Scarcity doesn't always mean value

[Jamesp2k]

Bitcoin has both scarcity and value. Millions of people chasing 21million, bitcoin breaking the barrier and great bottle neck inherent in traditional way of transferring money. As more and more people try to have a pie of bitcoin with time the price is set to hit the moon. This will happen, whether it is manipulated, hyped, overvalued etc

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[BitHodler]

EG bitcoins value of december 2017 was about $4k-$6k but peoples emotion and speculation made a bubble that hit near $20k

Agreed. I am finding it hard to swallow that people keep referring to current levels as being low, while the only reason they consider current levels to be low is that they think $20,000 is the standard in an odd way.

Even right now the price consists of at least 25% of speculation that's baked in, and for that exact reason I wouldn't be surprised to see the market come real close to the $5000 mark this or next year.

There hasn't been much of a fundamental difference justifying the price right now to be much higher than last year's 'fair' price of $5000. Both the demand and the use aspect of Bitcoin have taken a longer term break.

Scarcity in this case can't change much. Maybe there is just too much floating coin supply.

[GymClassHeroes]

Rightly said, there are alot of coins with low circulating volume and yet they are still far less in value than those coins with even more quantities. Waves and Etherem have similar circulating volume, same with Ethereum classic, but they price vary widely. So it is the dead and uses case that drives price, not just scarcity

[pooya87]

Rightly said, there are alot of coins with low circulating volume and yet they are still far less in value than those coins with even more quantities. Waves and Etherem have similar circulating volume, same with Ethereum classic, but they price vary widely. So it is the dead and uses case that drives price, not just scarcity

don't confused the pumped up price of an altcoin with real price/value of them. there is a big difference when it comes to a manipulated altcoin. for instance yesterday there was an altcoin called AurumCoin that got pumped 6000% and reached 0.25BTC and was placed among the top 5 shitcoins in coinmarketcap.com
similarly in case of Waves and Ethereum, they are both pumped but ETH had a much stronger pumping team and a lot of advertisement so their pump lasted longer than other coins like AurumCoin otherwise it would have gone down just as fast.

[earnadoge]

I've recently read a couple of posts here, and it became clear that people don't quite understand what ultimately determines the price of an asset or resource. Many seem to intuitively think that being scarce is enough for being valuable and pricey, or even equal to being valuable and pricey. This may or may not be true depending on another factor which is always at play here.

And this second factor is called utility. These two fundamental factors determine the price of an asset, but none of them taken separately can say anything about the likely price of an asset. Neither scarcity nor utility can determine the price on their own. It is their balance that leads to a price discovery through market means. For example, an asset can be as scarce as hen's teeth, but it still might be worthless. How come? Because being scarce is nowhere near enough to be valuable. To have a price, an asset should also have or provide utility.

In this case, utility means usefulness for achieving certain ends, whatever those can be. If something is scarce but lacks utility, it won't have any value because it is not useful for anything. But utility without scarcity is also pretty much useless for receiving a price tag. For example, the air we breath has absolute utility, without it we would die within minutes. But it has no price tag because it lacks scarcity. It is abundant, so having more of it (so-called marginal utility) doesn't add anything to our well-being as well as wealth.

Technically speaking clean air has a price, clean air emissions policies in north america for vehicles are costing user lots of money, and were shown to improve air quality.  Apparently in some larger cities in China air is so bad they have clean air stations, where you pay to breath fresh air.  While other wear filtered masks, which also need to be purchased.  Yes I know it was just an example, but even an example off top of our head to demonstrate something with zero scarcity, like air, is still not truly scarcity free, and has lots of hidden costs.

[franky1]

What utility does my old Coin/Stamp collection have? I cannot use those stamps and coins anymore, but their value is sky high.   It would be another thing if it was old cars or model train sets, because you can use them, but some commodities or products are just valuable because they are scarce. <sentimental value or nice to look at>

Bitcoin is scarce and it has utility, because you can use it as a currency and this makes it even more valuable. I would rather say that scarcity adds more value.    

value of stamps is not sky high. you admitted it yourself they have no value.... however the PRICE is high

value and price are 2 separate things.
th price is high because people speculate, get emotional. but a price is not a set thing . prices can go down.

value is something that is more stable and is usually below price because speculation pushes up the price above value..
when speculation drops and the price drops too low. even below value. then the price is deemed as "undervalued"

also please stop over using the term commodities. atleast learn what these words are truly defined as first,
again for the multiple time. a commodity is a raw material used to create other products.
oil=plastics/fuels
wheat=flour/bread/cereals
gold=jewellery/electronics.

i know you feel bitcoin is digital gold. but that does not make bitcoins utility the same as gold. bitcoins values are only of golds values in relation to gold ALSO sitting in the ASSET category.

gold comodity market = to be used by industry
gold asset market = to be used to hold value by its owner, held and secured for investment/future sell

[Sukunan-]

I do not think this is true.
 If utility is that important then Copper shouldn't be cheaper than Gold or Aluminum cheaper than Copper. Gold is mostly use for decorative purposes. Copper and aluminum has more utility.

These are what matters most:

Attractiveness
Uniqueness
Rare
Long lasting (gold is corrosion resistance)
Durability



I

Yes they have a lot of views and from what side they see it.

[d5000]

I agree with OP that utility is a major factor contributing to the "value proposal" of Bitcoin.

The example with the post stamp collectors, for example, shows that in this case "utility" does not mean that it's "useful to do other things", which would be the most common definition. Instead, it could be defined as "capacity to satisfy a necessity".

Typical necessities satisfied by cryptocurrencies are e.g. to use it for global transactions/remittances, buy/sell goods and services, speculation, or long-term storage.

We can now have the case of two cryptocurrencies which may have a similar utility. For example, Bitcoin and Litecoin both can be used for all these use cases.

LTC may be accepted by some less exchanges and merchants, but in major crypto countries you can buy lots of stuff with it. The small difference in "utility" here doesn't explain the large difference in "market cap" (market cap is pretty flawed but is currently our most popular measure to calculate the "value" of a cryptocurrency).

So I would not use "utility" to measure Bitcoin's "value", e.g. numbering use cases.

Instead, I would use the aggregate value of the ecosystem using Bitcoin.

This includes an estimation of the number of people, groups and organizations who are using Bitcoin to "satisfy a necessity" they have, and the amount of money and goods they move to do these things. So it's related to utility, but it's not the same thing.

[franky1]

We can now have the case of two cryptocurrencies which may have a similar utility. For example, Bitcoin and Litecoin both can be used for all these use cases.

LTC may be accepted by some less exchanges and merchants, but in major crypto countries you can buy lots of stuff with it. The small difference in "utility" here doesn't explain the large difference in "market cap" (market cap is pretty flawed but is currently our most popular measure to calculate the "value" of a cryptocurrency).

wrong. price and value are 2 different things.
and dont use market caps.. just concentrate on price of individual coin. and then below that find the value by looking at the bottom line LOW of a period

value is stable and something that is mostly never dropped in PRICE below VALUE. (no one is stupid to sell for less)

..
anyways
check the minting/mining cost of coins. you will see where the variance of PRICE vs VALUE (roughly) when comparing 2 alts of similar utility/function.

PoS coins cost literally nothing to create new coins as rewards... so PoS coins will always be lower than PoW coins of similar utility/function.
EG if there was litecoin PoW and litecoin PoS.. the PoS would be less in value even if there was equal utility

when i look at the PRICES of coins. i do not look at the ATH. i look at the LOW
i draw a line from point to point of a periodic ATL and i treat that as the VALUE line, made up predominently by the top 4 catgories in my first reply of this topic. the volatile price above that line is the speculation/hype

and right now the PRICE is right near VALUE meaning a great time to buy. because with costs of mining/difficulty going up value will go up. meaning the price will go up even with little hype happening. .. and then during times of speculation, the price will spike up further and be way above value.

take november 2017-february 2018 VALUE was steady above $5k but the PRICE was volatile all the way up to near $20k

[tee-rex]

I do not think this is true.
If utility is that important then Copper shouldn't be cheaper than Gold or Aluminum cheaper than Copper. Gold is mostly use for decorative purposes. Copper and aluminum has more utility.

Having utility is as important as being scarce. Citing myself on that part:

Neither scarcity nor utility can determine the price on their own. It is their balance that leads to a price discovery through market means. For example, an asset can be as scarce as hen's teeth, but it still might be worthless. How come? Because being scarce is nowhere near enough to be valuable. To have a price, an asset should also have or provide utility.

In this way, the answer to your remark should be straightforward and simple. While copper and aluminum have without doubt greater utility than gold, they are not as scarce as the latter is. In fact, this is a good example when one asset (copper) has greater utility than another (gold) but because of it being less scarce (more abundant), its market price turns out to be lower than the price of its counterpart. And unlike gold, which is truly unique, copper can be substituted by other materials.

If copper becomes more rare and it doesn't get substituted fully or partially with something else (the same aluminum), its price will rise. In real life, this is what happens with any commodity whenever there is a shortage.

[Kakmakr]

What utility does my old Coin/Stamp collection have? I cannot use those stamps and coins anymore, but their value is sky high.   It would be another thing if it was old cars or model train sets, because you can use them, but some commodities or products are just valuable because they are scarce. <sentimental value or nice to look at>

Bitcoin is scarce and it has utility, because you can use it as a currency and this makes it even more valuable. I would rather say that scarcity adds more value.    

value of stamps is not sky high. you admitted it yourself they have no value.... however the PRICE is high

value and price are 2 separate things.
th price is high because people speculate, get emotional. but a price is not a set thing . prices can go down.

value is something that is more stable and is usually below price because speculation pushes up the price above value..
when speculation drops and the price drops too low. even below value. then the price is deemed as "undervalued"

also please stop over using the term commodities. atleast learn what these words are truly defined as first,
again for the multiple time. a commodity is a raw material used to create other products.
oil=plastics/fuels
wheat=flour/bread/cereals
gold=jewellery/electronics.

i know you feel bitcoin is digital gold. but that does not make bitcoins utility the same as gold. bitcoins values are only of golds values in relation to gold ALSO sitting in the ASSET category.

gold comodity market = to be used by industry
gold asset market = to be used to hold value by its owner, held and secured for investment/future sell

Did you have a bad night or what? If you noticed, I mentioned a little word that goes unnoticed some times... "or"  Ok, still I get your point and I will try to remember your teachings in the future.

Price/Value same thing for me, because it is indicative of what something is worth, so I use the term for both. I would find a coin online and I would like the way it looks and I will buy it, no matter what hype surround it.

[carrascos]

yes indeed it is. very well and detailed by the author

[Nanacoin]

I've recently read a couple of posts here, and it became clear that people don't quite understand what ultimately determines the price of an asset or resource. Many seem to intuitively think that being scarce is enough for being valuable and pricey, or even equal to being valuable and pricey. This may or may not be true depending on another factor which is always at play here.

And this second factor is called utility. These two fundamental factors determine the price of an asset, but none of them taken separately can say anything about the likely price of an asset. Neither scarcity nor utility can determine the price on their own. It is their balance that leads to a price discovery through market means. For example, an asset can be as scarce as hen's teeth, but it still might be worthless. How come? Because being scarce is nowhere near enough to be valuable. To have a price, an asset should also have or provide utility.

In this case, utility means usefulness for achieving certain ends, whatever those can be. If something is scarce but lacks utility, it won't have any value because it is not useful for anything. But utility without scarcity is also pretty much useless for receiving a price tag. For example, the air we breath has absolute utility, without it we would die within minutes. But it has no price tag because it lacks scarcity. It is abundant, so having more of it (so-called marginal utility) doesn't add anything to our well-being as well as wealth.

You are right! The value of bitcoin depends on many factors other scarcity of the currency

[maxilopez]

yes, but the deficit in bitcoin is one of the most important reasons why the price of it is constantly growing

[franky1]

EG bitcoins value of december 2017 was about $4k-$6k but peoples emotion and speculation made a bubble that hit near $20k

Agreed. I am finding it hard to swallow that people keep referring to current levels as being low, while the only reason they consider current levels to be low is that they think $20,000 is the standard in an odd way.

Even right now the price consists of at least 25% of speculation that's baked in, and for that exact reason I wouldn't be surprised to see the market come real close to the $5000 mark this or next year.

There hasn't been much of a fundamental difference justifying the price right now to be much higher than last year's 'fair' price of $5000. Both the demand and the use aspect of Bitcoin have taken a longer term break.

Scarcity in this case can't change much. Maybe there is just too much floating coin supply.

1. i dont say its price is LOW in comparison to the ATH. i see the price is LOW because it is floating only a thin film of bubble price (speculative foam) above value.

2. saying something is low is ok.. but saying it has CRASHED, which as we both agree is the wrong mindset of those that think the ATH is the norm.

3. i dont see a 25% built in speculative film of bubbles above value.
i seen a 200%-400% film of speculative bubbles above value last year.
i seen only a few % in this last couple months of speculative bubbles above value

4. last november value of ~$5.8k vs this year has changed. you just need to do the math of mining costs.
2017's ASIC batches were .. well ill save you the math. about $1.3k (simple math exahash *277)
november had the utility (point 1 of value indicator on first page) ramping up value due to the whole "segwitx1 locked segwit2x dead" that occured in november. this is where i pushed innovation into a gap away from the top 4 points. because once innovated it then becomes old news. so its more speculative than long term built in value of utility

even now segwit utility is locked but not many are actually using it. so not many actually would call segwit valued just yet.
(check the mining pools that strongly promoted and advocated for segwit like slush and BTCC who are not using bc1q addresses for their rewards)
(funnier sidenote i was begging bobby lee since december to use bc1q reward addresses to prove his confidence in segwit.. as of today still no(first chuckle).. yet bitmain. the opposition in many peoples eyes are using it(gave me another chuckle))

you can also chart in 2018 cost of mining using summers asic batch cost per btc (summers asic batch cost/btc simple math of exa *135)
its also worth noting that some pools this last month have been testing their 7mn next gen rigs (7nm next gen batch cost/btc simple math of exa *65)

[Crypto Girl]

...

In this case, utility means usefulness for achieving certain ends, whatever those can be. If something is scarce but lacks utility, it won't have any value because it is not useful for anything. But utility without scarcity is also pretty much useless for receiving a price tag. For example, the air we breath has absolute utility, without it we would die within minutes. But it has no price tag because it lacks scarcity. It is abundant, so having more of it (so-called marginal utility) doesn't add anything to our well-being as well as wealth.

So therefore, these two should be consider in classifying a coin and bitcoin have it all.

Bitcoin as utility
1. perceive as great asset
2. currency ( eventually )

Scarcity
1. rare with 21 million supply

However, this contradict the above statement.

I do not think this is true.
 If utility is that important then Copper shouldn't be cheaper than Gold or Aluminum cheaper than Copper. Gold is mostly use for decorative purposes. Copper and aluminum has more utility.

These are what matters most:

Attractiveness
Uniqueness
Rare
Long lasting (gold is corrosion resistance)
Durability

This should be a lot of talk and proofs so I think we shall stick with the supply and demand which is a basic determinant of value.

[tee-rex]

Technically speaking clean air has a price, clean air emissions policies in north america for vehicles are costing user lots of money, and were shown to improve air quality.  Apparently in some larger cities in China air is so bad they have clean air stations, where you pay to breath fresh air.  While other wear filtered masks, which also need to be purchased.  Yes I know it was just an example, but even an example off top of our head to demonstrate something with zero scarcity, like air, is still not truly scarcity free, and has lots of hidden costs.

But even if air has a price in the form of hidden costs or just direct price for a certain volume of it, I don't see how it undermines my example or takes anything from it. My point was to show that scarcity and utility are tied in with the price of an asset (like bitcoin) or resource (like air), that the price of it closely follows the relationship between the two. Obviously, if fresh and clean air becomes a scarce resource as in polluted cities of China, it will have a price tag attached to it (though I don't really know if it is actually so).

I remember reading a story about some bar in Japan where they had been selling "clean air" (likely with an elevated level of oxygen, though). And just yesterday I heard a story, or rather an anecdote, about some Italian soccer club selling bottled air dubbed as "Spirit of the bleachers", "Essence of victory", and even "Locker-room's aroma" (or something to that tune). Was it Fiorentina?

However, this contradict the above statement.

You may want to read my reply to that post.

[bitcoindusts]

Great analysis there tee-rex!

Truly, scarcity alone could not define value alone. In fact abundance at times defy the value of scarcity because of demand.

And yes, i also believe that utility is one of the best indicator of value. Though at times, popularity also sets value but utility can never be undermined.

That is why i always say that for bitcoin to retain value and grow it even more, utilize it, use it. Let bitcoin be an integral part of our daily purchases if possible. Let bitcoin be a system of payment within us and allow it to develop more utility to help increase its value.

[d5000]

LTC may be accepted by some less exchanges and merchants, but in major crypto countries you can buy lots of stuff with it. The small difference in "utility" here doesn't explain the large difference in "market cap" (market cap is pretty flawed but is currently our most popular measure to calculate the "value" of a cryptocurrency).

wrong. price and value are 2 different things.
and dont use market caps.. just concentrate on price of individual coin. and then below that find the value by looking at the bottom line LOW of a period

value is stable and something that is mostly never dropped in PRICE below VALUE. (no one is stupid to sell for less)

I don't dispute that. Maybe I should have written "aggregate price" instead of "value" when considering market cap as a measure.

But my point ("value" and thus also "price" being strongly influenced by "ecosystem value"/"ecosystem usage")  would still apply if you calculate "value" with your method (drawing a line from low to low). It is even better, to avoid to over-consider "bubbles".

check the minting/mining cost of coins. you will see where the variance of PRICE vs VALUE (roughly) when comparing 2 alts of similar utility/function.

I have read this theory several times, but I still dispute it. I consider mining costs, if existing, a very minor factor when calculation the value proposition. Why would miners not panic sell if the price of the coins they get falls below their "production costs"? I consider this scenario very likely.

A better factor is "attack cost", because it determines the security level of the coin and thus, its utility for usage, above all for actors who want to invest or move bigger quantities using it. Attack costs are about 3-5% from market cap (considering long-term averages), probably both for PoW and PoS coins.

[Vickyrichy]

You are right but i do agree with you to some point. Sometimes scarcity does mean value. Usually limited number of asset or any goods increases the value of the goods or asset.