Quote from: BitcoinAshley on February 28, 2014, 04:09:57 PM

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.]")

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. Some exchanges would have to shut down, either due to being made completely illegal, or having no legal funding/withdrawal methods. This would reduce supply. 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.

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 Wink

The supply = (all the bitcoins mined to date - bitcoins "lost" due to lost private keys etc.).

The local bubbles of scarcity are balanced by local surplus bubbles (a guy trying to sell bitcoins without interested buyers).

*As far as black market value of currency, it is driven by white market value of that currency. If there was no way to spend the dollar, its black market value would be close to zero.