Bitcoin Dynamics

bitcoindynamics
Amplification

A group of coordinated wealthy individuals or businesses could have a large impact on the market. The way the buys and sells are setup is that people make a bid to buy or sell a certain number of bitcoin at a certain price. There are only so many bitcoins listed on the market. If someone wanted to buy 10,000 bitcoins, then they would not be able to buy that many at the current market rates. There might only be 100 listed within +1% of current price, 1000 withing +5% of current price and 10,000 within +20% of current price.

If they wanted 10,000 bitcoins, then they would have to buy some of those bitcoin from sellers that list their price at higher than the current market rate. This would in turn bring the rate up. A single exchange might not be able to handle that many bitcoins without the price skyrocketing to +100% of current market rate. The wealthy individual would be better off buying 1,000 bitcoins from each of the major exchanges. They would need to buy a percentage of these bitcoins each day over a longer period of time in order to not cause a spike in the price. However, they would risk that the price goes into a temporary bubble or a longer term increase in price and they would end up paying more for the bitcoins then they would have if they just bought 10,000 outright. The market is extremely volatile! There would need to be a carefully planned entry into the market for these individuals to get a maximum amount of bitcoin for the most minimal price possible. There would be no perfect solution for this. It is a gamble on the unknown of the market.

High Prices

The high price of bitcoins are making it so average people will not buy or use Bitcoin. The prices need to come down so that people will buy them and use them. The actual price is irrelevant to their use since it is interchangeable with the USD. There are currently only 13.8 million bitcoins and there will only ever be 21 million. There are 8 digits on the left of the dot and 8 digits on the right: “13,800,000.12345678”. There is plenty of divisibility here. The high prices have a psychological effect on people in both directions – some people like the fact that the price of a single bitcoin is higher rather than there being 13 trillion bitcoins and there only ever being 21 trillion bitcoin. If the dot was shifted to the left 6 places like this 13,800,000,000,000.12 then, it would be fundamentally the same. Some people would prefer this for purely psychological reason.

Once more people use Bitcoin, then the value of the market will increase. Once the value of the market increases, bitcoins will have a higher price tag. The price will find an equilibrium between this and an uncountable (maybe countable) number of other factors. The price to mine a bitcoin will be factored into the price. Why would someone pay $400 for a bitcoin when they can mine one for $300 or less? The price to mine a bitcoin has been decreasing. This decrease will hit a critical point and then start getting more expensive to mine. The halving of the block reward that is predicted for around 2016 will make for a price increase of a possible factor of 2.

Moore’s law suggests that computing power on a processor doubles every two years. For the ASICs that mine bitcoin, they have doubled every 6 months. This has huge implications in of itself! This will make it cheaper and cheaper to mine bitcoin. However, if the demand for bitcoins increases to a number larger than what the miners are generating and selling, then current bitcoin holders will sell their holding or the price will rise significantly. Buyers will have to be willing to spend the higher amount of cash for a bitcoin or wait for someone to sell at a lower price. That might not ever happen. Some people depend on selling their bitcoins to pay their bills, so they can’t wait forever to sell – they are forced to sell at low prices. All of these factors will make for a natural & free market. There could be short-lived crashes and bubbles, but I think the price will stay at around the price of mining with the supply & demand factored into some complex equation.

Hot Commodity

People will want to get into Bitcoin. They have seen the potential. The psychological effect of 1 bitcoin is going to have an impact on the price of a bitcoin since there are only 14 million bitcoins now and there will never be more than 21 million. It wouldn’t be hard to see a market of millions of people in Bitcoin in the near future. A significant number of people will, psychologically, want at least one whole bitcoin. It will be a milestone. Investment firms are hiring people specializing in Bitcoin. This will attract wealthy individuals that want more than just one bitcoin. They will be pitching Bitcoin to investors that have large quantities of money and to average people. Some of them will want to buy one, tens, hundreds, thousands or tens of thousands of bitcoins or more. Bitcoin is a very powerful network that is capable of scaling to handle a large portion of national and international transactions for a much cheaper price than what is currently available. It will be a great asset that should increase in value & price.