Misunderstanding the Supply of Bitcoin and Gold Leads to Silly Projections

Mish

Here's a hoot: Bitcoin is allegedly on track to hit $100,000 by 2021.

Bitcoin Q&A

Q: Where will Bitcoin be in 2021?

A: I don't know, nor does anyone else.

On Track? For What?

Please consider BTC on track for $100,000 in 2021 by William Suberg.

Stock-to-Flow measures the Bitcoin price using two factors: the stock — the number of Bitcoins in circulation — and the flow, which is the number of new Bitcoins entering circulation.

Bitcoin's low emission rate relative to its existing supply — like gold — means Stock-to-Flow constitutes useful evidence in the argument that Bitcoin is "digital gold."

As Cointelegraph previously reported, Stock-to-Flow’s creator, the analyst known as PlanB, originally suggested that Bitcoin would hover at an average of in the year before its block reward halving in May 2020.

Amusing Projections

I am amused by projections of $100,000 targets when previous targets were $1,000,000 or higher by 2020.

At least the projections are headed in the right direction.

But that is not the focus of this post. Rather, the author does not understand the true supply of Bitcoin.

Supply of Bitcoin and Gold

Interestingly, the supply of Bitcoin and Gold have one thing in common.

Contrary to popular misconception, the supply of Bitcoin rises every day.

Similarly, the supply of gold rises every day.

Suberg confuses the rate of increase in supply with supply.

Supply Facts

  • Bitcoin is not used up, except for lost wallets and passwords, etc.
  • Neither is gold used up except for a tiny percent of industrial use.

Every ounce of gold ever mined except for lost gold, buried and forgotten gold, priceless antiques, and industrial supply, etc. is the true supply of gold.

Similarly, every Bitcoin ever mined, except for lost Bitcoins, etc, is the supply of Bitcoin.

Peter Schiff provides an amusing example of lost Bitcoin.

Peter Schiff Bitcoin

I wonder what someone who believes Bitcoin is headed to zero is doing holding Bitcoin in the first place.

That said, I find it conceivable as some sort of hedge or lottery ticket. I might buy a couple of Bitcoins as a lottery ticket at some point in the future.

Amusingly, Bitcoin Jesus once gave me 1/100th of a Bitcoin back when it was worth 30 cents or so and I have no idea where it is. I certainly don't blame Bitcoin Jesus or Bitcoin for my loss of the key.

Loss of keys is a side issue. Supply analysis is the real issue and point of this post.

Bad Analysis and Poor Projections

The true supply of Bitcoin is every Bitcoin ever mined, barring accidents like Schiff's.

If there were no Bitcoins mined starting tomorrow, the supply of Bitcoin would not change. It would be constant from here on out.

The same is true for gold and for that matter every asset in general.

Someone MUST hold every stock, every bond, every dollar, every ounce of gold, and every Bitcoin ever mined, 100% of the time.

Supply of Bitcoin and Gold Constantly Rising

Unlike bonds which can mature and shares that can be repurchased by corporations, the supply of Bitcoin and Gold is constantly rising, albeit at a decreasing rate.

It is absurd to project the future price of Bitcoin or Gold based on a fundamental misunderstanding of supply.

Every day, holders Bitcoin and gold holders have to decide whether to hold or sell. That is the supply.

Moreover, the supply of Bitcoin is much more liquid than the supply gold. No one holds Bitcoin around their necks as jewelry.

Bitcoin Supporters Cannot Answer One Simple Question

I still await a reasonable answer to Bitcoin Supporters Cannot Answer One Simple Question

What would happen to the price of Bitcoin if the US did not allow merchants and banks to make Bitcoin transactions?

That's a very simple question that I have been asking for months. My reason for asking is based on a simple premise: If central banks or governments are ever threatened by Bitcoin, they will destroy it.

What If?

The best answer to date is along the lines of what if the sun explodes.

For example, one person asked "What is stopping the EU, US or China from immediately taxing all blog revenues at 30%, 40%, 70%?"

Yes, I posed a hypothetical, but it is not an unrealistic one. Central bankers are very concerned about Bitcoin. They are not concerned about any other asset class, at least at the moment. Central banks are certainly not concerned about blog revenues.

While one can pose all sorts of "what if" questions, some are reasonable, others are not.

It is naive to believe Central Banks cannot squash Bitcoin if they want to. Whether or not they will want to depends on how high the price of Bitcoin rises.

Supply Side Analysis

I am not going to convince any true Bitcoin believers based on "what if" issues.

Heck, I am unlikely to convince anyone of anything at anytime at all.

Regardless, the main point of this article is a 100% mathematical certainty: The supply of Bitcoin, ignoring accidental losses like Peter Schiff's, is constantly rising.

Misconceptions Abound

Analysis based on alleged falling supply is fatally flawed.

Misconceptions about in gold as well, in supply analysis and as related to the dollar.

In contrast to widespread belief, Since 2015, Gold Surprisingly Correlated With the US Dollar

Mike "Mish" Shedlock

Comments (43)
No. 1-17
leicestersq
leicestersq

"The best answer to date is along the lines of what if the sun explodes."

Mish, you did not critique the previous answers we gave. I am not sure where you got this quote from, but I don't think it is much of an argument to take an individuals ridiculous quote and tarnish everyone else with it.

Now in terms of the previous answers, someone said that the price of bitcoin would fall if one or more central banks banned transactions, at least in the short term. That is the correct answer, simply because it would have a immediate and direct effect on the demand for bitcoin. As supply of bitcoin is pretty static in the short term, then as demand falls then the price must fall.

I argued that the longer term effects wouldn't be quite so clear. If people want to transact in bitcoin, then that wish to do so might override any intervention by a central authority. A central bank is not a God, it doesn't always get its way. The longer term outcome would be decided by people's choices and the intrinsic usefulness of bitcoin to solve people's problems.

Long term then I think we agree, the future price of bitcoin is unknowable. But I think that your question was fairly answered.

gravity zero
gravity zero

Not sure I agree with the idea of what would happen to bitcoin if governments banned it. I mean what current examples do we have. Cannabis, as with all other drugs cost more when the Government bans it. This can be clearly seen in the current legalization in the US. States. Where Cannabis is illegal it is far higher priced than legal states. What about illegal firearms. Guess what? Same thing. You fail to understand that crypto is used by freedom lovers, who would most likely ignore the government, as the government was most likely why they started using crypto in the first place.

Scooot
Scooot

You can use cannabis & firearms, what can you use bitcoin for and would you still be able to use it if it was banned?

Monty47
Monty47

I think it is a mistake to view Bitcoin within the context of its utility as a currency. The blockchain technology that underpins Bitcoin was never designed to support a high volume of transactions. Bitcoins' value is rooted in its secure structure for transferring large quantities of capital (mostly illicit) from one country to another. Therefore, its value resides within the 1% of the 1% who's needs are well served by Bitcoin.

njbr
njbr

Bitcoin without internet access?

Hardly an "off the grid" tool.

john_byrne
john_byrne

Here is something I don't get about Bitcoin (when compared to gold): gold is not only rare, non-perishable, compact etc. - it's also reasonably unique in those characteristics. We can be fairly confident that no one is going to discover another substance than can replace gold. Bitcoin may be rare and convenient etc. but there's no limit to the number of identical systems we can create. Imagine if gold was only one of a thousand metals with those properties, and new examples were being discovered on a regular basis. Since that is possible with Bitcoin, how can it be worth anything?

Latkes
Latkes

Bitcoin and gold are not even in the same league. Unlike gold, all Bitcoin can be completely destroyed in a very short time. It's just ones and zeroes on some computers after all.

ColoradoAccountant
ColoradoAccountant

Bitcoin loses all utility if the grid is down. You can use cash at the corner store without electricity. Gold has infinite uses. It is great at transmitting electricity. Just too expensive to use for wiring your house or high transmission lines. It is used in computers and on the shields of astronauts in small quantities.

AWC
AWC

What’s the supply of electrons out there? Every atom has electrons spinning around it. So, how many atoms are there?

That aside, couldn’t help but notice the “ Virtual Currency” line on the new tax form.

Germ
Germ

To be fair to Peter, he does expain how he came to own Bitcoin. He didn't buy any himself: https://www.youtube.com/watch?v=3iFolFv4RV0&t=7m19s

Germ
Germ

Go to 7min 29 sec mark in the vid.

Latkes
Latkes

A dedicated rogue entity can literally take over all Bitcoins in existence. That is not possible with gold.

AWC
AWC

Virtual currency, bitcoin, is convertible to virtual currency, dollar, is convertible to real money, gold and silver.

Unless one believes all the worlds claims against the dollar can actually be redeemed?

Tony Bennett
Tony Bennett

"If central banks or governments are ever threatened by Bitcoin, they will destroy it."

...

Absolutely.

In case anyone missed the obvious, TPTB are moving us toward a cashless society, BUT in a way they control. With control they will be afforded the opportunity to tax any / all transactions if desired ... and Wall Street will get their pound of flesh by skimming (processing) each and every transaction. ANYTHING that threatens this honey pot on the endangered list.

charlly
charlly

I am very poor at these kinds of knowledge. But I really want to know more about economics, Bitcoins and everything associated to the economy. Hostsailor I expect that the posts in this site will help me for that.

cryptojeetu
cryptojeetu

Bitcoin cannot be banned by any single government or central bank, it is a decentralized network. If you don't understand decentralized network, educate yourself. If the internet gets shutdown, there are bigger problems than Bitcoin. People will value daily needs over money, things like bread will hold more value. Gold will be useless. Gold can be confiscated by the border patrol agents when leaving country, ask Venezuelans. Gold has been confiscated by the US govt in 1933, Bitcoin cannot be confiscated. Because you can keep bitcoins in ur brain, all you need is to memorize 12 words also know as wallet seed or backup for your wallet. Bitcoin is a internet native money, the future economy will be driven by internet and you need something which works seemlessly with the internet and Bitcoin fixes this. Gold is not divisible and is not money. The cumbersome nature of gold is what gave birth to fiat money or paper notes. Why would anyone go back to a gold system, makes no sense. Gold is a relic.


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