Bitcoin is a commodity market ?

[IadixDev]

Lately i've been going back throught the old satoshi posts and there are at least two i found really interesting.

First this one

https://bitcointalk.org/index.php?topic=845.msg11403#msg11403

Bitcoins have no dividend or potential future dividend, therefore not like a stock.

More like a collectible or commodity.

And the other is this one

https://bitcointalk.org/index.php?topic=242.msg2078#msg2078

What the OP described is called "cornering the market".  When someone tries to buy all the world's supply of a scarce asset, the more they buy the higher the price goes.  At some point, it gets too expensive for them to buy any more.  It's great for the people who owned it beforehand because they get to sell it to the corner at crazy high prices.  As the price keeps going up and up, some people keep holding out for yet higher prices and refuse to sell.

The Hunt brothers famously bankrupted themselves trying to corner the silver market in 1979:
"Brothers Nelson Bunker Hunt and Herbert Hunt attempted to corner the world silver markets in the late 1970s and early 1980s, at one stage holding the rights to more than half of the world's deliverable silver.[1] During Hunt's accumulation of the precious metal silver prices rose from $11 an ounce in September 1979 to nearly $50 an ounce in January 1980.[2] Silver prices ultimately collapsed to below $11 an ounce two months later,[2] much of the fall on a single day now known as Silver Thursday, due to changes made to exchange rules regarding the purchase of commodities on margin.[3]"

http://en.wikipedia.org/wiki/Cornering_the_market

The main difference i see between bitcoin and a regular commodity is that a regular commodity's price is aligned around production cost, whereas bitcoin is the other way around which is the production cost gravitate around the demand's price.

So thats the eternal question around bitcoin is what is supposed to be the "right" price for it ?

My reasoning is that instead of asking this question peraphs the good question is how to know if it is overpriced ?

And the answer would be another question, how do you inflate artificially a commodity market ? By people with too much monney hoarding it to expect the price to rise and making more profit out of it than just exchanging it as utility as a regular use.

With this reasoning people with lots of monney hoarding expecting to make a profit would end as the Hunt brothers.

People using it as its supposed to be as a commodity or currency would not loose too much as not having too much in stock at any point.

Then ok there are always external economic factor that lead to people being more in saving or spending moods, so there is always some amount that is going to be organically saved. But then saving like keeping monney under the matress is a different attitude than hoarding for profit like "investing" as if it is a stock or a productive asset with some level of risk.

Is this reasoning correct ?

After all bitcoin was designed as digital cash with the coins circulating from address to address which is also part of the security model as i understand it because it makes it even more pointless to search for hash collision on a public address as the coins are always moving and are not supposed to sit on an address for long period but move between single use address which also increase anonymity.

If this is correct it mean some kind of "silver thursday" at some point when hoarders make the price so high nobody really want to buy it anymore and it ends up loosing all value on the market.

Anyway bitcoin as a currency can function at any market price as long as it not null because it still needs to be mined so the price cant go to zero but it can function at 1$ if thats the global economic value as a commodity.

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[Darker45]

The main difference i see between bitcoin and a regular commodity is that a regular commodity's price is aligned around production cost, whereas bitcoin is the other way around which is the production cost gravitate around the demand's price.

I think a regular commodity's price is always aligned not with production cost but with demand, so that the production cost may remain constant while the price rises and falls. Moreover, even if the production cost goes through the roof, without demand, the price would still be falling. The same is basically true with Bitcoin.

So thats the eternal question around bitcoin is what is supposed to be the "right" price for it ?

Is there such a thing as right price for Bitcoin? I mean, outside the realm of demand? I think there's none. The market determines the price. Of course, there are certain factors that affect the demand such as Bitcoin's scarcity, government regulations, competition within the crypto market, crumbling fiat, and so on. But everything will boil down to demand or how much people would be willing to pay for it.

My reasoning is that instead of asking this question peraphs the good question is how to know if it is overpriced ?

Well, there are certain technical tools for it. There's Williams %R, Bollinger Bands, RSI, and numerous others, which I am not really a fan of. Fundamentally, though, if only a handful of wealthy investors like the Hunt brothers are buying in massive amounts, hoarding, while the rest are selling, taking advantage of the exponentially rising prices, the price is probably a bubble.

And the answer would be another question, how do you inflate artificially a commodity market ? By people with too much monney hoarding it to expect the price to rise and making more profit out of it than just exchanging it as utility as a regular use.

If you're asking about artificially increasing the price of a commodity, then hoarding is a time-tested strategy. If there's a regular use of it which results to the increase of price, then I guess it's not anymore artificial.

With this reasoning people with lots of monney hoarding expecting to make a profit would end as the Hunt brothers.

The circumstances surrounding the case of the Hunt brothers are different with Bitcoin's. It was more like the Hunt brothers and certain partners versus the United States government. In no way, could the Hunt brothers succeed. Whatever success was definitely temporary. It couldn't be sustained. Not to mention that the production of silver was continuous.

[odolvlobo]

The main difference i see between bitcoin and a regular commodity is that a regular commodity's price is aligned around production cost, whereas bitcoin is the other way around which is the production cost gravitate around the demand's price.

The main difference between Bitcoin and a commodity is that a commodity consumed.

So thats the eternal question around bitcoin is what is supposed to be the "right" price for it ?

My reasoning is that instead of asking this question peraphs the good question is how to know if it is overpriced ?

The price is always determined by supply and demand.

However, the quantity theory of money states that MV=PQ, so the value of the money supply is PQ/V. The supply comes from MV and the demand comes from PQ.

The theoretical price can also be thought of as the risk-adjusted discounted future price.

Whether or not it is overpriced depends on how you think it compares to these metrics.

And the answer would be another question, how do you inflate artificially a commodity market ? By people with too much monney hoarding it to expect the price to rise and making more profit out of it than just exchanging it as utility as a regular use.
With this reasoning people with lots of monney hoarding expecting to make a profit would end as the Hunt brothers.
People using it as its supposed to be as a commodity or currency would not loose too much as not having too much in stock at any point.

Hoarding temporarily affects the supply. The price rises as coins are hoarded and likewise it falls as hoarded coins are sold.

[pooya87]

Well if you can call USD, CNY, GBP, TRY,.... and the rest of more than a hundred fiat currencies being traded in Forex markets commodities then you can also call bitcoin a commodity.

The only thing that sets bitcoin apart (which is a temporary characteristic) is that its price is being decided in a rather small market that has caused a lot of volatility. Otherwise in the future when bitcoin reaches mass adoption and the market is not so small to be manipulated by the overly excited traders, its price will be stable too. By that time it becomes easier to see that the price depends solely on supply and demand, both of which will have reached a fixed and balanced state.

[Kakmakr]

Well, most governments define Bitcoin and Crypto currencies as Commodities, because they want to protect their Fiat currencies from disruption. All other Fiat currencies can be traded as Commodities (Forex Currency markets) and the same goes for Bitcoin... so it is a Currency and it can be traded as a Commodity. 

Satoshi just showed the world what will happen if it is only traded as a Commodity... which is not the route most of us wants this experiment to go. (It will be much better if it is a currency, because it will generate miners fees and that is the oil of the whole Bitcoin eco system) 

[Mauser]

For me bitcoins are a currency that is very similar to all the major currencies traded around the world like Euro, Dollar, etc. Both crypto and fiat don't pay any dividends, and both rely on investor confidence. Fiat money has a country and their economy behind it to guarantee some value, but investors look more at the future. The only difference is that there is a central bank behind fiat money that guarantee me to use that money to buy goods on my country. What they don't guarantee is a certain value for the money, since the gold standard was demolished the value fluctuates. So both cryptos and fiat money fluctuates freely. For me the guarantee that I can actually use my bitcoins comes from the large number of investors. As long as people are interest in the coin will there be value and an active market.
So I would say bitcoins are more than just a commodity market.

[franky1]

a commodity is a raw material used in the production of a secondary product

gold-> jewellery and circuits
beef-> burgers and mincemeat
wheat-> bread and cereal
oil-> fuel and plastics

gold has 2 markets. the commodity (produce demand) and asset market(investment/store of wealth)

bitcoin more aligns to an asset market. not a commodity market

[BitcoinBarrel]

IMO Bitcoin is a Digital Asset or Commodity similar to Domain Names.

You are buying ownership of a piece of the Blockchain.

[fiulpro]

It's not just production but at the same time there are other things as well, one cannot just strike aside things like :
- economic situation of the country
- the world's probelms like the pandemic
- the availability of goods or resources in that particular place
There are so many things! How you evaluate bitcoins is actually not something that simple, bitcoins is very different that traditional things, plus it depends on person to person. For me it's more like an asset than an actual commodity. It's better as a store of value. That again depends from person to person as well. Value is entirely personal as well.

[Newlifebtc]

Bitcoin is assets and that is why is valuables and people is using it as a currency, commodity of bitcoin is determine by market standard but i will not believe such that many people have another definition of assets and commodity, asset in bitcoin is talking of investment while commodity is also talking of production and productivity of a product, so their is interchanges of them in bitcoin what really prominent is investment which is the asset you have in bitcoin

[IadixDev]

The idea of supply and demand ok, but to me it seems more and more to be some kind of sophism more than anything. Look like some form of sollipism like i make the reality how i want it to be. But in reality you will rarely find some instance when this logic apply in real life. There is always a reasonable price to expect for something at a particular time. Then the price can vary following different factors etc but it's the thing i really fail to see with bitcoin. I mean whyt bitcoin worth 100x more now than 5 years ago ?

https://saylordotorg.github.io/text_microeconomics-theory-through-applications/s13-03-asset-markets-and-asset-prices.html

Imagine you passed a coffee shop and saw the sign shown in Figure 9.4 "Arbitrage at a Coffee Shop". This would make an economist salivate, not because of the prospect of good coffee but because it presents an opportunity for arbitrage. Facing an offer like this, you could immediately go and buy a pound of coffee beans for $10. Then you could turn around and sell the coffee at $12 per pound. You would have made $2 easy profit. Forget about drinking the coffee: just buy and sell, buy and sell, pound after pound—and become a billionaire. This is an example of arbitrage.

Sadly, you will never see a coffee shop making you an offer like this. We are confident of this because any coffee shop that made such an offer would very quickly go out of business. After all, if you can make a profit by buying at a low price and selling at a high price, then whoever is on the other side of these transactions is making a loss.

This summarize the problem as i see it

I mean ok you take real-estate for example where this kind of logic that the price can flucuate much depending on the demand. But then if the price of a certain real estate is much higher than another you can be sure the person paying significantly higher amount for this particular place is having a good reason to do so. Maybe it's close to a good school for their kid, maybe they like the neighrborhood. In any case there is always a good reason for someone to buy something at a higher price.

Stocks as share of a company are a different story, because history has proven the human mind is capable of incredible thing, and when you buy a share, you buy some share of future revenue of a work, most likely on royalities on the developement of sometime new that will pay off dividends , and history has shown many time how some brilllant mind can create things entierely new.

But bitcoin is not a stock, holding a coin on exchange is not going to pay any salary, and in anycase the main creator isn't being paid from it. The person who make a profit is the one selling on the exchange, the exchange who takes some operational fees and period.

When i see the original discussion, they were more concerned about bitcoin taking off, and of course at first it would be under evaluated, can see this as initial launch discount price, and to my knowledge this practice has never lead to any kind of market collapse, not to break any hearth, but i think we are way beyond a phase of initial launch discount.

Can always say ok but you can buy a fraction of it, but as anything in bitcoin it's much of a relativist game, so if you have only dust coins they will be hard to move because of fees and network congestion, so i thinks it's partially false to say some dust bitcoin has same value than more of it due to fees and network constraint.

Even the idea of it being an asset or store of value seems pretty moot, or contradictory with the idea that it's impossible to determine it's right price, and that it's highly flucuating from unknown and unpredictble factor, that seems to be contradictory with it as being a good store of value. Then ok with current state of global economy, it's not unreasonable to expect a massive crash sooner or latter, and there is clearly a high demand for some kind of hedge, or some asset that will resistant inflation, but at any rate i don't think the problem is mostly the one of monney printing, there are much deeper problem within the productive economy than only monney printing, and in any case regarding this fact that everyone say there is no way to really reliably determine bitcoin value doesn't make it a very good store of value. Other than for billionere who can set the price as they want by hoarding a massive stock of it.

So ok can take the argument of it being usefull for poor migrant to send monney home, but let me ask this question, how many of you has already invested 1$ in cash transfer system for that poor migrant can some monney home ? How valuable do you really think this is ?

Same for salvador, how many of you would have invested even 1$ into salvador economy, and even if they hire the best financial counselling to bootstrap new currency for their economy, how many would have bought even 1$ of it thinking it's going to make you rich ?

The idea that it's not used in the industry like other metals ok, that's a good point, but then also it's a digital technology, so it's normal it's not being used in the manufacture industry, maybe it can be compared to a databse into the digital economy.

Domain name same, in themselve they don't worth much, they have value because they are used by another buisness who will use the name as part of a marketting strategy, and they will make monney with their buisness, the domain name is just a part of it and its value depend completely on the success of the buisness behind it, not much in domain registration itself.

I mean that's just to throw some reflection and market parallel to find what kind of dynamic to expect. And it seems to me at this point the only way to really expect a huge rise from it is only by practicing some form of shady things like market conerning or pyramid scheme, which never really last very long in a free market where competition lead price toward a minimum for the demand. If the demand is only fueled by the perspective of resell profit while not adding any value to it by just holding it on an exchange , it cannot end well.


see hal finney on it

https://bitcointalk.org/index.php?topic=1388.msg37762#msg37762

The danger is if people are buying bitcoins in the expectation that the price will go up, and the resulting increased demand is what is driving the price up. That is the definition of a BUBBLE, and as we all know, bubbles burst.

[hatshepsut93]

Well if you can call USD, CNY, GBP, TRY,.... and the rest of more than a hundred fiat currencies being traded in Forex markets commodities then you can also call bitcoin a commodity.

Strange how Satoshi described Bitcoin as "peer-to-peer electronic cash", but in the post mentioned in OP called it a commodity.

After all bitcoin was designed as digital cash with the coins circulating from address to address which is also part of the security model as i understand it because it makes it even more pointless to search for hash collision on a public address as the coins are always moving and are not supposed to sit on an address for long period but move between single use address which also increase anonymity.

Who said that coins are supposed to be frequently moved instead of sitting there for years? There's nothing in Bitcoin's protocol that could incentivize that. The only reason to move coins to new address is if there's a protocol upgrade featuring new address format, which doesn't happen often.

[OcTradism]

Commodity asset, asset of storage, etc. all of those are not most important things about Bitcoin.

The most important thing are
- Bitcoin is Bitcoin
- It is unique
- It has only 21M Bitcoin in total supply that is unchanged.
- More than 90% Bitcoin has been mined so far
- Only less than 10% Bitcoin is left for mining until 2140
- Bitcoin gives you your own bank.
- No one can steal your Bitcoin if you don't lose private keys.

[IadixDev]

Who said that coins are supposed to be frequently moved instead of sitting there for years? There's nothing in Bitcoin's protocol that could incentivize that. The only reason to move coins to new address is if there's a protocol upgrade featuring new address format, which doesn't happen often.

There is no direct incentivie to it, but as i understand it from the original discussion it seem to me the only way bitcoin can really gain long term value is using it as a medium of exchange, if everyone just hoard their coin in a wallet without motion, the long term value is limited.

found another interesting post related to the topic

https://bitcointalk.org/index.php?topic=57.msg415#msg415

Contrary to the paradox of thrift argument you present, collecting bitcoins and saving them with hopes of earning purchasing power through deflation is not a bad thing.  It will allow for the pooling of bitcoin capital and make purchases of larger capital investments possible.  In the future, there might even be bitcoin banks that lend out saved bitcoins with market-set interest rates, thereby diminishing the effects of hoarding.  All this wonderful saving, however, comes at a price: delayed gratification of present desires.  From the perspective of the would-be saver, the question will always be denying present desires to purchase real tangible assets now versus the future possibilities of purchasing more later.  This time preference naturally varies with people and in different circumstances.

Given the fact that bitcoins are by their electronic nature easily divisible, prices will be able to easily adjust to deflationary pressures.  If too many are saving, prices will fall and the rate of interest will go down.  This encourages demand (lower prices) and decreases the desire to save (less interest).

XC

Excellent analysis, xc.

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases.  In your head, you do a probability estimate balancing the odds that it keeps increasing.

In the absence of a market to establish the price, NewLibertyStandard's estimate based on production cost is a good guess and a helpful service (thanks).  The price of any commodity tends to gravitate toward the production cost.  If the price is below cost, then production slows down.  If the price is above cost, profit can be made by generating and selling more.  At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.

At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.

I need to read more, but already as much as i see reference to merchent, transaction, and regular thing, i never see a mention of the merit of hoarding it as something that would really add long term value to bitcoin.

[franky1]

hoarding does not cause any merit for value rise

highschoolers think its a supply-demand thing. whereby there are 19mill coins. but billions of people with fiat wanting it.

actually the 19mill coins hoarded on private keys is not the supply.. . the markets price is not based on 19mill coins. its based on just a few hundred thousand coin deposited into an exchange, whereby the market price is based on which of those few hundred thousand coin are actually on market orders.
(your not part of the market if your not on the market)

even more depth
the market orders are not based on there being hundreds of people buying hundreds of coins right this second. instead if you look at the market orders you will see small orders of 0.1 and less being 'taken'  and affecting the price

yep you dont need to buy a whole coin to set/make a market price.
if you just spend $42 buying 0.001btc you then set the price at $42,000 per btc

you dont need to sell all 19mill coins all at $42k each to then make the market value $42k

what actually sets the value. is peoples willingness to not sell if the price dips too much.
this happens when people look at the price they acquired their coin for.

if a person acquired a coin in 2011 for 10c. he wont sell it for 9c
if another person sold another coin for 20c. the first person might try selling his for 20c too

now the new acquirer has 2 coin at 20c and wont sell it for 19c each. but might sell it for 26c each.
and so as time goes by. the price rises due to not wanting to sell at a loss. and not wanting to sell unless their is a gain.
and these gains add up

so passing coin around where the next person to get it will have a higher acquisition cost to refuse to sell below.
..
another metric of value is mining cost.
if it cost just $1 to mine an ounce of gold in your back yard. using just a spoon and coffee filter. then everyone would be selling it for $1.01-$3 as the ''spot price range' of value(NOT the $1k-$2k range)

the reason gold's spot price remains over $1k-$2k is because mining costs are over $900.
no one on the planet is silly enough to sell gold for under $900

98% will refuse to sell for under $1100. and less % the higher the price
what you find is those willing to sell below $1600. if they did sell at $1600 that new acquirer will try to avoid to sell it for less than $1650+,  thus the movement of assets sets a new % of acquirers desire to not sell below a certain value

..
heres an interesting thing.
it wont matter how many coins are on a market deposit balance sheet
it wont matter how much dollar are on a market deposit balance sheet

ever all the btc sellers all communicated that as of this minute everyone should refuse to sell their coin for less than $67k.
even if only one person with $6.70 was to buy coin (0.0001btc).. thats the price the market puts as the price for btc. $67k for 1btc.

ther could be 5milion coins wanting to be sold. and 5 trillion dollars ready to buy(or make up any number of any side)
but if there is only 1 order being placed. and that order was 0.0001btc for $6.70.   then that order makes btc $67k

[AakZaki]

Commodity asset, asset of storage, etc. all of those are not most important things about Bitcoin.

The most important thing are
- Bitcoin is Bitcoin
- It is unique
- It has only 21M Bitcoin in total supply that is unchanged.
- More than 90% Bitcoin has been mined so far
- Only less than 10% Bitcoin is left for mining until 2140
- Bitcoin gives you your own bank.
- No one can steal your Bitcoin if you don't lose private keys.

and one more thing, decentralized Bitcoin is not regulated by anyone. Bitcoins are very unique. become a pioneer of cryptocurrency digital currency that is integrated with the blockchain and every transaction made will not be deleted by anyone.

[Fortify]

Is this reasoning correct ?

After all bitcoin was designed as digital cash with the coins circulating from address to address which is also part of the security model as i understand it because it makes it even more pointless to search for hash collision on a public address as the coins are always moving and are not supposed to sit on an address for long period but move between single use address which also increase anonymity.

If this is correct it mean some kind of "silver thursday" at some point when hoarders make the price so high nobody really want to buy it anymore and it ends up loosing all value on the market.

Anyway bitcoin as a currency can function at any market price as long as it not null because it still needs to be mined so the price cant go to zero but it can function at 1$ if thats the global economic value as a commodity.

Bitcoin can be one of two things effectively, when it had low adoption levels it worked well as a currency because the market was so liquid and people were not intent on hoarding it. It's primary usage at that point was still open as a tool to exchange value, as the volatility was more stable and we saw very companies opening up to accept it slowly. As it has gotten much more popular it has morphed, or tipped the scales towards, becoming simply a commodity. Like gold, people are hoping that it will hold its value and slowly increase over time. It still has a very useful purpose of being a decentralized unit of exchange that is not subject to unnecessarily high or arbitrary fees, but that only works at higher amounts. It has much less purpose, due to fees and time taken to validate, as a more instantaneous exchange of value.

[IadixDev]

what actually sets the value. is peoples willingness to not sell if the price dips too much.
this happens when people look at the price they acquired their coin for.

This logic make sense but still needs to ask why would people would buy it to begin with. If its only to expect a future profit by holding it, i have hard time to see how it would make sense in the long term.

If you just think you are going to sell it back at roughly the same price you bought it the logic holds.

If you just buy it to sell it back at significantly higher price should really wonder what would really move the market enough from the moment you buy to the future moment you want to sell. If not some form of market cornering that cannot be sustainable in a free market.

And it doesnt account for people who would spend it to buy something which would not directly translate to an euro/dollar valuation. In a bitcoin utopia you would expect a whole economic network around it in sort that it doesnt even hit an exchange with fiat.

And its more like this that bitcoin should develop with the demand as a paiment system with the demand as bitcoin being superior to competitor system.

I dont see any other way that it can develop long term.

[jrrsparkles]

Already bitcoin price is highly manipulated due to the limited supply and we call them whales, until now bitcoin is used as an asset or atleast 99% of them so yes its like a collectible item but in future the things will change when we use it as medium of exchange because by that time the distribution of bitcoin is more diluted so it may not be easy to accumulate all of them and collapse it.

[franky1]

what actually sets the value. is peoples willingness to not sell if the price dips too much.
this happens when people look at the price they acquired their coin for.

This logic make sense but still needs to ask why would people would buy it to begin with. If its only to expect a future profit by holding it, i have hard time to see how it would make sense in the long term.

If you just think you are going to sell it back at roughly the same price you bought it the logic holds.

If you just buy it to sell it back at significantly higher price should really wonder what would really move the market enough from the moment you buy to the future moment you want to sell. If not some form of market cornering that cannot be sustainable in a free market.

And it doesnt account for people who would spend it to buy something which would not directly translate to an euro/dollar valuation. In a bitcoin utopia you would expect a whole economic network around it in sort that it doesnt even hit an exchange with fiat.

And its more like this that bitcoin should develop with the demand as a paiment system with the demand as bitcoin being superior to competitor system.

I dont see any other way that it can develop long term.

there is a point where something has to have a use/purpose/function/desire. yes if bitcoin had no function and was just a bunch of locked assets held forever in a trust owned by a company thats only value was the investment. then prices could go to $0. because no one would have to mine something that never has to move, and has no reward for trying to move the unmovable

but because bitcoin does something (medium of exchange/buy goods & services with it) transferable. and then there is costs of that transfer and security of the asset(mining cost). then no one would sell if too cheap.

EG if mining was $1 a coin. people wont sell it for 99c but no one would buy it for premiums above $2, as they could just mine it themselves(with a little effort)

but because mining is over $30k now in every region of the planet. no one can mine it for less. so everyone would buy it if it ever went down to $31k. preventing it going to $29k because people would refuse selling it for less.

but yes bitcoin needs to have a function/use/reason for people to mine or want bitcoin.
which is why i am a very loud advocate that bitcoin should remain a 'digital cash' and not be pushed into being just a 'reserve/treasury' for custodial services.

(keeping a good reason to mine. and having a reason for users to hold, spend, transfer, invest, buy things. makes bitcoin have utility worth securing).

altcoins on the other hand. that have no real life purpose(cant buy goods) and are mined without cost(pos) can drop to zero.
and many have.
inshort dont hoard PoS coins. there is absolutely nothing supporting a bottomline value of non-zero. PoS can go to zero. PoS is no underlying value and 100% speculative emotion