Scarcity doesn't always mean value

[tee-rex]

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.

[nitishkumar9999]

You are true. Apart from that following factors drive the price of any digital currency.
1. Limited Supply and supply/demand.
2. Energy put in in the form of electricity to secure the blockchain.
3. Blockchain difficulty level.
4. The utility of the currency, and how easy it is to use and store.
5. Perceptions on its value by the public.
6. Price of Bitcoin.
7. Media.
8. Investors.
9. Market dilution.
10. Innovation.
11. Confidence in traditional systems.
12. Legal/Governmental issues.

[franky1]

in order of importance of "value"

1. The utility of the currency, and how easy it is to use and store.
2. Energy put in in the form of electricity to secure the blockchain.
3. Blockchain difficulty level.
4. Limited Supply and supply/demand.

5. Innovation.
6. Perceptions on its value by the public.
7. Price of Bitcoin.
8. Media.
9. Investors.
10. Market dilution.
11. Confidence in traditional systems.
12. Legal/Governmental issues.

i say this because. my dog only goes to the toilet 2 times a day. and as it gets older it will become less.. in its life it will only do 4000 doggy bags of mess..  so scarcity/limited supply is 4000 bags,,,, now would that make you want to buy it for more than $2m a bag.. no?

thats because you dont know and have no USE for it once you have it.

next even if you know that my dog can easily do 2 bags of dogsmess a day, it will be mor difficult for my dog to go toilet as it gets older.. will that make it more or less value? no?
well thats because you still dont know what to do with it after and the cost to create the doggy bag of mess was just a bowl of dogfood hours earlier befor digestion.. so its not worth $2mill even if you know it cant just poop on demand when required, and know it will get harder to produce

but if it cost $2m to create and there was no other way to create it for less.. and it had utility. that nothing else could rival.. then you would buy it because it does something and you know you can get your money back because someone else will find it useful.

now thats the underlying value..
lets say thats the $5.8k bottomline of the last 10 months.. the bit ontop that is volatile that makes the PRICE go from $5801-$19-500  is th speculative bubblle of points 5-12

[carter34]

For example, an asset can be as scarce as hen's teeth, but it still might be worthless. How come?

Economics as a discipline has different theories and your post falls on the lower the supply, the higher the demand. Therefore, you have asked a valid question.

Naturally, where you have a scarce commodity, it suppose to have a corresponding effect on the value and price. And, where there are no such effect with the value or worth of the product, it simply means that the scarcity is artificial. That is, it is manipulated for personal gains / for the few which are called, the whales in cryptocurrency.

[vallydelly]

For me I think scarcity play a good role in the value of any one, think about it, scarcity means people are reluctant to sell, they are hold their cons, and that will make the buyers to bid higher to attract the sellers to sell.

[Awesomus Maximus]

I guess it depends on the case. I can give you a contra example. Same post stamps are valuable because of scarcity but have no utility value at all. So what matters at the end of the day is how many people are willing to pay for what you have. If there are many people who find something that you possess valuable, you are in a good position. You are even in a better position if your possession is scarce. 

[darkangel11]

For me I think scarcity play a good role in the value of any one, think about it, scarcity means people are reluctant to sell, they are hold their cons, and that will make the buyers to bid higher to attract the sellers to sell.

You haven't read the above before answering. Scarcity doesn't change much if the scarce object has no meaning and no use. An example of such scarce and useless object can be art by some unknown street artist. They make one of a kind portraits every day and to some people they are valuable (especially to the ones on the portraits or their loved ones), but they don't hold market value, even though there are no identical drawings anywhere in the world.
I could send you my one and only autograph for only 0.1 BTC. It's scarce. Would you buy it?

[malekbaba]

For me I think scarcity play a good role in the value of any one, think about it, scarcity means people are reluctant to sell, they are hold their cons, and that will make the buyers to bid higher to attract the sellers to sell.

You mean when supply decreases, demand increases. True but you missed OP's point. Suppose you have almost 30% of total supply of a token. That's huge. But what will you do with your stakes if the token is useless? In future , only tokens with utility will survive . People are not dumb.

[pooya87]

excellent point. let me just add a couple of examples for extreme scarcity and 0 utility.
first one is 42-coin. it has only 42 coins in circulation. this coin started out with its price being more than $1 million per coin. the volume of it at that point has been also huge and reached nearly $1 million. that  coin can now be considered dead. it had a pathetic pump a couple of months back and now its volume is not even $10 in some days and the average daily volume is around $100
why? lack of utility, in other words it is useless.

[virendarnagpal]

Utility and scarcity both are responsible making something valuable.  If something is available in plenty to all it will not be having any cost though it may be very much useful.  Like air; sun light both are very much useful and even life is impossible without these but still due to plenty availability it is available for free to all.

In cases something is scarce and valuable it is costly like diamond; gold ; silver etc.  In the same way bitcoin is useful currency but it's supply is less then it's demand so there is price of bitcoin in the market.

[tee-rex]

I guess it depends on the case. I can give you a contra example. Same post stamps are valuable because of scarcity but have no utility value at all. So what matters at the end of the day is how many people are willing to pay for what you have. If there are many people who find something that you possess valuable, you are in a good position. You are even in a better position if your possession is scarce. 

I don't know exactly what you mean by post stamps having no utility but you are obviously not quite fully understanding how utility works and what it means. First of all, post stamps do have utility as they are used for sending letters, without them the post service won't do anything about your precious love message. So they do have utility and thus value.

But as I'm inclined to think, this is not what you actually meant to say. You likely refer to people collecting post stamps which cannot already be used for sending letters, right? And here's where your reasoning falls short. There is no absolute or intrinsic value in anything as such. It is our position or attitude toward something which gives value to things. In this way, if a lot of people value old and rare post stamps, it means these stamps have a lot of utility for them personally. These stamps give them some emotional satisfaction or whatever (for example, they can brag about the size of their collections before other stamp-hunters), and this is utility too. But as there are quite a few such people in the world, old post stamps have a market and thus market value. Moreover, this value sometimes, well, in fact, oftentimes by far exceeds their nominal value.

excellent point. let me just add a couple of examples for extreme scarcity and 0 utility.
first one is 42-coin. it has only 42 coins in circulation. this coin started out with its price being more than $1 million per coin. the volume of it at that point has been also huge and reached nearly $1 million. that  coin can now be considered dead. it had a pathetic pump a couple of months back and now its volume is not even $10 in some days and the average daily volume is around $100
why? lack of utility, in other words it is useless.

Yeah, I often use this coin as an example myself.

[aoluain]

in order of importance of "value"

1. The utility of the currency, and how easy it is to use and store.
2. Energy put in in the form of electricity to secure the blockchain.
3. Blockchain difficulty level.
4. Limited Supply and supply/demand.

5. Innovation.
6. Perceptions on its value by the public.
7. Price of Bitcoin.
8. Media.
9. Investors.
10. Market dilution.
11. Confidence in traditional systems.
12. Legal/Governmental issues.

i say this because. my dog only goes to the toilet 2 times a day. and as it gets older it will become less.. in its life it will only do 4000 doggy bags of mess..  so scarcity/limited supply is 4000 bags,,,, now would that make you want to buy it for more than $2m a bag.. no?

thats because you dont know and have no USE for it once you have it.

next even if you know that my dog can easily do 2 bags of dogsmess a day, it will be mor difficult for my dog to go toilet as it gets older.. will that make it more or less value? no?
well thats because you still dont know what to do with it after and the cost to create the doggy bag of mess was just a bowl of dogfood hours earlier befor digestion.. so its not worth $2mill even if you know it cant just poop on demand when required, and know it will get harder to produce

but if it cost $2m to create and there was no other way to create it for less.. and it had utility. that nothing else could rival.. then you would buy it because it does something and you know you can get your money back because someone else will find it useful.

now thats the underlying value..
lets say thats the $5.8k bottomline of the last 10 months.. the bit ontop that is volatile that makes the PRICE go from $5801-$19-500  is th speculative bubblle of points 5-12

Coming into this thread i thought 'yes its also demand which means value, supply
is only half of the picture' but franky1's post has opened my eyes, there are other
factors which combine to create value

I had not considered UTILITY to be as big a factor than it truly is. Bitcoin and a few
other coins have proven to date that they offer a real world useage or solution
and therefore have value because of the combination of factors above.

[nick_nick]

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.

I strongly support your argument. People either are unaware or tends a blind eye on the other factors that determines the value of an asset or resources. To me, the level of utility of a particular asset is key in influencing its price. The asset could have a limit in supply; but if people are not interested in having it, the value would still remain the same

[tee-rex]

Coming into this thread i thought 'yes its also demand which means value, supply
is only half of the picture' but franky1's post has opened my eyes, there are other
factors which combine to create value

Fundamentally, demand (as well as supply, for that matter) is an aggregate, which means it is made up of many components and elements. For example, people may want to buy an asset, such as oil futures, for speculation purposes only or to actually buy oil in order to make something useful out of it. But in the end it all becomes aggregated in total demand for oil irrespective of specific purposes of individual buyers. It is intrinsically the same with supply (in case you are curious). People may want to sell an asset having various goals in mind. And if in the first case it boils down to obtaining a certain amount of an asset, in the second case it is about receiving a certain amount of money.

These are the common denominators of a multitude of goals which people try to achieve when they sell and buy an asset.

[ntarah langger]

For me I think scarcity play a good role in the value of any one, think about it, scarcity means people are reluctant to sell, they are hold their cons, and that will make the buyers to bid higher to attract the sellers to sell.

You haven't read the above before answering. Scarcity doesn't change much if the scarce object has no meaning and no use. An example of such scarce and useless object can be art by some unknown street artist. They make one of a kind portraits every day and to some people they are valuable (especially to the ones on the portraits or their loved ones), but they don't hold market value, even though there are no identical drawings anywhere in the world.
I could send you my one and only autograph for only 0.1 BTC. It's scarce. Would you buy it?

from this comment I can draw conclusions, the point of view makes everything different.
because everyone has their own point of view about something / object

[franky1]

Coming into this thread i thought 'yes its also demand which means value, supply
is only half of the picture' but franky1's post has opened my eyes, there are other
factors which combine to create value

I had not considered UTILITY to be as big a factor than it truly is. Bitcoin and a few
other coins have proven to date that they offer a real world useage or solution
and therefore have value because of the combination of factors above.

the highschool lessons of just supply vs demand is a foolish notion. anyone just spouting the words "supply vs demand" has not thought about it in detail

prices are not set by supply and demand.
lets take 4000 bags supply of dogs mess bags... and zero demand.2 known stats. but i can still market and publish a bag for any price i want. so if i said $2. then boom.. thats the price. supply and demand does not set a price. price can set the demand
demand could rise and i actually make sales.. but demand does not mean my bags increase in price.i could continue to sell my dogs mess at $2 to 4000 people.
as for supply the 4000 people could re-sell it at $1 per half bag weight. thus forever as it gets divided up could continue to sell it at $2 pr whole bag, even when the units of supply multiply and demand/supply grows.

its peoples desire, and peoples decision to sell for less or more. and thats based on what they feel they could do with the bag. and how they feel if it can influence or add value to peoples lives by what it can do. for them
yes if there is a demand. then that can influence the price to go up. but demand can also make the price go down

imagine a phone manufacturer is going to make 1million phones. before even knowing how much demand there will be. they have calculated it cost $33 per phone and set a retail price of $100
now imagine one month they sell one 12th of phones because the demand is on 12th of a million people want it that month.

the retailer could say. wow there is demand. i could push up the price and make more money.
the retailer could also say. i could lower the price because i still have eleven 12ths of stock that was bought for $33million and i have made $8.3m and i need to get rid of this stock before the next gen phone is available. meaning i only need to make $25m on 833k phones to break even. so ill market and price the phones at $30 just to get rid of stock.

and now the price can effect demand by seeing more people buy it in month 2 due to discount. thus price creates demand rather than demand creating the price.

suply and demand can influence the SPECULATION/hype price above value. but there is always an undrlying value of something if people find it useful.

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

[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.   

[hadveach]

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.   

I agree with you, that scarcity always creates good utility and good value.

but I want to know your predictions, today we see that stock of bitcoin is a little, but why is bitcoin still down and falling? I think we will see bitcoin above $ 20K if it's rare, but the reality is that bitcoin is falling today.

[Jhonthor]

if I think scarcity does always mean an increase in value or price.

[Ucy]

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



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