Quote from: BitconAssociation on May 03, 2016, 01:21:43 AM

^^You misunderstood me. The supply/demand chart simply doesn't apply when you're buying money with money. The more a dollar is worth, the more you want it.
Let's say there's an imaginary coin called Bitcoin. See fig. 1 below.

Fig. 1

1. Let's further say that there's a queen, we'll call her Satolestia, who is totally trustworthy and buys and sells those coins for exactly 1 US dollar. She promises to buy all the coins we have to sell, forever, and we trust her, because she's a queen and also an imaginary one, the kind that doesn't lie.
If we're bored enough, we'd buy and sell those coins from/to Satolestia day in and day out. Pretty pointless, but hey...

2. ...until Satolestia changes the terms: she starts charging a penny more, but still pays a dollar when we sell her a coin.
Wat do?
Obviously, the dumb thing to do would be to keep buying, and losing a penny a coin. But we're in it for PROFIT, so we stop buying altogether. Not just some of us, not slow down our buying, but both of us. Stop buying. Because buying shit for $1.01 and selling it for a penny less is an excellent way to go broke.
Which we don't wanna do.

3. Conversely, if Satolestia starts charging us 99 cents per coin, while still paying a dollar, we'd be on that shit like white on rice -- we'd go into a frenzy, buying a coin and selling it right back to Satolestia at a profit, rinse, repeat, until we're satiated.

You see where I'm going with this?
It doesn't matter to us how many dollars or how many Bit coins there are, the only thing we need is the price, and knowing what someone will pay for our coin. This is an imaginary thing, we know exactly what Satolestia will pay (because she told us & does not lie), so the problem is trivial: If Bitcoin price is < a dollar, buy; If => dollar, don't.

The fun part -- and what makes purely speculative assets fun, is that there is no Satolestia. We have to guess what people will be willing to pay. We might convince them that our Bit coins are worth more than a dollar because there's a limited number, but you and I know that's just a pitch, a nice backstory, a coldblooded thing to say to a motherfucker before you put a cap in his ass.

Other than "too many words," do you see what I'm saying?

I agree with you in principle *general,* but there is still a supply and demand curve. Here's why:

Quote

We have to guess what people will be willing to pay.

BUT, we are aware that our guesses are not perfect. So consider my portfolio: I am a young college student and therefore have a small income and few assets. I do like to invest though, especially since, at my age, I have a huge potential to benefit from compounding by the time I retire.

Now, Bitcoin has the highest possible upside of ANYTHING I invest in. My stocks may return as much as 100% in a really good year, but there is a chance that Bitcoin could return as much as 2,000% if it has a really good year. My bonds, savings account, and p2p lending investments don't even come close.

Let's assume that I'm a rational person. What should I do? Well, I could invest everything in Bitcoin because it has the highest potential return, but that would be risky. Let's say I believe there is a 10% chance of a really spectacular return, a 50% chance of a good return, a 35% chance of losses, and a 5% chance Bitcoin becomes worthless. It has positive expected value but also high risk.

So, I should invest SOME but not all of my portfolio in Bitcoin, which is what I have done. So let's say I want to invest 10% of my portfolio in Bitcoin and I have $10,000 to invest (just making up numbers here).

I'd invest $1,000 regardless of price.

I'd invest the following:

   1,000 BTC if they cost $1.
   100 BTC if they cost $10.
   10 BTC if they cost $100.
   1 BTC if they cost $1000.

Meaning this is my demand curve:

Now of course this is just my personal demand curve, and it also changes based on my personal expectations of future returns. That said, there will still be some kind of curve for every participant in the market. For some people it will be vertical, for some people it might be highly elastic, but there will be a curve for the market.

Also, remember the willing and able part. I might think that Bitcoin is an excellent value at $100 per coin and be willing to buy nearly infinite BTC. However, If I only have $1,000, I can buy only 10 BTC. At $10 per coin, I can buy 100. Once again, that creates a downward sloping demand curve.

On the supply side, I suspect there is an explanation of why there would be a curve (for example, the opportunity cost of holding Bitcoin: USD is more widely accepted. At higher prices, you get more goods per Bitcoin by selling) but the point of my diagram was not to provide an exact picture of the market. Let's assume you are correct and there is no supply curve but rather a supply "point" (or vertical line).

[NB: Once again, the assumption is that not all owners of Bitcoin are willing to sell at the current price (I think exchange volumes prove this (and also suggest the existence of a supply curve) and that miners sell most of what they mine.]

The point moves around unpredictably based on all the different factors that control whether or not participants in the market (on aggregate) are inclined to buy, sell or hold at a given price. One factor though, block reward, is KNOWN to be positively correlated with supply. So a decrease in the block reward will, as one of many factors, tend to reduce supply.

So cetaris paribus, the block halving reduces supply. Reduced supply with results in higher prices as long as the demand curve does not change. The demand curve could change, but probably not as a result of the halving.

I'm not trying to argue that we *will* see a spike in price, rather, that the effect of a block reward halving is one of many factors that could contribute to higher prices. It's possible that expectations have overbid prices now and that, as a result, they'll actually fall. But, over the long term, prices should average higher with a reward of 25 than they would have with a block reward of 50.