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102 sats \ 11 replies \ @Undisciplined 15h \ parent \ on: Fama: Bitcoin is Dead (Promarket/Capitalisn't) econ
I like using Darth here, because we know his demand for Forkcoin is zero. Therefor, there is no corresponding increase in Forkcoin demand.
It's better to imagine this as something like an inheritance, rather than airdrop, so that the total stock remains unchanged. All that's happening is the willingness to exchange those Forkcoins increased.
The demand for Forkcoin is unchanged, because nothing changed amongst the holders of bitcoin: no one in this example became more willing to buy.
What's happening is that Darth is taking what was an unrealized offer. The offer was unrealized precisely because no one was as willing to part with their Forkcoin as Darth is. On the other end of the exchange is someone who was unwilling to part with their bitcoin for any of the available Forkcoin offers. It's only because Darth is offering more that the exchange happens.
Hopefully, that illustrates why an increased willingness to part with a fork coin will in fact lower it's price.
If not, I'll try to write up a whole parable and throw in some supply/demand schedules.
It's only because Darth is offering more that the exchange happens.
If Darth's offer to sell forkcoins on the cheap represents an increased willingness to sell forkcoin, so does the fork coin enthusiast's acceptance of the offer represent an increased willingness to sell bitcoin. He wouldn't have sold his bitcoin unless Darth showed up.
At some point, the unrealized offer creator decided they wanted to hold forkcoin more than bitcoin. This was a change in the willingness to sell bitcoin. I don't see why it should be excluded from our analysis.
an increased willingness to part with a fork coin will in fact lower it's price.
Following this logic, if both coins have an increased willingness to sell, both coins will have lower prices ... which is illogical.
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so does the fork coin enthusiast's acceptance of the offer represent an increased willingness to sell bitcoin.
No, that stayed the same in this example. They had a reservation price for their bitcoin and were waiting for someone to be willing to pay it. It's excluded from this analysis because it isn't what's changing in this example.
What you're right about is that there's no way to tell, a priori, which coin is being "dumped". That's an assessment we make after the fact, once we've seen how the prices move.
The symmetry that you're highlighting isn't the relevant one, though. Yes, there is someone on each side of these trades, but the terms of the trades are changing with the sentiments about either coin.
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Well, I appreciate your patience in explaining your viewpoint here.
I still disagree that the symmetry isn't relevant.
The forkcoiner made a choice at some point that they would be willing to trade btc for forkcoin.
If Darth's decision to sell fork coin represents a change in willingness to sell fork coin, so too does the forkcoiner's decision represent a change in willingness to sell bitcoin (even if it was made long before Darth's).
And further, if you argue that it is this change in the willingness to sell fork coin causes the price of fork coin to go down, the same logic means that the forkcoiner's change in willingness to sell bitcoin causes the price of bitcoin to go down.
Excluding it from the analysis doesn't make sense to me. Darth's trade relies on the existence of this reservation price. Pretending that the same rules don't apply to it as apply to Darth's trade is not logical.
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I feel like we might be getting somewhere, now.
The forkcoiner made a choice at some point that they would be willing to trade btc for forkcoin.
Yes, perhaps at the time of the fork, but their increased willingness did not affect the price because their reservation price was above the market rate. It wasn't until Darth received the Forkcoin, which increased its supply, that this trade happened and became the new market clearing price.
Pretending that the same rules don't apply to it as apply to Darth's trade is not logical.
Correct, and we aren't doing that. The point is that Darth looking to unload these Forkcoins at whatever price he can get is what made that transaction possible and that transaction occurred at a different price than what had previously cleared the market.
What you're bringing up is relevant, in that this new price (bitcoin/forkcoin) would have been even lower had Darth's counterparty not been willing to sell their bitcoin at that price. All the same rules apply equally to both sides.
Excluding it from the analysis doesn't make sense to me. Darth's trade relies on the existence of this reservation price.
It's excluded for two reasons, one was just given above, and the other is that we try to focus on one change at a time. That's the famous ceterus paribus approach that economists love so much
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Okay, let's reverse the situation and think about this from the point of view of a fork coiner who wants to crash the price of bitcoin because they want their fork to "win."
The forkcoiner sells their btc at a super low rate.
Sure, the market rate was 1btc:10fc, but they are willing to trade 1btc for only 5fc because they want to crash the btc price (Just like Darth was willing to trade his forkcoin for less btc than others). They are willing to unload their btc coins at whatever price they can get.
Does this decrease the price of bitcoin?
If it does, does this mean a bitcoiner choosing to acquire the most bitcoin they possibly can (at the lowest rate of fc:btc) will actually decrease the price of bitcoin (and by the logic of this situation "harm" the bitcoin side of the fork)?
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Does this decrease the price of bitcoin?
Yes, it does lower the bitcoin price, other things equal.
If it does, does this mean a bitcoiner choosing to acquire the most bitcoin they possibly can (at the lowest rate of fc:btc) will actually decrease the price of bitcoin (and by the logic of this situation "harm" the bitcoin side of the fork)?
No, they are taking bitcoin at whatever exchange rate they can get it, which will be higher prices. They either have to outbid the other market participants or pay enough to entice new sellers to make exchanges.
What matters here are the elasticities of the two currencies. The coin that prevails will be the one who's price is less sensitive to shifts in supply/demand.
If the best offer Darth can find requires giving up a greater quantity of Forkcoin than he gets back in bitcoin, that means bitcoin is winning the dumping contest.
Yes, perhaps at the time of the fork, but their increased willingness did not affect the price because their reservation price was above the market rate.
Every sell order of forkcoin is a buy order of something else. In our example, it is a buy order for bitcoin.
A sell order for bitcoin above market is a buy order for forkcoin below market. It does not make sense that market dynamics matter only when viewing the trade from one side and not the other.
If increased willingness to trade affects price when the willingness to trade is at a level that is below the market price, it also affects price when viewed from the other side of the trade (above market price).
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Sell orders above market price and buy orders below market price do not directly affect exchange rates, because they do not result in a trade.
Darth's sell order is below the market price and his buy order is above. That's why it results in a new transaction that moves the price.