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42 sats \ 7 replies \ @Scoresby 5h \ parent \ on: Is increased merchant adoption reducing bitcoin's purchasing power? econ
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?
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?
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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.
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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.
Thanks for distilling this do clearly. I do believe this is where I disagree.
I don't see how preferences-yet-to-be-acted-upon can count as changes to supply or demand.
First, we don't know how real they are until an exchange happens. (If I say I want 5 bitcoin at $200k per bitcoin, and then you come to make the deal and I say I don't have $1m, it's just a waste of everyone's time -- no real market info). Second, we don't know what such an entity plans on doing with the thing they demand (as you point out: "This would be different if they were immediately converting it to fiat, but I think they're saving it.") Perhaps they know someone who wants to buy it at some higher price? Perhaps they plan on burning the coins out of zealotry.
The only thing we can know about demand is the trades that actually happen.
The business became more willing to acquire bitcoin which is what demand is.
We dont actually know this. It is possible that S&S was buying bitcoin with their fiat profits, but it was costing them $120k per btc and they realized that by accepting it in exchange for their delicious comestibles they could acquire it for $95k per btc. Possibly, their willingness to spend on bitcoin actually decreased! We just don't know.
All we know is that S&S demands 15k sats or whatever for one of their hamburgers and that the people who don't engage in this trade demand 15k sats more than a S&S burger.
This argument of mine doesn't leave me in a very easy place, though, does it? It feels to me like I'm saying: there is no such thing as supply, only various levels of demand for various things. Or maybe better put: supply is your trading partner's demand for what you have to offer.
I'm trying to think of why I even bother with holding my stance. Your view of supply and demand seems useful, while this contortionist view of mine does not.