Ah, a few pages back I see some people who only have half of the price equation (very important to have the whole equation when we are discussing the infamous topic of "What bitcoin prices will do if it is made illegal [in an unspecified number of countries] partially due to Gox's stunt")
The basic economic misconception is that price = demand.
Using that equation, demand will go down since "Joe Schmoe" listens to his government and doesn't want to go to jail.
Reality? Price = supply vs. demand.
Will making bitcoin illegal affect demand but not affect supply? Absolutely not, this is preposterous.
Supply will also go down. (Yes, technically speaking supply is fixed, but bear with me here.) Some exchanges would have to shut down, either having been made illegal, or having no legal funding/withdrawal methods. This would technically reduce supply (yes I know miners are the supply, but exchanges serve an important role as middleman. In the same way that poppy fields still exist, but drug stores do not stock heroin, therefore, price goes up due to reduced ACTUAL supply to consumer.) Institutional miners/mining farms would have to shut down as their operations would be illegal. Only "criminal" anonymous miners and "criminal" OTC dealers would be significant suppliers of bitcoins, and liquidity would be an issue. Sure, roughly the same amount of bitcoins could be created, but it would be harder to get it to the consumer. You could grow huge fields of marijuana... and then get arrested.
And since we love drug analogies so much, what is another way that supply would be reduced? Well, what does the government do when they seize thousands of kilos of cocaine and marijuana? They burn it, destroy it. Sure, occasionally they smuggle it in and sell it themselves, but for the most part it is destroyed. What will they do whenever they uncover some teenager's basement mining farm? Will they sell the bitcoins on the ILLEGAL open market? No, just like with drugs, they will send the coins to a trash address using proof of destruction (yes, proof of destruction is possible in the protocol.) There is no reason to believe they will treat it any differently. While it is still legal, yes they can auction off DPR's coins. But what about if DPR's coins were not coins but a stash of home-made bombs or methamphetamine? Would they sell those on the open market? No, they are illegal, so they would be destroyed. Yet another way supply would be reduced is by the government confiscating coins and destroying them.
Supply would be reduced to - "criminals" and "criminal" miners.
Demand might be reduced, yes, but by how much is not so apparent. People currently risk jail time in Argentina to buy a currency that inflates less than the Argentinian Peso. And the dollar black rate there is more then the legal rate... Already people risk jail time to sell drugs (made illegal, supply dried up, prices skyrocketed, and demand DID NOT dry up) and they risk lawsuits to download music and films on bittorrent (made illegal, supply is a little harder to get at, bandwidth skyrocketed, demand skyrocketed).
So when pondering the infamous "What will bitcoin price do if it is made illegal?," be sure that you are considering the price equation as "price = supply vs. demand" rather than just "price = demand." For if you only consider the effects of litigation on demand, and not the effects of litigation on supply, you will surely get Goxxed by your government when the time comes
The basic economic misconception is that price = demand.
Using that equation, demand will go down since "Joe Schmoe" listens to his government and doesn't want to go to jail.
Reality? Price = supply vs. demand.
Will making bitcoin illegal affect demand but not affect supply? Absolutely not, this is preposterous.
Supply will also go down. (Yes, technically speaking supply is fixed, but bear with me here.) Some exchanges would have to shut down, either having been made illegal, or having no legal funding/withdrawal methods. This would technically reduce supply (yes I know miners are the supply, but exchanges serve an important role as middleman. In the same way that poppy fields still exist, but drug stores do not stock heroin, therefore, price goes up due to reduced ACTUAL supply to consumer.) Institutional miners/mining farms would have to shut down as their operations would be illegal. Only "criminal" anonymous miners and "criminal" OTC dealers would be significant suppliers of bitcoins, and liquidity would be an issue. Sure, roughly the same amount of bitcoins could be created, but it would be harder to get it to the consumer. You could grow huge fields of marijuana... and then get arrested.
And since we love drug analogies so much, what is another way that supply would be reduced? Well, what does the government do when they seize thousands of kilos of cocaine and marijuana? They burn it, destroy it. Sure, occasionally they smuggle it in and sell it themselves, but for the most part it is destroyed. What will they do whenever they uncover some teenager's basement mining farm? Will they sell the bitcoins on the ILLEGAL open market? No, just like with drugs, they will send the coins to a trash address using proof of destruction (yes, proof of destruction is possible in the protocol.) There is no reason to believe they will treat it any differently. While it is still legal, yes they can auction off DPR's coins. But what about if DPR's coins were not coins but a stash of home-made bombs or methamphetamine? Would they sell those on the open market? No, they are illegal, so they would be destroyed. Yet another way supply would be reduced is by the government confiscating coins and destroying them.
Supply would be reduced to - "criminals" and "criminal" miners.
Demand might be reduced, yes, but by how much is not so apparent. People currently risk jail time in Argentina to buy a currency that inflates less than the Argentinian Peso. And the dollar black rate there is more then the legal rate... Already people risk jail time to sell drugs (made illegal, supply dried up, prices skyrocketed, and demand DID NOT dry up) and they risk lawsuits to download music and films on bittorrent (made illegal, supply is a little harder to get at, bandwidth skyrocketed, demand skyrocketed).
So when pondering the infamous "What will bitcoin price do if it is made illegal?," be sure that you are considering the price equation as "price = supply vs. demand" rather than just "price = demand." For if you only consider the effects of litigation on demand, and not the effects of litigation on supply, you will surely get Goxxed by your government when the time comes