pull down to refresh
17 sats \ 8 replies \ @Undisciplined OP 5h \ parent \ on: Is increased merchant adoption reducing bitcoin's purchasing power? econ
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.
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
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,
reply
reply
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.
reply
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?
reply
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?
It's not when the exchange is agreed to that supply increased. It's when the preference shift happened that made the buyer willing to make that exchange. I think this is the conceptual point you're missing.
At some point in the past, this seller did increase their demand for bitcoin, just not at the time of this hypothetical transaction. That demand increase happened when their preference for acquiring bitcoin increased, which is unspecified here.
So, when steak and shake announced they would accept bitcoin at many of their establishments, did demand for bitcoin suddenly increase?
Yes. Why don't you think so? The business became more willing to acquire bitcoin which is what demand is. This would be different if they were immediately converting it to fiat, but I think they're saving it.