1/ The Bitcoin stock to flow model by @100trillionUSD describes that the price of bitcoin can mostly be explained by its ever increasing SCARCITY.
Today I will explain how this is rational.
$1+ Million Bitcoin is inevitable.
Today I will explain how this is rational.
$1+ Million Bitcoin is inevitable.
2/ Bitcoin is a good. A toothbrush is also a good. Certain properties make some goods better than other goods for specific use cases. A toothbrush needs to have an appropriate size, a secure handle, and soft bristles (if you plan on using it to brush your teeth).
3/ Certain goods are well suited for brushing teeth (like a toothbrush), and some goods are well suited for being used as money.
Goods that are well suited to be used as money have the following properties: durable, divisible, transactable, fungible, portable, and SCARCE.
Goods that are well suited to be used as money have the following properties: durable, divisible, transactable, fungible, portable, and SCARCE.
4/ Notice how bitcoin checks the boxes of the first 5 properties, but is slowly proving it’s SCARCITY over time.
Bitcoin’s SCARCITY is increasing due to the 4 year halving, difficulty adjustment, and growing decentralization.
Bitcoin’s SCARCITY is increasing due to the 4 year halving, difficulty adjustment, and growing decentralization.
5/ I like to think of bitcoin miners as bitcoin buyers. Most of us trade our USD for BTC, miners simply trade their electricity for BTC.
6/ The REASON the halvings cannot be sufficiently “priced in” years or months before the halving date is because of future supply that trends to be traded at “market price” for electricity (thanks to the difficulty adjustment).
7/ Like Satoshi said, “The price of any commodity tends to gravitate toward the production cost.”
Currently thousands of people around the world are attempting to “front run” the halving. You’re stacking, I’m stacking, and many others are stacking.
Currently thousands of people around the world are attempting to “front run” the halving. You’re stacking, I’m stacking, and many others are stacking.
8/ We tend to drive the price up above the stock to flow model, but we are met with resistance (sellers and lack of buyers at those levels to retain that price) because miners are bitcoin buyers too!
9/ Here’s an example on a small scale, Satoshi mines the first 1,000 bitcoins. Satoshi won’t sell under $1 Million per BTC. If there is just one price inelastic buyer, the price of bitcoin would be $1 Million.
10/ This price is NOT sustainable because any rational market participant can turn on his computer and mine coins for minuscule electricity costs.
11/ Under the EMH, this difference (the cost of electricity to mine bitcoin and the current price of bitcoin) WILL be arbitraged away if the cost is below the current market price. This is why new bitcoin supply hurts the price and bitcoin’s future scarcity cannot be priced in!
12/ Each halving gets priced in more and more the closer we approach it. Then once we pass the halving, future sell side liquidity gets cut in half, and the bull run continues.
13/ In short, over time bitcoin is experiencing a drastic increase in demand and a drastic decrease in newly issued supply.
The KEY driver to the price of bitcoin is SCARCITY.
The KEY driver to the price of bitcoin is SCARCITY.
