcoin could purchase what one full bitcoin does today.

[Erdogan]

I'm thinking that eventually bitcoin will stand on its own.  That is, you don't so much trade bitcoin for dollars and then dollars for bitcoin.  Rather you earn bitcoin through your job or business and then spend them for the stuff you need and want - the people on the receiving end then spend the bitcoins and round and round it goes, no dollars needed.

As the bitcoin economy grows, each bitcoin will buy an increasing amount of stuff - its value is increasing because of its limited nature.  But you never run out because bitcoins can be divided into tens of thousands of units.  Perhaps one day 1/1000th of a bitcoin could purchase what one full bitcoin does today.

Bitcoin stands on its own. It can be traded for other currencies and goods and services.
Currently it is most practical to value it in USD, but for users of the other major currencies Yen, Pound, Euro and Renminbi, those currencies could be used for valuation. The valuation used is normally the good/money or money/money pair that has the thickest market. If necessary the users can change that in no time. See "thick market" on investopedia.

[johnyj]

Actually the "less than 10% cash out strategy" is a typical practice in today's fiat money system. For example, most of the QE money went into commercial banks' pocket by purchasing bad loans from them but they save all that money at FED and receive a 2% interest for those money, only those interest were spent. A typical pension scheme is also trying to spend the interest

Since bitcoin does not generate any interest (No one will use bitcoin to invest since itself is already the most profitable investment), the only way to benefit from bitcoin is to spend coins. But that is very positive, since it re-distribute the coin to other people and so on, not like today's system, rich people only spend the interest and their fiat money get more and more, thus the wealth distribution is extremely unbalanced after several generation

[morphtrust]

I'm thinking that eventually bitcoin will stand on its own.  That is, you don't so much trade bitcoin for dollars and then dollars for bitcoin.  Rather you earn bitcoin through your job or business and then spend them for the stuff you need and want - the people on the receiving end then spend the bitcoins and round and round it goes, no dollars needed.

As the bitcoin economy grows, each bitcoin will buy an increasing amount of stuff - its value is increasing because of its limited nature.  But you never run out because bitcoins can be divided into tens of thousands of units.  Perhaps one day 1/1000th of a bitcoin could purchase what one full bitcoin does today.

this is kinda what I am angling for by working on getting a community of people making something tangible that they have little to no money invested in making, just labor so we can start building a community that stands on crypto currency only.

possibilities are endless from making common lye used for making bio diesel to a number of other things like paper, to ferric chloride, both from table salt, using cheap ugly but still new and powerful solarcells that can cost as little as 14 cents per watt they output. I have found a way to extend the useful life of a solar cell too for anyone interested so you can either expand how long you can use them up to 5 times longer, or concentrate more light (reflectors made of anything but I plan on using MDF and aluminum foil) so you get 5 times more power RIGHT NOW but the lifespan is only as long as they are normally with out protection, thus you can get that value out of them faster rather than having to wait to get it.

There are tons of other things out there too that we can make at home easily if we only knew how to, so it is all down to figuring that out, and developing the skill set to allow the production and investing our spare time to do it for bitcoin or some other alt currency, instead of dollars or yuan

would be nice to figure out what our hourly time is actually work in a sort of community like that and use that to base our value on the bitcoin we collect for our work,

and we can be more flexible too by charging bitcoin for the products, and dollars (if you are in the USA) for shipping or something, till we have some people join the community that can and are willing to provide shipping for bitcoin.

[Possum577]

Any updates on this theory given the recent and significant sell off this week or based on the new retailers that have entered the market place accepting Bitcoin?

Clearly the price stability or appreciation is important to us all and there's not much thorough research on the topic.

[nizamcc]

this is a bullshit theory

[johnyj]

Any updates on this theory given the recent and significant sell off this week or based on the new retailers that have entered the market place accepting Bitcoin?

Clearly the price stability or appreciation is important to us all and there's not much thorough research on the topic.

I saw a poll recently showing that about 80% of people are holding their coins, so the basic behavior has not changed much. But you can see from the chart, if everyone is investing for one year and then start to spend, the daily coin supply will actually rise year after year until the next reward halving

The natural appreciation tendency is caused by reward halving every 4 years, that will give a 19% appreciation each year when money inflow does not grow

However, even we had a huge boost in user adoption, that won't make a 10 fold increase in money inflow in one year. Money inflow can be several times higher than last year, resulting an exchange rate of several hundred dollars

Usually the technology shift causes lots of miners to lose the ability to mine and forced them to buy on exchanges, thus creating a rally. Now technology shift is over and daily coin supply will still be about 5000 coins. Since many new established large mining farms in china only sell the mined coins, the coin supply can be bigger than the time when ASIC first arrived. It is a test for how much money inflow the market really has

Anyway, a 19% increase in price during a time frame of one year is almost guaranteed, anything beyond that can be regarded as a bonus due to expoential increase in adoption and money inflow

To keep exchange rate at $500, for 5000 coins you need $2.5 million net inflow every day, that is about one apartment in big capital cities

[juliogf]

What happened?

[neurotypical]

What happened?

Bitcoin went up forever happened:



Now it's time for a slow uptrend since it will not go under the mean. This is math.

[johnyj]

A little summarize about the development during past year:

First, increased usage will reduce the daily coin supply on market thus raise its value,
An easy way to make bitcoin worth millions of dollars
However, the effect is not as large as long term hodling: If you constantly spend 10 coins every month, then only 10 coins will disappear from exchange, but if you hold 10 coins, they will also disappear from exchanges, for a long time

With more established exchanges, the usage as remittance medium just become more user friendly. Now I'm doing all my international transactions using bitcoin, if the receiver is in a country that have good bitcoin exchange. It is much cheaper and faster than traditional way

There are still limited spaces to spend bitcoin, but that means majority of merchant still have to learn how to use bitcoin by themselves, instead of relying on payment processor like bitpay. And that require a thorough understanding of bitcoin security, it will take some time. It is not recommended to rely on any third party to take care of your bitcoin, while majority of people are not geeks, this is still the major obstacle towards mass adoption

Mining difficulty does not drop, this indicated that the demand is still strong. If the demand drops, the mining difficulty will drop, because majority of the demand is fulfilled by mining (lowest possible cost to get coin)

So far, we have not seen hyperinflation following the huge scale of fiat money printing. Just like stock market bubble, as long as fiat money hold its value, big institutions would still ride the wave for a while. But those institutions are fully aware of the overvalued situation of fiat money, now it is a fiat money bubble, they will get rid of their fiat money positions as soon as they see the sign of a crash, we just don't know how and when it will happen

[lahm-44]

bitcoin will be appreciated forever due to its advance technology and awesome thinking the satoshi has made most of the possible system of future In short I can say he has showed us the way to develop our future a lott cooler that it was we guys has access to markets so now we can design our own future