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52 sats \ 9 replies \ @Scoresby 6h \ parent \ on: Is increased merchant adoption reducing bitcoin's purchasing power? econ
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.
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.
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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?
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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,
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No, because their preferences didn't change. All that happened for the recipient of the bitcoin is they went from having no buyers willing to meet their reservation price to one buyer willing to meet that price, but their willingness to accept bitcoin was constant.
That's prior to the exchange, though. After the exchange, both parties will update their willingness to exchange bitcoin to reflect their new budget constraints. The spender's demand for bitcoin will likely increase, while their supply of bitcoin will likely decrease (and the opposite will hold for the recipient), as a result of the transaction.
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No, because their preferences didn't change.
If a hodler increased supply when they agreed to the exchange, but the merchant did not change their demand, what happened when the merchant first announced they would accept bitcoin at that rate? By the logic we are using, the merchant increased demand at that point.
So, when steak and shake announced they would accept bitcoin at many of their establishments, did demand for bitcoin suddenly increase?
I don't think so. This is why I'm struggling with the line of reasoning that says "deciding to sell is an increase in supply." Because it implies "deciding to buy is an increase in demand."
And yet, anytime a hodler sells bitcoin it is because someone else buys bitcoin. And so, whatever increase in supply we find is matched by an increase in demand. How can it be any other way?