pull down to refresh

Is increased merchant adoption reducing bitcoin's purchasing power?
3470 sats \ 23 comments \ @Undisciplined 13h econ
I don't know if this is part of the story of why NGU has been underwhelming, but I haven't seen anyone else bring it up.
The campaign to get people to spend their bitcoin, to the extent it's successful, will reduce bitcoin's short term purchasing power, because it is a direct increase in the supply of bitcoin.
"INCREASED SUPPLY OF BITCOIN!?! THAT'S IMPOSSIBLE!!!" I hear you screeching at me.
That's not what "supply" means, though, when we're discussing "supply and demand" (although it is what's meant by "money supply". Thanks economists)
In the simplest terms, "supply" is how much is available at different prices, not the total amount in existence. Convincing someone to spend their bitcoin more readily moves it to merchants who are perhaps more willing to exchange it for their local fiat (for instance, all the Square terminals accepting bitcoin and automatically converting it into dollars). That makes more bitcoin available at current fiat prices; i.e. higher supply.
Now, most of us expect (I think) that the increased usability of bitcoin will increase demand for it, which will lead to greater purchasing power, eventually. Increased usability comes before general awareness of increased usability though, which means purchasing power will fall before it rises (ceteris paribus).
Anyway, just some random ~econ musings. Might have nothing to do with anything.
write
preview
related posts
97 sats \ 9 replies \ @Scoresby 8h
Ah, the ugly beast of supply and demand raises again its hoary head...
That makes more bitcoin available at current fiat prices; i.e. higher supply.
The person who spent the bitcoin was already willing to exchange it at current fiat price. And the merchant presumably will not so exchange it to another person at a loss. So their demand for the bitcoin is equal to the previous holder's demand for fiat.
I see no increase in supply / change in demand.
reply
102 sats \ 8 replies \ @Undisciplined OP 3h
The person who spent the bitcoin was already willing to exchange it at current fiat price.
Ahh, you're omitting the other component to supply or demand: they were willing (in some sense) but they were not able because they didn't have any. The bitcoin moved from hodl'ers who were persuaded to start spending it to merchants with much lower reservation exchange rates.
The supply increase really happens at the willingness-to-spend-more step. It's not in terms of fiat prices yet, but the exchange rate of bitcoin for stuff increased at that step, which is when the amount of bitcoin available increased (just not necessarily for dollars).
I don't really like talking about money velocity, but if you want to think of increased willingness to spend as increased velocity, you can get to the same place.
reply
42 sats \ 7 replies \ @Scoresby 2h
The bitcoin moved from hodl'ers who were persuaded to start spending it to merchants with much lower reservation exchange rates.
This is what I don't understand: why is the hodler's willingness to spend less meaningful than the merchant's?
The merchant is not willing to sell the bitcoin they receive at a loss, are they? So if they accepted it in exchange for some perceived value, I would think they would only be willing to sell that bitcoin in exchange for a similar or greater value. I can't imagine why we would expect a merchant who accepts bitcoin at a certain level to have any greater willingness to spend than the holder who sold it at the exact same level.
reply
17 sats \ 6 replies \ @Undisciplined OP 2h
The merchant didn't have any bitcoin before they started accepting it in trade (or they had already sold their bitcoin at the current price). The transaction gives them more bitcoin to exchange for fiat, which the customer was not willing to do.
You're confused because these are what economists would probably call irrational preferences, but we know there are bitcoiners who are willing to use their bitcoin as money but are not willing to sell it for fiat.
reply
42 sats \ 5 replies \ @Scoresby 2h
The merchant didn't have any bitcoin before they started accepting it in trade (or they had already sold their bitcoin at the current price).
We assume this because in the example the merchant is auto-converting to fiat, right?
If so, would you say a hodler who sells to another hodler increases the supply of bitcoin?
reply
102 sats \ 4 replies \ @Undisciplined OP 1h
We assume this because in the example the merchant is auto-converting to fiat, right?
Right. You could also infer their different valuations from the fact that the merchant is auto-converting and the customer wasn't.
A hodler who becomes more willing to spend increases the supply of bitcoin. That's basically tautological. However, it might take several steps for that to work through to fiat prices if the spending is with another hodler.
We could contrive scenarios where there's no impact on btc/fiat exchange rates, though, and maybe even where they move the other direction,
view all 4 replies
157 sats \ 1 reply \ @grayruby 13h
Very few people are using Bitcoin as a MoE even if it is growing.
Trading volume on Bitcoin in the last 24 hours was 25B USD.
What I think is going on is the Bitcoin rallied aggressively after Trump was elected but much of it was leverage. Then we pulled back to 75k with the tariffs and have been grinding up and consolidating above 100k since then.
Purchasing power will go up over time as it always does.
reply
40 sats \ 0 replies \ @Undisciplined OP 3h
I suspect that's right. It just occurred to me that people were probably wrong to expect merchant acceptance to correspond with prices going up.
reply
63 sats \ 1 reply \ @Bell_curve 9h
Interesting theory but I think miner profits and ETF flows are the 2 biggest factors affecting NGU
  1. most miners are still struggling to break even and have been forced to sell more bitcoin (hodl less) to stay alive... July and August should be interesting since a lot of miners turn off their machines because hot summer months means higher electric bills
  2. ETF flow is a new important factor to monitor, https://jan3.com/monthly-etf-flows/
reply
0 sats \ 0 replies \ @Undisciplined OP 3h
On the first point, is that because price has stayed pretty flat while difficulty has continued rising?
reply
107 sats \ 1 reply \ @SimpleStacker 13h
Interesting take. I doubt the volume of this is large enough to be a major price determinant but maybe it plays a small role
Also, "supply" is probably the most overloaded term in econ
reply
5 sats \ 0 replies \ @Undisciplined OP 13h
Yeah, probably not relevant at the moment. It might be worth keeping in mind though, as merchant "adoption" picks up.
reply
62 sats \ 1 reply \ @OriginalSize 9h
One bitcoin buys $107,353 right now. That's not too shabby.
reply
0 sats \ 0 replies \ @Undisciplined OP 3h
It's not, but I started wondering about this when people expected the price to rise when Steak n Shake and Square started accepting bitcoin.
I think that was the wrong expectation, and not because there weren't enough people spending bitcoin.
reply
42 sats \ 1 reply \ @OT 3h
I guess it's possible, but I don't think there would be enough merchants to counter the massive buying by ETF's and now companies putting it on their balance sheets.
I think it's just that most people who have been in Bitcoin for some time don't think of it like we do. All the bitcoiners here, on Twitter and nostr are the minority. Most see it as a way to get more fiat and they are selling it.
It's unfortunate, but it is what it is.
reply
42 sats \ 0 replies \ @Undisciplined OP 3h
Fair enough.
I wanted to put this idea out there because I do think it's relevant to how we should think about the effects of increased adoption. We likely aren't in a place where it's a driving factor yet, though.
reply
63 sats \ 2 replies \ @Coinsreporter 12h
Increased usability
The misinformation and most people still not knowing about Bitcoin is the reason for Bitcoin's slow progress.
reply
20 sats \ 1 reply \ @Undisciplined OP 3h
I'm in the camp that thinks bitcoin is making amazingly fast progress.
reply
21 sats \ 0 replies \ @Coinsreporter 3h
I'm also in the same camp but maybe not at the same place.
reply