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You've mentioned on the last couple of podcasts that Bitcoin's price is unknown because only a fraction of the available supply is being traded (hodl-ers have the rest). But it's a function of economics that price is set at the margins.

Imagine owning 3 bags of wheat. The first bag you set aside for it's highest use (for you): making bread for your family. The second is set aside for it's second highest use: feeding your chicken. The third, since you have it, you'll use to throw on your garden and mulch over to feed the worms. Since that last (marginal) bag is the first you'd get rid of (actually, the use of the third bag--which physical bag is irrelevant), the price you'd accept to get rid of it is the value you place on feeding the worms. That's the price.

If Bitcoin jumped to $1M in the morning, there'd be a lot fewer hodlers.

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Discussion

Nunya Bidness 2y ago

Agreed but my focus is on the amount of differential. It’s such a slim margin. Like anorexic.

DiscordantSkies 2y ago

So, the difference between bag 3 (worms) and bag 2 (chickens) is a large margin? Probably true, we're still very much in price discovery for Bitcoin (and not all B has been mined, and therefore isn't in some (acting) person's wallet).

I *think* I get your point (price is volatile and unrepresentative), but I don't think it's the small amount of Satoshis that are actively traded. Even in a mature market, only a fraction of supply is ever actively traded. It seem more likely that it's because it's a young market and manipulators (e.g., Greyscale) have undue influence.

Hmmmm, maybe we're saying the same thing. My economics 101 spidey senses just really don't like the way you're saying it.