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42 sats \ 3 replies \ @Scoresby 8h \ parent \ on: Is increased merchant adoption reducing bitcoin's purchasing power? econ
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?
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.
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Alright. Time for some unpacking.
First, we don't know how real they are until an exchange happens.
True, but just because we can't know until then doesn't mean it wasn't a real preference shift.
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
Also true. This is purely cheap talk and has no market relevance. Oftentimes, you'll see people say there must be a willingness and ability to buy or sell. Personally, I just find statements like the one in your example confusing and meaningless, because I think they contain about bunch of unspecified implied assumptions.
Remember, though, that the vast majority of supply or demand curves exist well outside of the range of current market prices. They are mostly counterfactual sets of market outcomes.
we don't know what such an entity plans on doing with the thing they demand
Correct. Even though, I've been trying to be clear about what supply and demand are, I think I may have introduced some confusion by not distinguishing between individual and aggregate supply and demand.
We each have our own demand schedule for all goods and services on the market, and no one knows exactly what those are, including ourselves, but there is some quantity of each thing that each of us would purchase at any given price. Aggregate demand is the summation of all of those individual demand curves.
as you point out: "This would be different if they were immediately converting it to fiat, but I think they're saving it."
It would have been clearer to say that Steak n Shake's demand for bitcoin increases either way, but if they are immediately converting it, then that's less of a demand increase than if they save it. This is something we can infer from their actions, because when they save it they're signaling that they want bitcoin at greater than the current market price. "Why aren't they just buying it then?" I hear you asking. Good question, that I don't know the answer to, but suspect it has something to do with uncertainty or cash flow. A copout answer would be that they value it above the current bids, but below the current asks.
We dont actually know this.
We do, but this is also where things get a little weirder. They became willing to accept bitcoin in exchange for "their delicious comestibles" when they had previously been unwilling to at any known price. That's a demand increase, but it's not necessarily a demand increase on the fiat-to-bitcoin exchange channel. Since they didn't simultaneously lower their comestibles' prices in fiat terms, we can rule out a supply increase as the explanation.
As with all of our related discussions, the weirdness really enters the picture because we're discussing competing currencies and so there's supply/demand in terms of each currency and available goods, as well as the currencies with each other.
Possibly, their willingness to spend on bitcoin actually decreased! We just don't know.
Yes. Lots of stuff could be happening. Ad arguendo, I ruled out other motivations than just wanting to accept bitcoin. Everything else is assumed constant.
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.
Yes, but as argued above that doesn't matter a ton, because we don't know most of the points on either the supply or demand curve (and those curves change with each transaction).
supply is your trading partner's demand for what you have to offer
You can go down this path. Rothbard presents a framework very much like this in Man, Economy, and State. I won't be able to do it justice without some review, though.
To me, the central difference between supply and demand is that supply is how much we value things in our possession already and is thereby constrained by our inventory, whereas demand is how much we value stuff other people have and is constrained by our purchasing power.
You can collapse those into one concept by thinking of money as just another good in your inventory. Then, you might say that you're willing to supply 15k sats in exchange for increasing your burger inventory by one unit.
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.
I can't say, but I do enjoy these conversations.
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