Bitcoin: Complete inelasticity of supply

[odolvlobo]

... what are the two axes? One is money supply (Q) and the other is ...?

Considering it a currency may confuse the situation, so let's say it's just a product. One is the product's supply (Q) and the other is product's price (P).

So, by "completely inelastic", you mean that Bitcoin's money supply in completely unaffected by price. Is that noteworthy? I think it's stating the obvious. Bitcoin's money supply is completely unaffected by anything.

In the end, I don't think the term elasticity is appropriate for Bitcoin because the money supply is not allowed to vary. If it could, then Bitcoin would be elastic just like fiat. In other words, there is no elasticity because there is no curve. It is only a point and a point has no slope.

[BlackHatCoiner]

Bitcoin's money supply is completely unaffected by anything.

Isn't that noteworthy? What asset keeps having the same supply (or supply schedule) regardless of the demand? Only (those that work like) Bitcoin. In other words: What other asset has this difficulty feature?

But in the end, I don't think elasticity is relevant because the money supply is not allowed to vary. If it could, then Bitcoin would be elastic just like fiat.

This is why its supply is completely inelastic. Because it's not allowed to vary. There's no other asset whose supply is not allowed to vary. If you try to explain this in economic terms what would you use? I assume E_s = 0 is the closest we have to describe it.

Going one step further: What does it actually mean “not allowed”? By who? Isn't that noteworthy?

[odolvlobo]

Bitcoin's money supply is completely unaffected by anything.

Isn't that noteworthy? What asset keeps having the same supply (or supply schedule) regardless of the demand? Only (those that work like) Bitcoin. In other words: What other asset has this difficulty feature?

I'm going to stop because I think I've made my point (perhaps poorly) and I feel this discussion is becoming a distraction to your main topic.

Something else to note -- the statement that the supply is fixed at 21 million is not quite true. The max supply is 21 million, but the actual supply is not fixed. The money supply is actually rising toward 21 million and will start falling at some point due to lost coins.

[wxa7115]

Why did you create this thread?

1. To show that this isn't an insignificant characteristic; it's actually what makes it an even better store of value as it leaves us with one less factor that can affect it.
2. To justify bubbles at regular intervals.

Your first point is key, even if gold is scarce there is no way to know precisely how much gold we have on the planet, especially since more than three quarters of the surface are covered by water and it is virgin territory to exploit all kind of resources.

Bitcoin on the other hand with its hard cap is a completely different asset, not only we know how much bitcoin will be ever created, we know when it will happen and the rate at which it happens as well, bitcoin is by far the most perfect store of value ever created and I think people are finally realizing this simple fact.

[witcher_sense]

... what are the two axes? One is money supply and the other is ...?

The X-axis is the total quantity of money available on the market (in our case it will be equal to the circulating supply of Bitcoin), and Y-axis is the purchasing power of one unit of money, which is the "price" of money expressed in commodities terms (the problem is we don't know the real purchasing power of bitcoin because the price of bitcoin is always thought in fiat terms). However, consider the situation when bitcoin is used as a universal unit of account, which means all the prices of all commodities are now being expressed in bitcoin terms. Not only are commodities prices are shown in bitcoin (or satoshi) terms, but also it is also possible to express the price of bitcoin in commodities terms. For example, if one bitcoin can buy you a Tesla car, it also means that a Tesla car can be exchanged for one bitcoin. So, the price of Bitcoin will be equal to one Tesla car. It is the purchasing power of bitcoin. So, given that the supply of bitcoin cannot be inflated in response to increased demand, the only thing that changes is bitcoin's purchasing power. For example, if the demand for bitcoin increases, but the supply stays the same that will result in an increased purchasing power. Bitcoin will be worth more than one Tesla car.

This is an insignificant detail. The canon is that a new block is mined every 10 minutes.

No, it is highly significant, because it makes Bitcoin supply unresponsive to the changes in demand. Gold and other assets lack this feature.

[BlackHatCoiner]

I'm going to stop because I think I've made my point (perhaps poorly) and I feel this discussion is becoming a distraction to your main topic.

I'm trying to understand what was your point. That it's obvious supply isn't affected by demand? But it is, in most cases.

Consider Dogecoin. It is inflationary, so I would assume that you would consider its money supply to be elastic.

No, I wouldn't. It has a completely inelastic supply. The lack of deflation doesn't make that false. The block subsidy doesn't change with the rise in price.

The X-axis is the total quantity of money available on the market

You only count the quantity that can be available on the market.

(the problem is we don't know the real purchasing power of bitcoin because the price of bitcoin is always thought in fiat terms)

Why don't you know the real purchasing power of bitcoin? 1 BTC = ~$41,000 currently. The purchasing power of $1 is equal with ~2,400 sats.

No, it is highly significant, because it makes Bitcoin supply unresponsive to the changes in demand. Gold and other assets lack this feature.

Look where I've quoted you:

A difficulty adjustment is what makes the bitcoin supply barely responsive to the changes in the demand for bitcoin.

Yes, it's true. Yes, if the price fell by -50%, the supply would take longer to be increased, but that's until the difficulty retargeted. All I'm saying is that this is not the canon nor a significant factor.

[witcher_sense]

You only count the quantity that can be available on the market.

The only coins that don't add up to the available supply are those that either were provably lost (OP_RETURN, lost private keys, and burn addresses probably too, but I am not sure they can't be restored in the future) or haven't yet been mined. Others do count. Hodlers' coins count even if never moved because that is part of the increased demand for money.

Why don't you know the real purchasing power of bitcoin? 1 BTC = ~$41,000 currently. The purchasing power of $1 is equal with ~2,400 sats.

That is the point. The purchasing power of bitcoin can only be measured through the purchasing power of another currency, but not through real commodities. You cannot estimate the real purchasing power of bitcoin because you always have to refer to the purchasing power of fiat currency (usually domestic), through which to express prices (unit of account).

Okay, but so what does this have to do with its supply?

The supply of bitcoin influences its purchasing power, but not the other way around. I guess that's the beauty.

[BlackHatCoiner]

The only coins that don't add up to the available supply are those that either were provably lost (OP_RETURN, lost private keys, and burn addresses probably too, but I am not sure they can't be restored in the future)

Provably lost coins are, by definition, not recoverable.

That is the point. The purchasing power of bitcoin can only be measured through the purchasing power of another currency, but not through real commodities.

Yes, because everyone is forced to pay everything with a fiat currency (e.g., taxes). Okay, but so what does this have to do with its supply?

[kryptqnick]

I agree that Bitcoin's different from gold in this regard, but is Bitcoin truly the only asset with fixed supply? For instance, Cardano has a total supply of 45 billion, right? And Litecoin also has a limited supply. So while Bitcoin's different from gold and assets of other types, there are some altcoins, I think, that have the same feature. Also, while this feature protects Bitcoin from inflation, it doesn't, clearly, protect it from what's considered the main threat of inflation: the currency losing its value. Bitcoin can be worth $40k or $50k, with the price fluctuating a lot, and it's hypothetically possible for Bitcoin to experience a huge decrease of value, having essentially something similar to what could be effects of hyperinflation of fiat or sudden overmining or gold.

[LUCKMCFLY]

The truth is that I did not see this word of inelasticity since the university, and well I think that it is not like that, the btc moves by the Law of Supply and Demand, together with the whales and all the institutions that decide to enter, this is notably affected by the emotions or feelings (which is very normal in speculative markets) that if they affect the market, the only thing that BTC does not have is a backing like stocks have in the stock market, either with gold, among others, but I think that the approach you want to show can be taken as a very interesting topic with a lot of concept.

[franky1]

bitcoin does have a fixed supply but this fixed supply wont actually be realised (felt) for another 120 years.

in 2012 there were 11million coins and exchanges had order lines of 1-1000coins thick.
in 2022 there are 19million coins. which means more coins in circulation. yet exchanges are not seeing order lines of 1.7-1700 thick.

instead what you find is that people still on average only want to regularly buy bitcoin in minnow orders of $400-$600 and whale orders of $40m-$60m. peoples fiat disposable income has not changed.

what has changed is instead of using the supply/demand of there being more coins now than previous years in circulation. bitcoiners actually went the opposite direction. they prevented themselves from crashing the market by offering more coin. and instead started 'drip-feeding' orders to meet the demand.

this is why even though there are 1.7x more supply in circulation. bitcoin sellers are only feeding the market with 100x less supply per order to meet the demand.(0.017-10btc order thickness)

i personally have alot more coins now than i did in 2012. but the amount of coin i drip feed into an exchange is alot less than i did in 2012. because if i used the same volume as 2012 or even the same % of hoard. id crash the market

yes right now we are not 'feeling' the limited supply because we are still experiencing more coins being made.

if the average minnow buyer is only investing say $600 a month. but the bitcoin mining is netting $882m of 'new asset' every month. then the circulation supply is increasing to allow 1.47m new minnows to join bitcoin without causing any 'supply' bottlenecks of the circulation allotment.

yes bitcoins supply limit is a great economic rule. but its just not something being felt yet.

what is being felt. is not the '21m coin rule' but instead the halving of mining per 4 year rule(in laymans)

mining pools get half as many coins, but are not going to half their efforts to mine to match half of the reward.
instead they continue competing for the share of the reward, and because its less, they demand more $$ for the less amount.

bitcoins price is more influenced on the 'never sell for less than it cost to acquire' more so than a 'supply/demand' based on a 21m cap rule